ZLAB - Zai Lab: LUNAR Trial Paves Way For New Therapies

2023-07-26 23:36:47 ET

Summary

• Zai Lab Limited's recent clinical study results and partnerships demonstrate its commitment to innovation and product development, positioning it as a strong investment prospect in the pharmaceutical industry.
• The company's partnership with MediLink and the development of YL212, a next-generation antibody-drug conjugate, further strengthen its oncology pipeline and lung cancer product line.
• Despite a net loss, Zai Lab retains a substantial amount of cash and cash equivalents, short-term investments, and restricted cash, placing it in a strong position for further expansion and investment opportunities.

In the rapidly evolving pharmaceutical industry, Zai Lab Limited (ZLAB) emerges as a strategic investment prospect, demonstrating a strong commitment to innovation and product development. With a diverse and robust pipeline, outstanding financial growth, and efficient cost management, the company is well-poised to establish itself as a formidable leader in the market. In light of the recent phase 3 clinical study results and partnerships, it's evident that Zai Lab continues to push the boundaries of medical science, focusing on addressing unmet needs and improving patient care with cutting-edge therapies.

TTFields Therapy Enhances Survival

Zai Lab Limited and NovoCure ( NVCR ) have recently announced encouraging outcomes from their phase 3 LUNAR clinical study, which examined the use of Tumor Treating Fields (TTFields) therapy in conjunction with conventional treatments for non-small cell lung cancer (NSCLC). The LUNAR trial, presented at the 2023 ASCO Annual Meeting, demonstrated a significant 3-month increase in median overall survival ((OS)) when TTFields therapy was combined with standard treatments, achieving its primary objective.

Notable improvements in results were seen in patients who received TTFields therapy along with standard treatments, showing a median OS of 13.2 months as opposed to 9.9 months for patients treated only with conventional therapies. In particular, patients who received TTFields therapy and immune checkpoint inhibitors (ICIs) experienced even greater OS advantages compared to those treated exclusively with ICIs. This breakthrough finding highlights the substantial potential of TTFields therapy in helping numerous metastatic lung cancer patients seeking alternative treatment options following platinum therapy.

The LUNAR study is the first to display a significant improvement in OS for metastatic NSCLC patients in over seven years, and the findings have been praised as extremely promising by cancer specialists and oncologists. Since lung cancer is the primary cause of cancer-related fatalities in China, and NSCLC is the most common type, the introduction of this innovative, non-invasive device offers a much-needed advancement in treatment.

NovoCure plans to utilize the LUNAR clinical trial data as the basis for their Premarket Approval ((PMA)) submission to the US Food and Drug Administration (FDA) in the second half of 2023. Concurrently, Zai Lab will be in charge of submitting a Marketing Authorization Application ((MAA)) to China's National Medical Products Administration after NovoCure's FDA submission. In addition to LUNAR, Zai Lab is actively participating in NovoCure's ongoing phase 3 clinical trials for METIS, PANOVA-3, and the EF-31 phase 2 study.

Zai Lab Partners with MediLink

Zai Lab Limited has revealed a partnership and exclusive global licensing arrangement with MediLink Therapeutics , a pharmaceutical company that specializes in next-generation antibody-drug conjugates (ADCs) and other technologies. This collaboration propels Zai Lab's lung cancer product line and worldwide oncology pipeline with the inclusion of YL212, a cutting-edge DLL3 ADC program.

Using MediLink's proprietary TAMLIN platform, YL212 was developed as a next-generation ADC, designed to take advantage of the tumor microenvironment and address the limitations of existing ADC drugs. DLL3, a Notch ligand inhibitor, is overexpressed in small cell lung cancer (SCLC) and neuroendocrine tumors, making it a valuable therapeutic target. YL212 exhibits an impressive preclinical profile, and both companies will collaborate on progressing to clinical trials.

As part of the agreement, MediLink will receive upfront payments, milestone payments linked to development and sales, tiered royalties on global sales, and potential payments from third-party sublicensing. Zai Lab will take charge of global development and commercialization efforts.

This partnership highlights Zai Lab's unwavering dedication to developing cancer treatments, such as ADC drugs, and further reinforces its international oncology pipeline. Additionally, their potent lung cancer portfolio is enhanced by YL212, which is rapidly advancing toward clinical trials with the goal of assisting patients who have limited therapeutic alternatives.

Zai Lab is also actively building a collection of potential first- and/or best-in-class ADCs. Last year, they secured exclusive rights in Greater China to TIVDAK (tisotumab vedotin) , the first and only tissue factor ADC approved for patients with recurrent or metastatic cervical cancer.

By assembling a comprehensive and varied product range that addresses lung cancer—a disease that impacts over 2.2 million people worldwide annually—Zai Lab's targeted therapies under development target approximately 70% of all newly diagnosed NSCLC patients in China, potentially benefiting many individuals affected by lung cancer and neuroendocrine tumors.

Financials

The company is experiencing significant expansion across its range of products, with total product revenues skyrocketing by 36.2% year-over-year, amounting to $62.8 million. This suggests a substantial momentum for the business, which is expected to sustain its upward course.

Within the product lineup, ZEJULA emerges as the top achiever, it had an amazing 44.2% increase compared to last year and made $42.7 million in revenue in the first quarter of 2023. This is a demonstration of the company's dedication to innovation and product advancement. Even though Optune's 4.3% growth may seem modest by comparison, it remains noteworthy and adds to the overall robust financial performance.

It's important to note that QINLOCK and NUZYRA underwent negative adjustments of $3.9 million due to price reductions related to their inclusion in the NRDL. However, such adjustments are typical in the pharmaceutical sector and should not be considered worrisome.

Zai Lab has also succeeded in significantly reducing its R&D expenditures, plummeting from $53.9 million in the first quarter of 2022 to $48.5 million during the same timeframe in 2023. This reduction is a result of efficient cost-sharing contributions from partners collaborating on clinical trials.

At first sight, the escalation of selling, general, and administrative expenses may seem concerning; however, considering the growth in product revenues, this increase can be deemed justifiable and proportionate. The elevated expenses mainly stem from professional service fees and merchandise sales in mainland China and Hong Kong. Higher payroll expenses are due to an increased workforce to support commercial operations.

Remarkably, the net loss has substantially decreased from $82.4 million in the first quarter of 2022 to $49.1 million in the equivalent period of 2023. This considerable improvement highlights the company's effectiveness in revenue generation and expense management. Additionally, the increase in non-operating income plays a role in alleviating net losses.

Most importantly, despite the net loss, Zai Lab retains a considerable sum of $931.4 million in cash and cash equivalents, short-term investments, and restricted cash as of March 31, 2023. This generous liquidity places the company in an ideal position to take advantage of investment prospects and drive further expansion.

Products

As of 2023, Zai Lab has had success with four products launched across China and other regions and is working on 18 more product candidates in different stages of clinical development. Their innovative roster includes ZEJULA, QINLOCK , NUZYRA, and Optune - all addressing cancer, bacterial infections, and glioblastomas respectively.

Zai Lab focuses mainly on studying tumor growth, endurance, resistance, and immune evasion through their oncology product candidates. Additionally, they are making progress in tackling antibiotic-resistant bacterial infections and autoimmune disorders characterized by inflammation, tissue damage, and organ malfunction. They are also developing KarXT - an ambitious product candidate to manage schizophrenia characterized by positive/negative symptoms, as well as cognitive issues.

Mechanism Risks

ZEJULA operates as a PARP inhibitor that blocks DNA repair in cancer cells. Resistance to PARP inhibitors could develop over time, and the drug might cause myelodysplastic syndrome or acute myeloid leukemia as side effects. QINLOCK inhibits KIT and PDGFR?, blocking receptors that drive tumor growth and resistance, but it could also develop resistance and carry the risk of hepatotoxicity and cardiovascular toxicity. NUZYRA is a tetracycline antibiotic that inhibits bacterial protein synthesis; however, bacteria may develop resistance to antibiotics, limiting NUZYRA's efficacy. Optune is a non-invasive device that disrupts cell division through electric fields, but its efficacy may vary depending on tumor location, patient compliance, and limitations in delivering electric fields.

Zai Lab's oncology product candidates also have potential concerns. Challenges with antibody-drug conjugates like Tisotumab vedotin include effective drug delivery to tumor cells, minimizing off-target effects, and the possibility of resistance. Adagrasib faces resistance concerns and adverse side effects like hepatotoxicity and gastrointestinal toxicity, while Odronextamab deals with immunogenicity and potential cytokine release syndrome. Repotrectinib could develop resistance due to secondary mutations or activation of alternative pathways.

Zai Lab's product candidates in infectious diseases and neuroscience have specific considerations. Sulbactam-durlobactam faces resistance to beta-lactamase inhibitors and diazabicyclooctane inhibitors, making it important to monitor resistance patterns closely. Omadacycline, similar to NUZYRA, is susceptible to bacterial resistance, requiring ongoing surveillance. KarXT's effectiveness may vary among patients, and optimizing the dosage and achieving consistent clinical outcomes could pose challenges.

Lastly, for autoimmune disorders, Efgartigimod's concern lies in the long-term effects and safety of reducing IgG levels through FcRn antagonism. Adverse events related to altered immune response and potential infections should be closely monitored to ensure safety and effectiveness.

Competitors

Zejula (niraparib) faces competition from other PARP inhibitors such as AstraZeneca's ( AZN ) Lynparza (olaparib) and Clovis ( OTCPK:CLVSQ ) Oncology's Rubraca (rucaparib). Zejula is unique as it has demonstrated noteworthy efficacy in patients with and without BRCA mutations, providing an extended treatment population compared to competing PARP inhibitors.

Qinlock (ripretinib) is a fourth-line treatment for gastrointestinal stromal tumors (GIST) , targeting both KIT and PDGFR? with lower potency than earlier-line therapies, like Bayer/Onyx's Nexavar ( sorafenib ) and Novartis's Stivarga (regorafenib) ( NVS ). Qinlock's broad kinase inhibition and switch-pocket binding offer better tolerability and overall response rates, making it superior in the heavily pretreated GIST population.

Nuzyra (omadacycline) sets itself apart from well-established tetracycline antibiotics like Pfizer's ( PFE ) Vibramycin (doxycycline) and Hikma's Monodox (doxycycline ). It exhibits strong effectiveness against multidrug-resistant bacteria and offers a convenient once-daily oral or intravenous dosing, enhancing patient compliance and potentially improving treatment outcomes.

Optune (tumor treating fields) is an innovative non-invasive device that provides a safe, effective, and tolerable treatment option compared to other glioblastoma treatments such as Roche's Avastin (bevacizumab) , NovoCure's TTF + temozolomide , or radiation therapy. Optune's ability to disrupt cell division and cause cancer cell death via low-intensity, alternating electric fields without systemic toxicity provides unique benefits in managing tumors like glioblastoma and mesothelioma.

Zai Lab's robust oncology pipeline benefits from next-generation strategies and novel mechanisms, enabling the company to stay on the cutting edge of cancer treatment. Its diverse pipeline competes with established therapies such as Roche's Herceptin (trastuzumab) and Pfizer's Xalkori (crizotinib) , as well as upcoming therapies like Amgen's ( AMGN ) sotorasib and Eli Lilly's Retsevmo (selpercatinib) . While competition remains fierce, Zai Lab's innovative product candidates like tisotumab vedotin and adagrasib boast superior efficacy, safety, and tolerability profiles compared to competitors.

Zai Lab's product candidates in infectious disease and neuroscience address unmet medical needs with promising new approaches. In particular, KarXT offers a unique mechanism for schizophrenia treatment, potentially providing benefits over competing antipsychotics like Johnson & Johnson's Invega (paliperidone) ( JNJ ), and Otsuka/Lundbeck's Abilify (aripiprazole).

Valuation

In the context of valuation, Zai Lab is currently trading at a market capitalization of $3 billion, suggesting a premium valuation based on its trailing twelve months ((TTM)) revenue. This is indicated by its price-to-sales ratio of 12.65, which stands significantly higher than the average sector P/S ratio of 4.14. At first glance, this might raise eyebrows, as it implies a market expectation of substantial growth for the company.

This value cannot be looked at in a vacuum, and it is crucial to appreciate the scope of Zai Lab's current operations, potential growth prospects, and the business strategy it's employing to secure its future in a competitive market. The firm's recent partnership with MediLink Therapeutics and the ensuing inclusion of YL212, a cutting-edge DLL3 ADC program, in their lung cancer product line signifies an expansion of Zai Lab's global oncology pipeline. Moreover, the progress toward clinical trials of YL212, in collaboration with MediLink, is expected to further enhance Zai Lab's robust lung cancer portfolio. As this portfolio addresses approximately 70% of all newly diagnosed NSCLC patients in China, the potential market penetration and subsequent revenue generation are quite significant.

Zai Lab's financials also play a role in bolstering the bullish outlook. Despite the seemingly high P/S ratio, the company demonstrated robust growth, with a 36.2% year-over-year increase in total product revenues to $62.8 million. Additionally, the firm was successful in significantly reducing its R&D expenditures, marking an efficient cost-sharing strategy. The consequential decrease in net loss from $82.4 million to $49.1 million during the first quarter of 2023 is a testimony to the firm's effective expense management and revenue generation. Coupled with a substantial liquidity of $931.4 million, Zai Lab is in a strong position to drive further expansion and investment.

Conclusion

Zai Lab Limited is an excellent investment opportunity for those who wish to capitalize on its potential financial growth. The company has demonstrated remarkable revenue increases in recent years, reflecting the efficiency of its business model and the range of products they offer.

Furthermore, Zai Lab's success in a fiercely competitive market can be attributed to its innovative treatments targeting significant medical challenges such as oncology, infectious diseases, and neurological disorders. As Zai Lab continues to expand scientific boundaries, we strongly anticipate it can bring considerable value to investors with both current and upcoming product offerings globally.

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