In 3Q24, Zai Lab reported modest product sales growth at 1.7% QoQ. Despite VYVGART’s 18% QoQ increase, other products showed mixed results, highlighting the challenges in sustaining broader sales momentum. Zai reduced its net loss to US$42m from US$80m in Q2, supported by decreased SG&A expenses, though R&D spending rose moderately. While cost measures have shown progress, Zai’s path to sustainable profitability remains unclear amid sales pressures. The outlook now relies heavily on its key pipeline assets, e.g. KarXT and bemarituzumab, and its ability to expand globalisation for in-house developed assets, e.g. ZL-1310.
Key Factors for Rating
Quarterly sales growth was limited. Zai Lab reported 3Q24 product sales of US$102m, +1.7% QoQ, signalling a slowdown in sales momentum. Despite efforts to develop a differentiated pipeline and manage costs, the company has yet to demonstrate clear signs of achieving sustainable profitability amid the intensifying competition. Zai’s growth in 3Q24 was primarily driven by the performance of VYVGART, which saw an 18% QoQ increase. However, other products, such as ZEJULA (+7% QoQ) and NUZYRA (-19% QoQ), showed weaker growth or declines. While VYVGART has shown strong initial uptake, it may face challenges in maintaining growth beyond the initial surge in demand, suggesting potential difficulty in sustaining momentum going forward.
Path to sustainable profitability remains uncertain. Zai reported a net loss of US$42m in 3Q24, an improvement from a loss of US$80m in Q2. Despite the cost control efforts in SG&A expenses which decreased from US$80m in Q2 to US$67m in Q3, and in R&D expenses which moderately increased to US$66m, the company's path to sustainable profitability remains uncertain, primarily due to weak sales growth amid increasing competition.
Key pipeline progress is crucial to growth trajectory. Zai’s focus on key pipelines such as VYVGART, KarXT and bemarituzumab, and its efforts to globalise in-house developed assets like ZL-1310, will be crucial in determining its long-term growth trajectory. Several milestones in 2024 and 2025 will play an important role in shaping Zai Lab’s future performance. These include the expected launch of VYVGART for CIDP in China in 4Q24, the ongoing PhI trial of ZL-1310 (DLL3 ADC) in SCLC, the potential NDA submission for KarXT in early 2025, and the PhIII FORTITUDE-101 data readouts of bemarituzumab in 1L GC expected in 2025.
Key Risks for Rating
1) Slower-than-expected product sales ramp-up; 2) failure or delay in clinical development for key pipeline; 3) disruptions to key partnerships.