Zai Lab Ltd (ZLAB) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Zai Lab First Half 2020 Financial Results and Corporate Progress Update Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Billy Cho, Chief Financial Officer of Zai Lab. Thank you. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to Zai Lab's First Half 2020 Financial Results and Corporate Update Conference Call. Earlier this morning, Zai Lab issued a press release providing the details of the company's financial results for the 6 months ended June 30, 2020, as well as recent corporate updates. The press release is available in the Investor Relations section of the company's corporate website at ir.zailaboratory.com.

Today's call will be led by Dr. Samantha Du, Zai Lab's Founder, Chairperson and Chief Executive Officer. We will be joined by Tao Fu, President and Chief Operating Officer, who will provide more details on our pipeline, including upcoming milestones and commercial progress. Jonathan Wang, Head of Business Development, will also be available to answer questions during the Q&A portion of the call. And because each of us are dialed-in remotely, Samantha will take lead on majority of the questions and refer to relevant executives as needed.

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, 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 that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today.

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. We have investors across the world so I truly hope everyone and their loved ones are safe and healthy.

Despite the headwinds brought on by the COVID-19 pandemic, we continue to build and define Zai Lab's leadership through strong execution. We have achieved many milestones since our last earnings call. We're excited to provide you with a full update and also outline what the future holds for us.

Our key accomplishments in 2020 to date include: 2 successful commercial launches in China; an NMPA approvals for Optune; 2 highly strategic business development deals; 3 NDAs accepted with priority reviews; 15 CTAs approved; and 8 trials initiated across our broad pipeline, which now includes 14 clinical stage assets.

As you can see, we were able to overcome headwinds from the COVID-19 pandemic, launching both ZEJULA and Optune in under 6 weeks from regulatory approval and gaining immediate instant support from the medical and payer communities, given the number of patients with unmet medical needs.

ZEJULA was launched in China in late January, and Optune was available to patients on June 30. Our clinical pipelines continues to expand with the addition of 2 highly differentiated late-stage assets, REGN1979, Repotrectinib. REGN1979 allows Zai Lab to establish the hematological cancer therapeutic area with an exciting [opportunity]. Repotrectinib is highly synergistic with our existing pipeline, which further strengthens our lung cancer disease area's stronghold. With a broad and differentiated pipeline, we remain confident that Zai Lab can become a leading global biopharma company, leveraging our capabilities and network to drive the next wave of innovation with transformative impact.

Over the next 3 years, we plan to have a steady stream of approvals and commercial launches in Greater China across multiple therapeutic areas, establish transformative partnerships and advance our internally discovered global pipeline into the pivotal stage.

Today, our portfolio consists of 4 US FDA approved assets with 2 approved launches in China; 14 clinical stage assets with 9 in late-stage development, 2 internal programs with global rights in the clinic; and over 25 clinical trials, planned or ongoing, across oncology, infectious and autoimmune diseases.

Looking to the end of 2020 and into the new year, we'll look to propel our strong momentum forward as we expect to execute our commercial strategy for ZEJULA and Optune in China, we start preparing for additional product launches, expedite the development of our late-stage assets for approval, deliver key clinical readouts and continue to bring in potential best-in-class for first-in-class assets through bolt-on and transformational business development opportunities.

We're proud of our global reputation as a biotech pioneer and a partner of choice in China and remain very confident in our team, strategy and platform, to continue to deliver exceptional execution and growth. This is why I believe that within next 3 years, Zai say can reach our vision of becoming a leading global biopharma company.

We also reached a significant milestone in 2020 by becoming a commercial state company in Mainland China. Our commercial launches for both ZEJULA and Optune are underway and off to a great start. While it's still early to comment on the launch trajectory for ZEJULA and Optune in China, we believe there is significant commercial opportunity for both assets.

Importantly, we are excited about life cycle management opportunities for both products and we're working closely with our partners, GSK and Novocure to aggressively expand in traditional indications. They also continue to strengthen and expand our human capital and global footprint. As of June 30, 2020, we had 859 employees across 7 offices globally, with 366 and 377 employees engaged in R&D and commercial activities, respectively. As one of the leading biotechs and employer of choice, I am confident that we'll continue to attract top talent across all levels and disciplines to continue and grow with the firm.

I am pleased to say, this is a very exciting time for Zai Lab, and our strategic mission is on a global scale. We believe we have the experience and resources required to successfully reach our goal, and our execution track record speaks for itself. As always, we thank you for your continued interest and support. We look forward to keeping you updated with all of our upcoming catalysts.

With that said, I would now like to turn the call over to our President and COO, Tao Fu. Tao?

Thank you, Samantha. As Samantha mentioned, 2020 year-to-date has been a productive and exciting period for Zai Lab across a variety of fronts. We continue to build momentum within our commercial organization with the successful launches of ZEJULA and Optune. We executed 2 highly strategic business development deals, establishing the new hematological cancer therapeutic area and strengthening our solid tumor disease stronghold with the addition of a potential best-in-class targeted therapy. In addition, we expanded our China commercial organization and our global R&D team through the recruitment of top-level talent and significantly strengthened our balance sheet to further enable Zai Lab to bring many more important therapies to patients.

While our press release from this morning provides detailed updates across most of our programs, I'd like to focus my comments today on a few selected programs and near-term catalysts. That said, we'll be happy to answer any questions during the Q&A session on any assets that are not covered in our prepared remarks. I'll start with niraparib or ZEJULA, our PARP inhibitor approved globally for the treatment of ovarian cancer and in development for several other solid tumor indications. We believe ZEJULA is a potential best-in-class PARP inhibitor, given it is the only PARP inhibitor approved in the United States as monotherapy for all-comer patients in the first-line and recurrent maintenance treatment settings. In addition, it has superior pharmacological properties, including once-daily dosing, low drug-drug interactions and ability to cross the blood brain barrier.

As you know, ZEJULA was launched in China in January for second-line maintenance treatment of ovarian cancer patients with over 800 hospitals covered at the time of launch. As Samantha noted earlier, this commercial launch was done with incredible speed, with launch events held both on-site and online. Since the launch, ZEJULA has been included for regional reimbursement in 1 province and 6 cities. It has also been listed in 16 commercial health insurances and 4 provincial and municipal level customized and commercial insurance, underscoring Zai Lab's execution capability in brining important therapies to patients.

In addition to executing on our launch, Zai continues to focus on expanding the commercial opportunity for ZEJULA. Our sNDA for ZEJULA as a first-line maintenance treatment for ovarian cancer patients is currently under priority review by the NMPA. This submission was based on the results from the PRIMA study, which demonstrated that women in both the HRD positive and HRD negative subgroups experienced a clinical meaningful and statistically significant benefit. In May, Zai Lab announced positive top line results from the Phase III NORA study of ZEJULA as maintenance therapy for Chinese patients with platinum-sensitive recurrent ovarian cancer.

The clinical data in Chinese patients confirmed the compelling clinical profile of ZEJULA and were consistent with the results seen in the global NOVA study. Importantly, the NORA study demonstrated that an individualized starting dose regimen at 200 milligrams, preserved efficacy while improved the safety profile in Chinese patients. Particularly with regard to the reduction of hematological toxicities, including thrombocytopenia and anemia. These results further underscore the promise of ZEJULA as a best-in-class ovarian cancer treatment. Looking ahead, our plan is to continue to develop ZEJULA and to bring this innovative medicine to as many patients who may benefit as possible, including in tumors beyond ovarian cancer.

Turning to Tumor treating fields. China NMPA has approved the Marketing Authorization Application for Optune in combination with temozolomide for the treatment of patients with newly diagnosed GBM and also as a monotherapy for the treatment of patients with recurrent GBM. It is the first innovative treatment approved for GBM in China in over 15 years and the first therapeutic medical device approved by the NMPA without the need of a clinical trial in China.

Importantly, tumor treating fields is recommended with level 1 evidence for newly diagnosed GBM patients in China's Glioma Treatment Guideline, recognizing its breakthrough treatment effect. In addition, we recently launched Optune LUA for the treatment of malignant pleural mesothelioma in Hong Kong and expect to file the MAA in China in the first half of 2021. While mesothelioma is not a large indication in China, the approval will be very synergistic and strategic for us given the next potential label expansion opportunity is in non-small cell lung cancer.

Speaking to that, Novocure expect to announce interim results from its LUNAR Phase III trial in non-small cell lung cancer in 2021. We also have an ongoing Phase II pilot clinical trial in first-line gastric cancer, which is enrolling well. To give you a sense of market potential for these potential label expansions, the annual incidence rate in China for lung cancer and gastric cancer are over 733,000 and 679,000 diagnosed patients, respectively, according to the 2015 National Cancer statistics.

Now on to Ripretinib. Our investigational KIT and PDGFR-alpha kinase switch control inhibitor licensed from Deciphera. In May 2020, Deciphera announced that FDA granted full approval to Ripretinib or QINLOCK for the treatment of fourth-line gastrointestinal stromal tumor, or GIST, in the all-comer setting. Ripretinib targets a broad spectrum of KIT and PDGFR-alpha mutations known to drive GIST. Since the FDA approval, NMPA has accepted our NDA filing with priority review.

The magnitude of the unmet need for GIST patients in China is significant, with over 30,000 Chinese patients diagnosed every year. We believe NMPA granting priority review underscores the potential of Ripretinib to alter the treatment landscape for GIST patients, especially for those who are refractory to prior therapies, and we look forward to working closely with the agency to advance this important therapy towards approval.

And finally, an update on our partnerships with Regeneron and Turning Point therapeutics, respectively. REGN1979, an innovative CD20xCD3 bispecific antibody, is Regeneron's most advanced oncology pipeline products discovered through their proprietary bispecific platform. It is being developed as a treatment for NHL, such as follicular lymphoma and diffuse large B-cell lymphoma in potentially registrational Phase II trials. This strategic collaboration will support enrollment of Chinese patients into Regeneron's global trials, accelerating the development and potential approval of this promising medicine. We are thrilled to partner with Regeneron, a global leader in the research and development of innovative medicines and excited about the potential of REGN1979 as an off-the-shelf immuno-oncology treatment for NHL patients.

More recently, Zai Lab was granted exclusive rights to develop and commercialize Repotrectinib, Turning Point's lead drug candidate in Greater China. Repo is an investigational next-generation tyrosine kinase inhibitor designed to effectively target ROS1 and NTRK mutations. In early clinical trials, it demonstrated potential best-in-class efficacy in both TKI-naïve and TKI pretreated patients. Zai Lab anticipated opening additional sites for the Phase II registrational clinical studies. If approved, Repo has the potential to be the standard of care for ROS1 positive patients, about 2% to 3% of all advanced non-small cell lung cancer patients in China of significant commercial opportunity.

With that, I will hand the call over to Billy Cho, our Chief Financial Officer, who will provide an overview of our financial highlights. Billy?

Thanks, Tao. I will now review our financial results for the 6 months ended June 30, 2020. The revenues for the period were $19.2 million, compared to $3.4 million over the same period in 2019. Revenues for the period were comprised of $13.8 million in sales of ZEJULA and $5.4 million in sales of Optune, respectively. Launched in January 2020, ZEJULA's revenue in Mainland China was the main driver for the first half of 2020, given that Optune was commercially made available in China at the end of June.

R&D expenses were $102 million for the period, compared to $58.9 million for the same period in 2019. The increase in R&D expenses was primarily attributable to increased fees in connection with upfront and milestone payments, ongoing and newly initiated late-stage clinical trials, payroll and payroll-related expenses from increased R&D headcount and expansion of research efforts to support internal development programs.

Selling, general and administrative expenses were $42.5 million for the period, compared to $29.5 million for the same period in 2019. The increase was primarily due to payroll and payroll-related expenses from increased commercial headcount and related costs as Zai Lab expanded its commercial operations in China.

For the 6 months ended June 30, 2020, Zai Lab reported a net loss of $128.6 million or a net loss per share attributable to common stockholders of $1.74, compared to a net loss of $83.3 million or net loss per share attributable to common stockholders of $1.37 for the same period in 2019.

As of June 30, 2020, cash and cash equivalents, restricted cash and short-term investments totaled $464.1 million.

We would now like to turn the call back over to the operator, so we can go ahead and take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Yigal from Citigroup.

I had a few questions on the ZEJULA launch. I know it's early, good days, but can you provide any early sense as to the market share that you have in second-line ovarian cancer? And are you seeing early evidence of doctors switching patients from Lynparza to ZEJULA? And then could you comment at all to the extent to which you're seeing uptake in the regional hospitals in addition to the urban hospitals? And are you seeing any off-label sales of ZEJULA in first-line ovarian cancer?

Thank you, Yigal. Good morning. And let me answer the last one first. First of all, we never do off-label sales. And Secondly -- and the -- as earlier already mentioned by myself and Tao Fu mentioned, even though it's still early for ZEJULA to see the launch trajectory, we are very, very optimistic about the -- how deeply we penetrate into the market and also how the product being received by the patient, the medical community. And as you probably know, we're still currently under self-pay. So with that self-pay, we focus on -- very much on the KOLs, on the PIs. And also, we work with different insurance groups and different regional government. So we have very good coverage for the product.

And even though it's only 6 months in the launch, we have seen a very deep penetration into the hospital sectors. And there are some of the things we can give you, like some color, in terms of we -- as you know, IMS only cover hospital penetration and for private payer. And usually, we go -- you have to first go to direct to patients. And -- but even with that, we have enjoyed 4x of the hospital list compared to the competitors, first 2 quarters of launch. And so I hope that gives you some color on how we have been doing.

Okay.

You also -- I think you asked a question on different tiers of cities. And so far, we cover actually -- even though first year, we started with private payer, we do cover many hospitals. And the listings sales rate, we cover somewhere around 800 hospitals.

Okay. And any early evidence of switching from Lynparza to ZEJULA or that's not information that you can glean at this point?

I think it's -- right now, we -- it's too early to tell, but the fact we have done -- we have a very strong trajectory. And also looking forward, we still have first-line where we will have only first-line all-comer approval. And -- so we are very optimistic about the future.

Okay. And then just a question on the first line. So you have the priority review. When are you expecting that decision from the NMPA??

That's a good question. And we -- yes, we received the priority review and soon after we filed, it was accepted. And as you know, China does not have a PDUFA date, but I can give you some color on our own experience. For second-line ovarian cancer, we were able to get approval within a year. And since this product, first-line was accepted in March and we are looking for, of course -- and hoping everything is as usual, which we haven't seen that much difference in terms of regulatory approvals, we are looking into first half 2021. But again, I want to emphasize, there's no PDUFA date. This is to our results from knowledge.

Okay. And then just very quickly, on your proprietary program, which is a pipeline which we haven't talked about much, you said in the press release that you started dosing in the Phase I very recently for 1201 and 1102. Do you have any sense as to when we could see the first data from those 2 studies?

Oh sorry, I was muted. Thank you, Yigal, and thankful, as you mentioned, we just started the patient recruitment this year. And as we have more clear concrete data, we'll update the market as appropriate.

Our next question comes from the line of Anupam Rama from JPMorgan.

And congrats on all the progress. For ZEJULA and Optune launch, can you give us a sense of what you're seeing in terms of unique prescribers for each of the products? And what are you seeing in terms of repeat prescribing?

First of all -- Anupam, and that's a great question. And I will now let Tao to get give you some top line answer on that.

Yes, Anupam, thanks for the question. I think it's still a little bit too early to really give you detailed information on new start versus repeat user. But as Samantha mentioned, we really feel ZEJULA launch has been off to a great start. We need to keep in mind this launch is really done in record speed from approval amid -- in the middle of the pandemic. So the team really has done a great job in terms of implementing our launch programs. We have a few important metrics we track. As Samantha indicated, everything is tracking very well.

Overall, the product has been very well received by the treatment physicians. They really latch on to the superior pharmacological profiles of the product and a very compelling clinical data that we have both from the global study. And as you know, we recently also completed the NORA study, which is a large China-only study demonstrating the product has very strong profile of preserving the efficacy and potentially reduction of safety profile -- safety event with the individual starting dose in the Chinese patients. So all these factors sort of play into, we believe, a very strong launch and a great momentum.

Our next question comes from the line of Jonathan Chang from SVB Leerink.

Congrats on the progress. First question, can you give us a sense of how the first half sales broke down by Hong Kong versus Mainland China?

Jonathan, And I -- first, let me say, we have a very good year -- good first half of Hong Kong. And -- but since we have launched in China, I would say, majority of the revenue actually contributed from Mainland China. And if you look at the overall product, first 2 quarters have given us a very, very strong momentum. We currently do not have breakdown to regional since we group -- we actually list by the whole product.

Got it. And the second question, how should we be thinking about additional business development opportunities in the second half of the year and 2021? Would you expect these potential deals to focus on indications where you already have presence? Or could these be in indications outside your existing areas of focus? And would you have a bias towards certain platforms and approaches?

That is a great question, Jonathan. I think as -- I like the way you asked that because I would then turn the table to Jonathan, our Head of BD. So we can both, right, we -- all of us can work even harder, although I don't know how harder he can. Jonathan?

Thanks, Samantha. And thanks, Jonathan, for the question. Let me first say that at Zai, we have really built a strong reputation over the last few years as a partner of choice for western companies when it comes to this part of the world. And we also have a very robust business development pipeline currently in the backlog. And most of these are actually, by the way, inbound interests from good repeatable U.S. companies and a lot of them -- the strategic objective for them to do a deal is really looking for help, not only to access the Chinese market quickly, but also to help them accelerate their global development.

Now specifically in terms of the second half, I think we have had a very good first half. We've had done 2 great strategic deals, one with Regeneron, one with Turning Point, both late-stage assets, both arguably potentially best-in-class products in their categories. And we're working very hard to expedite those time lines in China and also working with them from a global development perspective.

So going forward, I think you can, first of all, expect us to always keep that same quality high bar that we have hold to, that is globally best-in-class or first-in-class assets. Obviously, oncology, autoimmune infectious diseases are our priority areas, especially in oncology, where we have several indications, areas where we have building disease strongholds. But I think we would also potentially not rule out going to other areas, adjacencies, just like what we have done going from solid tumors into Hem-onc with the Regeneron deal.

We won't commit to a number in the second half of this year, but we're working very hard. And I think I'm sure we'll bring a lot more good deals in the very near future.

Our next question comes from the line of Maurice Raycroft from Jefferies.

Congrats on the products. First one is just on the Optune MAA. So I think prior guidance was for MAA filing in 2020. I guess, is there any particular reason why you're now expecting that to happen in the first half of '21? Does it have anything to do with timing of Novocure's LUNAR data? And can you talk more about what you're going to be looking for in the LUNAR data in 2021?

First of all, I think, Optune and the filing and the second indication is underway. And also, while we already started building trials -- and we actually think we are -- very -- making very good progress. And we anticipate in the first half of next year. This is actually pretty consistent with our estimation. And of course, even though there's approval and in terms of the -- like Jonathan mentioned, in terms of material impact, this is relatively small. But strategically, this is very important. This would be the first solid tumor and to -- solid tumor to be approved and we remain very optimistic on our timing on it.

Got it. That's helpful. And then for the anti-infectives programs, I'm just wondering if there's a newfound sense of urgency from China regulators to get these approved. And then for durlobactam for the Phase III, if you could talk more about the design of that study, design and timing for that Phase III study?

First of all, for Omadacycline, as you saw from our news release, and that was on priority review -- and in May. And I have to say, ever since China use open market priority review, this was the first one for antibacterial resistance drug has been put on priority review. And as we -- China has no PDUFA date, we did not -- right for us to give you a projection. But again, we work with them closely on the approval of this really important product. Especially in China, the bacteria resistance, as you mentioned, it's a very important area. There's a lot of unmet medical needs. And we just work closely with agency, and we feel optimistic about getting this approval. And in terms of detail of the time line, well, when we get closer, we'll report to the market.

The second question you asked about is the -- for the -- Gram-negative program, right? In terms of patient recruitment, we -- in China, we had done a great job, and we have recruited the patients according to our current plan. And even though during the COVID, we haven't seen any disruption. But in terms of overall patient -- because this is a global trial, and then we have to work with our partner to give you more color on global time line and also on the trial design. And we would -- because we join our partner in paces on this program, we would prefer and how we can rely on their disclosure. Thank you, Maurice.

Our next question comes from the line of Seamus Fernandez from Guggenheim.

Great. Just a few here. I was hoping, Samantha, if you could just give us your -- an update on data catalysts that you're most focused on, in particular, if you could just give us a sense of where you're most focused in your collaboration with MacroGenics? And then as a separate question, can you just help us understand how you're thinking about the CD47 landscape in China, as you introduce your novel therapy? And any potential differentiating characteristics of that antibody that you think are worth noting?

Sure. And thank you, Seamus for this excellent questions. And for the -- let me answer the last one, CD47 first. And CD47, we have done extensive preclinical work. We see a clear differentiation from our internal work. Secondly, CD47 will provide a lot of combo synergy with our existing pipeline. We understand there's 7 other CD47 under development. Having said so and if -- none has been approved. And also while we -- at least, we're still having -- we are very confident. And based on what we know -- and this can change as we're getting more clinical information, but we really believe, with what we have seen so far, the differentiation justifies. And also the combo opportunity is justified for us to move this program forward. And I think when we get more clinical data and also we're close to the stage of doing more publication, I'm sure you will get the information. And -- so going back to the question on margetuximab and also our focus and our partner, I would leave that the Jonathan to cover.

Yes. Seamus, I think the question on our focus with the MacroGenics collaboration. As you know, there were 3 assets that we licensed in that collaboration. Obviously, margetuximab being the most advanced for that. And in that case, the gastric cancer trial, which we have started the global trial together with MacroGenics, I think that we hold a lot of promising, with gastric cancer being such a large indication in China and with the very early but very promising data that they have observed in earlier trials, I think that is a focus for us.

But in addition to that, as you saw, they disclosed data for the 013 trial at the PD-1 and LAG-3 at the ASCO a couple of months ago, that data is very promising, not only as monotherapy but also in combination with margetuximab, in various patient populations that normally don't respond to PD-1s, such as triple-negative breast cancer, DLBCL, et cetera, we are seeing responses in PD-L1 while expressing HER2 setting, we are seeing responses. So it's very positive and although early, but I think that will also be a very important focus for us in our collaboration with MacroGenics.

Great. And maybe just as a follow-up question to the CD47. We're also starting to see some CD47 bispecifics emerge the PD-1, CD47 bispecific. Any thoughts -- or in terms of your development capabilities, are bispecifics part of your own internal development pipeline? And then maybe finally, I don't think anybody's asked about the sort of COVID and CoV-2 dynamics in China. Just wanted to get an update in terms of the -- on the ground experience as you deploy your sales reps in the field. As well as just the ability to successfully recruit clinical studies versus perhaps what we might be seeing in other markets that appear to be more affected than China, it would seem like that's a unique opportunity to continue to drive your research related collaborations.

Our next question comes from Ziyi Chen from Goldman Sachs.

Amber, do you want me to answer Seamus question first?

Please, go ahead.

Okay. So first of all, Seamus, I understand that you have a good point about the bispecific. But however, I think this CD47 program -- and we have with this potential combo opportunity, we will learn a lot from our existing program. And at some stage, when in discovery, and when we see it's justified and -- for doing CD47 PD-1 bispecifics, and we may -- let's say, we may talk about this program. But so far, we still are focused on our CD47 program by itself and also potential combo opportunities and will evolve as we move forward.

And secondly, when you talk about COVID-19 -- and I think I appreciate your comments and especially knowing how -- globally how we've affected. And -- but in Zai Lab, we've been very, very fortunate and even though it's still too early to confirm, but we have always maintained our appreciation, since we have very limited impact to our business. From clinic patient recruitment, from commercial launches, from regulatory approvals, as you can see from our announcement releases -- announcements and the old -- the execution has been really, really done outstanding. I gave that credit to the team and -- who has been able to work through this difficult time. And what I have to also -- happily to report, given the safety measures we have taken very aggressively, none of our employees have been infected and also the people we work closely with. In the company, we have very clear procedure in place to deal with any situation should they occur. And also, in terms of impact of clinical trials, we cannot speak to other companies. But we -- as I said earlier, we experienced very limited impact so far.

In terms of the impact of ZEJULA launch, we have to say we are funding the business to be quite defensive. We are not yet making changes to our 2020 revenue target. We are still very optimistic and we're still very confident on our team's deliverabilities, our team's execution, excellent execution. And of course, this ZEJULA launch also helped by the fact that our major launch event was help before the major breakout for the ZEJULA. And especially, we -- in terms of the challenges over the first quarter -- and we have been taking immediate measures, such as creating online physician, patient education and consulting programs, getting on reimbursement list at provincial, municipal levels maximizing commercial insurances. And I think the commercial team able to launch 23 days after the approval. It's a record by itself and also it's really, really off on a good start.

So I hope I answered your question, Seamus, and really appreciate your time.

Our next question comes from the line of Lai Chen from Goldman Sachs.

This is Ziyi from Goldman. Congratulations on the second quarter. I actually got 2 questions. The first actually on the ZEJULA, because we know that there's going to be an upcoming national reimbursement list negotiation in second half, probably like October, November. So what is the strategy towards getting to a national reimbursement list for ZEJULA? And how should we think of the potential pricing cuts? Or more like a trade-off about pricing and hospital penetration, particularly, just -- we launched the market for about 6 months. We're already penetrated into like 800 hospitals. That means without national reimbursement, we already got really deep penetration.

So do you guys really need -- in the first year, we're going to get into the national reimbursement to -- for a better hospital coverage or we can say for -- we can actually wait for another year. So that's my first question.

And second, I'm just trying to get a better sense of Optune, the commercial strategy or commercial model. Because this is probably the first of its kind like innovative medical devices. So if the patient is actually paying for paying for the treatment or actually, they have to purchase the device itself. So -- and also how those commercial health insurance actually helped the acceleration of -- adoption among the patients. I'm trying to get a better sense of that.

And a small follow-up is that we look at the PD-1 program, we see that -- we start to initiate -- put on non-small cell lung cancer into the potential clinical development strategy. So given the lung small cell -- non-small cell lung cancer in China in the PD-1 space have been really crowded, several near commercial approval, and there are potentially a few more who are also working on this indication. So why we're still -- or why Zai Lab is still trying to enter in this indication instead of looking at some of the other smaller but a more differentiated indication?

Yes. I was muted. But first of all, thank you for those questions. In terms of ZEJULA, whether they need to be put on NRDL -- and I have to say, as you said, the team has done a wonderful job for the first 5 months of launch. We already covered 800 to 900 hospitals with only 150 sales reps. However, we believe pulling on reimbursement dates will tremendously improve our coverage and penetrate further to not only top 2 tier cities, but the rest of the top -- the third and fourth tiers. The volume will really gave us the overall revenue upside.

And in terms of -- so as you said, in November, China was -- and actually, when they started already asking for applications, and we definitely will be interested and welcome the opportunity to work with the agency to come up with a very reasonable and -- reimbursement price. We have good understanding, calculation of pharmaeconomics, and we also understand ZEJULA is the one and only for monotherapy first-line and in China. And also for ZEJULA, we are the only one as a category and for local -- from local company compared to our competitor. So we have many advantages, and we have many have many announced the -- opportunities to work with agencies to come up with a reasonable -- on pricing. And we really think we have a lot of room to talk to the agency. And -- so our goal is to work with them. And we -- about -- at least at this point, and I wouldn't say no. I would be very open minded. And to come up with the right reimbursement strategy.

In terms of the question about the Optune. And as you said, this is the first only and Category 3 treatment option bring into China. And I have to say -- I give you a top line, first of all, patients are now buying the device.

And I'll let Tao to elaborate further on that. And so Tao, you want to elaborate on that point?

Yes. Thank you, Samantha. I just want to clarify your question is around our PD-1 program and non-small cell lung cancer indication, right? I just want to clarify.

That's the first question, that's...

The question is on... Yes. And also PD-1.

Okay. So let me comment on the Optune first. So as you know, Optune is the first innovative treatment approved for GBM in China over the last 15 years. And it is also the first medical device that is approved by the NMPA without a need for a clinical trial. So the launch really is with considerable excitement about this product. We have very high awareness and support by the medical community. We believe there is a very, very strong sell-pay opportunity. And so far since launch, I think -- our launch has been off to a really good start. So that's probably the top line comment that I can make on Optune. We have a very targeted strategy because the market for GBM is pretty concentrated in China, the top 250 hospitals really comprise of the majority of the market opportunity.

So we have a very targeted strategy with our sales force, for our customers.

Yes. And Ziyi, if I may chime in here. There's a reason why we, as well as our strategic partner, Novocure, do not call this a device and say, a treatment or a therapeutic, because it really behaves that way at a practical level, at a clinical level. And I think that was also part of your question. So right now, the list price in China is USD 19,000. It is a modest discount to the, I believe, a little bit over $20,000 list price in the U.S. But nevertheless, it is a preposition as a premium therapeutic.

Now post PAP, that number comes down. And it is going to be offered for GBM patients in Mainland China at a modest discount to the global net average price, which I believe is around USD 11,000 based on the latest earnings release from our partner. So with that payment comes in an all-inclusive -- that monthly payment comes in, so everything is included. So the device, the backup, the transistor rays, the hotline and the service element. So it really does behave in the way you are -- in the way you paid for it, in the way it's prescribed and administered. It does really behave in many ways like a therapeutic. So I hope that helps.

So coming back on PD-1. And first of all, we participate -- we are in the process of participating in the global second line endometrial cancer. And together with our partner Incyte, we contribute the portion which is relevant for China's approval. In terms of the PD -- the non-small cell lung cancer, I agree with you, it's a very competitive landscape already. But having said so -- and I think this is a huge market in China and globally. And with a very good PD-1 we have in terms of efficacy, safety and the way also by working with our partner -- and we only contribute the portion relevant to China's approval, we think it's very justified economically. And also the opportunity to bring patients with a very differentiated PD-1 and very much needed treatment option.

Our next question comes from the line of Fei Zheng from Crédit Suisse.

This is Fei. My first question is about the commercialization. Since we haven't breakdown the sales from Mainland China and Hong Kong, may I just ask for the Optune. Is that the sales mainly just from -- or sorry from the Hong Kong? And for the ZEJULA, if the Hong Kong sales only grow at a slow -- reactively slow rate, and the majority of the sales is also from Mainland China?

My second question is about some clinical readouts. Recently, I found that our competitors Lynparza has reviewed some overall survival data. I'm wondering do we have some similar overall survival data for ZEJULA. If not, when we are going to see those data?

And my third question is about my -- is about our internal pipeline, CD47. So I think Samantha mentioned that we have some differentiating factors. Is this mainly from the safety side or from the efficacy side? And also, once we complete the Phase I study, are we going to be looking for some license out opportunities to push the global trial for this product? That's my 3 questions.

Thank you. Can I clarify your second question?

Yes. My second question is about ZEJULA because I have recently seen the ASCO, the Lynparza reviewed the overall survival data in the BRCA-mutant settings. And they -- compared with the placebo, they have a very long extension of the overall survival. And I'm wondering, does ZEJULA have such a similar overall survival data benefit. If not, when we are going to see those data?

Thank you for your question. Let me answer this first. First of all -- and during GSK's global study for the PRIMA, they -- actually, we do have subgroups of gBRCA, HRD positive and negative. And in each category, we have achieved very amazing efficacy and also for -- particularly for gBRCA. And they -- I have -- Jonathan, you may want to comment more accurately about the month, the length?

Yes. I think in the first-line setting, they obviously had very strong efficacy, not only in the BRCA positive, HRD positive and also in the HRD negative setting. Actually, I just can't remember the exact month for the BRCA positive, but it's comparable to -- definitely to be positives.

Yes. I was under the impression anywhere around 21 or 22 months, but I need to confirm that number. And definitely, we are -- if not better, we are at least in par with Lynparza. So that's my knowledge so far.

To go back to you first question about ZEJULA, right launch we listed Hong Kong, China? Is that the question, right?

Yes.

I think as I mentioned, we have done a great job in Hong Kong, continuously remain strong momentum. However, Hong Kong only has 7 million population versus 1.4 billion population in China. So with the launch of ZEJULA second-line in China, the next step will be first-line in China. China is -- Mainland China is definitely a growth driver.

We have seen a very good start for the first 6 months. We remain very optimistic for the full year. And typically, even for health companies, like you've mentioned, the competitors, people at this stage -- we do not breakdown to that details. It's just I think confusing to the overall message. And we really look forward for a very strong growth for the second half.

And your next question is PD-1, right? No, I'm sorry, it's CD47?

No, it's CD47. Yes.

Yes. And first of all, let me go back to say, as I mentioned, CD47 -- and from our internal and preclinical data, we do see, as I mentioned, differentiated profile. And from preclinical, we -- and -- well, specifically, has used be it advocacy or safety, and we definitely see some -- because our ZL-1201, CD47 is a humanized IgG4 monoclonal antibody engineered to reduce effector function. So that gives us specifically -- it has a very specific target. And so that data really give us the confidence in terms -- from the efficacy for going to clinicals. But even we all know there's some safety concerns. And from our study, we also, so far, are hedge from preclinical level, we do see differentiation.

But again, this is still very early in preclinical. Just entering clinics with patients just -- started into recruitment. We will let you know when we have more information. And again, I also want to mention, this is not only differentiated, we're very optimistic based on the data we have. And secondly, because the combo opportunities in the existing pipeline, we are -- we feel a strong justification for moving this into clinics.

Okay. I still have a couple of questions, I guess, surrounding the game plan of ZEJULA, especially in the face of Lynparza also having the first-line maintenance approved late last year, which kind of make them eligible to enter another round of potential negotiation coming late this year. So we don't have the specific figure, right? But when we -- if we look at the AstraZeneca first half presentation, it does show that the sales in the so-called emerging market, which is, I think, mainly China, is already over USD 100 million during first half. So that's like quite a big multiple versus ZEJULA. And I think that's also -- we have to consider that, that may be already factoring in the price cuts that they have implemented early this year to get into the NRDL. So in terms of the volume, we are still very far away from Lynparza. And if they have another first-line maintenance indication included later this year, and then after that, we may have (inaudible) in 2021, potentially off-label users competing in the same open market. So kind of like quite a furiously competitive market entering 2021. Any particular comfort you can give us to show that you guys will be able to go against these 2 major players. So that's a question on ZEJULA.

Secondly, I think on the question on Ripretinib. You guys are doing a bridging -- a small bridging study in China. But I guess your upcoming approval is not depending on that, right? I think the -- you guys already got the priority review. So that's like totally independent. There is no particular data that you need to wait for to satisfy the NMPA to get approval? That's question one.

I guess the second question is Deciphera are also doing a second line, I guess, just a trial. And what's your thinking for that for China? Like would you go to push second line harder? Or were you still going to go launch fourth line first? Like -- and what kind of dynamics should we be expecting from that? And the final question for, I guess, for Billy, any guidance for full year R&D and SG&A expenses? And judging from the sales so far, what kind of stabilized gross margin for Zejula?

Thanks. Good question. First, let's say we -- [Hungary's] products has been applied for third line gBRCA. So it's not second line or first line. So this is very differentiated. Second one, I do agree with you, you see a good revenue from Lynparza for the first half. We see that as a very welcome signed. Because they have been in the market and much -- 2 years ahead of us. So that means the market is going to be huge.

And the fact we -- even though we just launched in China -- first of all, when we launched in Hong Kong, within first year, we have 70 -- more than 70% of the market share. Even Lynparza was launched 18 months ahead of us. Secondly, in China, even though we only launched last 5 months, and we are not on reimbursement for second line, still for the first 8 5 -- 8 months, we have covered more than 800 to 900 -- from 800 to 900 hospitals. That is for the same period of the launch compared to our partners -- no, our competitors. We have 4x higher hospital coverage.

And this first year, even though we are on reimbursement for second line only, we have done -- I think the team has done a fantastic job to work with private payer, to work with commercial insurance, to work with the regional reimbursement, and I think we're just at the beginning. And again, let me highlight the differentiation. Even on second line, based on -- Tao mentioned that, we are the -- we have, based on our going study in Chinese patients, the data will be published in the next scientific community -- committee meeting and we have seen very unique differentiation. Not only this is the -- we have high blood-brain penetration for metastatic patients.

Secondly, even in terms of the safety, we have seen very, very manageable and very -- especially for the concerns about thrombocytopenia and also the sales about anemia, we have very positive data. And we also adopt those as a -- based on the body weight, and we do not have to experience certain [sabotage] quality by starting at a very high dose. And then when you tie it down to 200 milligrams, you actually lost patients. And we do not see that. And of course, people say, once -- if you consider even the pharmacokinetics, we have a much longer sell side. We do once per day instead of PI3. You may think that's not too important but quite honestly, if you talk to the KPIs, this is a huge difference from compliance, from -- in real-world efficacy and safety. Because patients do have nausea when they take this drop during the day. And they -- the compliance is going to be, of course, once per day a compliance. And also patients can take it before they go to bed either day time -- some people -- oncology patients always take multiple drugs. But with one -- once per day if you -- even you experience sleeping issues, you can take with half some melatonin, some Ambien. Patients do have benefit, 2 benefit from the efficacy and from the overall real life experience.

And lastly and certainly last not the least, if you look at our China label, we don't go through SIP ANDA. We go -- so with that, we have very clean drug-drug interaction, especially for oncology patients. So second line, very differentiated. Even though we are underdog, we came 2 years later, we did not have -- for emerging markets 700 million. That's -- to me, that's absolutely great for us. That paints a very good picture for us in terms of second line.

First line, you talked about gBRCA for our competitor get approved in China. But be mindful, gBRCA is only 12% to 15% of the population. We already did NDA accepted, put on the priority review. And I think with the timing -- and when it comes, I really think that will make fundamental changes in this landscape. And again, I always welcome to have more players in this space to open up the overall market. And we've been -- this team, this commercial team has launched 6 of the 8 most pro PD-1, the most top-selling products in China. So we are very confident of our team.

And so the other question is, can I -- I am a little bit lost here. What's the other question you have?

Yes. The other question is Ripretinib. Because your competitor basically fail fourth line, right? And ZEJULA does have a second line trial going on. So it gives you some more space to strategize, like second line versus fourth line, what's the game plan in the next few years?

Yes. Yes. First of all, in -- for GIST population, other than the first line, the second and third-line right now actually do only much (inaudible) do not as effective, right?

So tremendous opportunities for fourth line especially for fourth line on [PRIMA]. And that's very important. That's what we already got and being accepted on priority review, of course, we will definitely start with that, launch with that. But however, the second line -- and our partner has done a fantastic job to move forward to the second line indication.

We also, like you said, we already have a plan to recruit patients, and we look forward to move to the second line. For the fourth line, we also mentioned we already got acceptance priority review, whether our bridging trial matters or not. And I have to report to you our fourth line patient recruitment has gone really well. We have already generated many datas. And whether it's needed or not, we'll work with agency and to bring this unmet medical needs to Chinese patients. We are very optimistic about -- this product whether second line, fourth line, is very much needed in China. GIST is a big indication in China.

And David, I believe you had one more question for me, which was forward-looking guidance. And I'll just quickly chime -- interrupt this portion up. But we do not yet provide forward-looking guidance, as, David, you already had mentioned in your opening question. But we are in a very fortunate position to, a, have a very strong balance sheet; and b, have all of our 14 programs progressing well. So we do intend at this juncture to continue to fund all of them as a part of our growth initiative. And within that is also SG&A as well as we prepare -- we have 3 NDAs already submitted with all prior reviews. So -- and you had a question on ripretinib, and that will be our first gastric cancer or just program coming out to the marketplace.

So again, I think we're in a fortunate place where we are funding various growth initiatives. As far as your last question about gross margin on ZEJULA, and I think you were asking whether to use the current -- I think if you look at first half results, the gross margin was 74%. I would -- since that includes Optune as well, as well as the China Optune sales that launched at the very end of June, it combines various elements. So I would kind of not use that as a specific ZEJULA gross margin going forward. You may want to wait out for additional results as we're still relatively -- not relatively, but we are still early in the ramp-up curves for both products.

Our last question is from the line of Wai Chak Yuen of BOCI.

And congrats on the first half progress. Just 2 quick questions. First, for the CD20 bispecific and Ripretinib, actually, how many patients we are responsible for the global pivotal -- potentially pivotal trial as China data -- that the China regulator will accept it for our potential approval later on. The second question is for -- can you share with us the second half commercialization organization plan that -- I understand that we now have 370 staff in the commercial team. So I just would like to see what's the plan in the second half, given that we've got to gear up for the 2 products on the ground, Optune and ZEJULA.

Sure. I think for -- sort of -- you were asking for throughput, right, and our contribution in the trial, right? And we will contribute what is necessary for the approvals in China. And detailed numbers, we're still work with partners. And the other question about CD49 -- CD47, how many -- we are still in Phase I. So let's see. And another...

Yes. And the CD20 bispecific as well. So I understand the CD20, we are also contributing for the global trial, right? So my question is actually how many patients we need to contribute in order to -- we can leverage the global trial for our NMPA approval later on.

Yes, the answer is, we will incorporate enough to justify the China's approval. And also your last question, I'm sorry, I missed your last question. Could you repeat that?

Yes. Just can you share with us your plan on our commercialization team in the second half? I understand that we now have [770] staff in the commercialization.

Right. Tao, you want to cover that?

Yes. Thank you for the question. So as you know, we currently have 2 sales teams, 1 focused on ZEJULA and 1 focuses on Optune. So the ZEJULA sales team is about 150 reps covering about 800 to 900 hospitals. And the Optune sales team is about 50 people, covering about 250 hospitals.

So we will be adding incrementally to this as the years go on to improve our coverage even more. And 1 other comment we have is we're also building up for Ripretinib launch. So starting in the second half of the year, we will -- starting to incremental put in place the Ripretinib sales force, too. That's going to be target more of the GI specialist. So those are the sort of the top line plan we have. Yes.

Yes. And also, we are currently just to -- as a reminder, we are currently with as a private. So we are under -- not on NRDL. So when we need to be aggressive and after NRDL we'll be changing as the commercial organization, we'll beef it up as appropriate.

Thank you. This is the end of our question-and-answer session. I'd now like to hand the conference back to the management for closing remarks.

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 periodically on our progress throughout the year. Thank you, everyone. Operator, you can now disconnect this call.

Thank you. Ladies and gentlemen, that concludes our conference for today, and thank you for participating. You may now connect.