Executive Summary / Key Takeaways

• Zai Lab is rapidly transitioning from a high-burn R&D entity to a commercially scaling biopharma, leveraging a robust portfolio in Greater China and advancing a promising global pipeline across oncology, immunology, neuroscience, and infectious disease.
• First Quarter 2025 results demonstrated strong product revenue growth of 21% year-over-year, driven by key assets like ZEJULA, VYVGART, and NUZYRA, underscoring the effectiveness of the company's commercial execution and NRDL access.
• Operational efficiencies and revenue growth are translating into improved financial performance, with operating loss narrowing by 20% (25% adjusted) in Q1 2025, keeping the company firmly on track to achieve profitability on an adjusted basis by the fourth quarter of 2025.
• A deep late-stage pipeline, including potential blockbusters like KarXT for schizophrenia and bemarituzumab for gastric cancer, alongside an accelerating global R&D engine led by the promising DLL3 ADC, ZL-1310, provides significant catalysts for future growth and supports the target of surpassing $2 billion in revenue by 2028.
• While facing competition from larger global players and regional specialists, Zai Lab's strategic focus on unmet needs, rapid China market access, differentiated technologies, and disciplined financial management positions it for continued expansion and value creation.

Zai Lab's Strategic Evolution: Building a Global Biopharma Footprint

Zai Lab Limited, founded in 2013, embarked on a mission to discover, develop, and commercialize innovative therapies for patients with significant unmet medical needs. Initially focused on building its research and development capabilities and establishing a presence in Greater China, the company strategically leveraged in-licensing agreements to build a foundational pipeline. This early phase, characterized by substantial R&D investment and resulting net losses, was crucial in developing the scientific expertise and operational infrastructure necessary for its transition to a commercial-stage enterprise.

Today, Zai Lab stands as a patient-focused, commercial-stage biopharmaceutical company with a dual presence in Greater China and the United States. Its strategy centers on a two-pronged approach: building a high-growth commercial business in Greater China by bringing approved therapies to market rapidly and efficiently, and simultaneously advancing a differentiated global pipeline through both in-licensing and internal discovery. This approach positions Zai Lab to address critical medical needs in its core markets while also aspiring to bring novel therapies to patients worldwide.

Within the competitive biopharmaceutical landscape, Zai Lab operates alongside large, diversified global pharmaceutical companies such as AstraZeneca (AZN), Merck (MRK), and Pfizer (PFE), as well as regional specialists like BeiGene (BGNE). While these larger players possess vast resources, established global networks, and diversified portfolios, Zai Lab differentiates itself through its deep understanding of the Greater China market, its agility in navigating regional regulatory pathways, and a focused approach to licensing and developing assets with perceived best-in-class or first-in-class potential. Its strategic emphasis on rapid market entry in China allows it to potentially gain traction ahead of competitors in specific indications, while its expanding global pipeline aims to compete on innovation and clinical differentiation on a broader stage.

Technological Edge: Differentiated Science Driving the Pipeline

A core component of Zai Lab's strategy and competitive positioning lies in its focus on differentiated technologies and novel mechanisms of action. The company is actively investing in and advancing several promising platforms, particularly in the realm of antibody-drug conjugates (ADCs) and bispecific antibodies.

The lead global asset, ZL-1310, is a potential first-in-class and best-in-class DLL3-targeted ADC. DLL3 is a validated target highly expressed in small cell lung cancer (SCLC) and other neuroendocrine tumors. Preliminary Phase 1 data in extensive-stage SCLC patients demonstrated a robust objective response rate (ORR), including activity in brain lesions, coupled with good tolerability. This early performance is particularly noteworthy in a disease setting with significant unmet need and limited effective treatment options upon progression. The company is accelerating the development of ZL-1310, initiating a pivotal study in SCLC in April 2025, positioning it for potential accelerated approval by the FDA in 2027. This rapid advancement, supported by FDA Fast Track and Orphan Drug designations, highlights the potential of this asset and Zai Lab's execution capabilities.

Beyond ZL-1310, Zai Lab is advancing other internally developed assets. ZL-6201, a novel LRRC15 ADC, utilizes an internally developed high-affinity antibody and a next-generation payload linker designed for both extracellular and intracellular payload release, potentially enabling a strong bystander killing effect in the tumor microenvironment. Preclinical findings presented at AACR 2025 support its potential in sarcoma and other LRRC15-positive solid tumors, with IND-enabling studies planned for 2025. ZL-1222, a PD-1 targeted next-generation IL-12 immunocytokine, aims to harness the anti-tumor potential of IL-12 while mitigating systemic toxicity through a unique design that initiates Cis-mediated signaling upon binding to PD-1. Preclinical data suggest potent activity in both anti-PD-1 sensitive and resistant models with improved safety, indicating potential for patients refractory to current immuno-oncology therapies.

In immunology, ZL-1503, an IL-13/IL-31 bispecific antibody, is expected to enter Phase 1 development in 2025 for atopic dermatitis. This internally discovered asset targets two key cytokines implicated in inflammatory and pruritic conditions, aiming for a differentiated profile.

These technological initiatives are critical for Zai Lab's long-term competitiveness. By developing or in-licensing assets with novel mechanisms or improved profiles, Zai Lab aims to create competitive moats based on clinical differentiation, potentially commanding premium pricing or capturing significant market share in specific patient populations. While larger competitors like MRK and AZN have broad pipelines, Zai Lab's focused approach to specific targets and technologies allows it to potentially develop best-in-class therapies in niche areas, challenging the dominance of established players.

Commercial Engine: Driving Near-Term Revenue and Profitability

Zai Lab's commercial business in Greater China is the primary engine of its near-term revenue growth and the key driver for achieving profitability. The company currently markets seven products: ZEJULA, VYVGART/VYVGART Hytrulo, NUZYRA, OPTUNE, QINLOCK, XACDURO, and AUGTYRO.

In the first quarter of 2025, total revenues reached $106.5 million, with net product revenue contributing $105.7 million, representing a 21% increase compared to $87.1 million in Q1 2024. This growth was primarily fueled by strong performances from key products. ZEJULA remained a cornerstone, contributing $49.5 million and maintaining its position as the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China. VYVGART, despite a sequential dip in Q1 2025 sales ($18.1 million) attributed to seasonal factors like Chinese New Year and inventory adjustments related to the Hytrulo launch, demonstrated a strong rebound in patient volumes in March and April, with management expressing confidence in accelerated growth throughout the remainder of 2025. Its NRDL listing for gMG has been a significant catalyst for increasing market coverage and penetration. NUZYRA also showed robust growth, contributing $15.1 million, supported by increasing market access following its NRDL listings. Newly launched products like AUGTYRO ($1.6 million) and XACDURO ($1.1 million) are beginning to contribute, with XACDURO showing particularly strong initial demand for treating CRAB infections, an area of high unmet need in China.

The commercial strategy focuses on expanding patient access through hospital listings and leveraging NRDL inclusion, while also optimizing sales force effectiveness. Zai Lab is strategically deploying its existing commercial infrastructure to support new launches efficiently, for example, utilizing the ZEJULA team for TIVDAK and the QINLOCK team for bemarituzumab. For targeted opportunities like KarXT, a focused sales team is expected to effectively reach over 85% of the market. This approach aims to build operating leverage as revenue scales on a relatively stable cost base.

Late-Stage Pipeline: Catalysts for Future Blockbusters

Beyond the currently marketed products, Zai Lab boasts a deep late-stage regional pipeline poised to drive significant future growth and contribute to its goal of surpassing $2 billion in revenue by 2028. Multiple regulatory submissions and data readouts are anticipated in the near term.

In neuroscience, the New Drug Application (NDA) for KarXT for the treatment of schizophrenia was accepted by China's NMPA in January 2025. Supported by positive Phase 3 data, KarXT represents a potential paradigm shift in schizophrenia treatment in China, where over 8 million patients face significant unmet needs due to limitations of existing therapies. Its differentiated profile, lacking the atypical antipsychotic class warnings and boxed warning of current treatments, positions it as a potentially transformative option.

In oncology, the Biologics License Application (BLA) for TIVDAK for recurrent or metastatic cervical cancer was accepted by the NMPA in March 2025. Data from the global Phase 3 innovaTV 301 study and its China subpopulation showed a clinically meaningful improvement in overall survival and a 45% reduction in the risk of death compared to chemotherapy, addressing a critical need for patients with limited options. The data readout from the global Phase 3 FORTITUDE-101 study of bemarituzumab in first-line FGFR2b-positive gastric cancer is expected in the second quarter of 2025. Bemarituzumab is a first-in-class targeted therapy for a significant patient population in China, where gastric cancer is highly prevalent and advanced stages have a poor prognosis. Positive data could pave the way for a rapid filing and launch. Furthermore, the Phase 3 PANOVA-3 trial of Tumor Treating Fields (TTFields) in unresectable locally advanced pancreatic cancer met its primary endpoint (overall survival) in late 2024, and Zai Lab plans to file for regulatory approval in China in the second half of 2025, offering a novel approach for a challenging cancer. The sNDA for repotrectinib for NTRK solid tumors was also accepted by the NMPA in April 2025, expanding the potential utility of this asset.

In immunology, Zai Lab recently partnered with Vertex (VRTX) to develop and commercialize povetacicept, a novel dual BAFF/APRIL antagonist, in Greater China and Singapore. Zai Lab has joined the global Phase 3 RAINIER study in IgA nephropathy (IgAN), a disease with high prevalence and no approved therapies targeting its underlying cause, and plans to join a pivotal study in primary membranous nephropathy (PMN). Povetacicept's potential for accelerated approval in the U.S. in 1H 2026 based on interim data highlights its promise. The VYVGART franchise is also expanding, with Zai Lab planning to submit a CMC variation for the prefilled syringe (PFS) formulation in China in 2025, following its recent US FDA approval for self-injection in gMG and CIDP, offering increased patient convenience.

These late-stage assets represent substantial market opportunities and, if approved, are expected to significantly contribute to Zai Lab's revenue trajectory and competitive standing in their respective therapeutic areas.

Financial Performance and Path to Profitability

Zai Lab's financial results reflect its stage of growth: a commercial business generating increasing revenue alongside significant investment in R&D for future products. In the first quarter of 2025, the company reported a net loss of $48.4 million, an improvement from the $53.5 million net loss in Q1 2024. The operating loss also narrowed to $56.3 million in Q1 2025 from $70.3 million in the prior year period, representing a 20% improvement. On an adjusted basis (excluding non-cash items like depreciation, amortization, and share-based compensation), the operating loss improved by 25% to $37.1 million.

This improvement in operating performance is a direct result of the growing revenue base outpacing expense growth. While R&D expenses increased by 11% to $60.7 million in Q1 2025, primarily driven by $20 million in upfront licensing fees for new assets (including the Zenas (ZNAS) IGF-1R antibody and other non-significant agreements), core R&D spending on clinical trials and personnel decreased due to resource prioritization. Selling, general, and administrative (SG&A) expenses decreased by 8% to $63.4 million, reflecting efficiency efforts, particularly in personnel costs.

The company's financial guidance reaffirms confidence in its trajectory. Zai Lab expects full-year 2025 total revenue to be in the range of $560 million to $590 million, implying substantial growth over 2024. Management anticipates accelerating sales growth throughout 2025, which is expected to generate significant operating leverage. This leverage, combined with disciplined cost management, underpins the target of achieving profitability on an adjusted basis by the fourth quarter of 2025. Looking further ahead, the company maintains its target of surpassing $2 billion in revenue by 2028, driven by the continued scaling of its current portfolio and the successful launch of late-stage pipeline assets.

As of March 31, 2025, Zai Lab held a strong cash position of $857.3 million (including cash, cash equivalents, current restricted cash, and short-term investments). This liquidity is expected to be sufficient to meet cash requirements for at least the next 12 months and fund the business through profitability. The company also has access to additional working capital through debt arrangements with Chinese financial institutions, with approximately $240.2 million available and $173.4 million outstanding as of the end of Q1 2025, providing further financial flexibility. While the company has significant potential future milestone payments ($247.5M development/regulatory, $2.555B sales-based) and royalties under its license agreements, these are contingent on pipeline progress and commercial success, which management views favorably as indicators of value creation.

Risks and Considerations

Despite the positive momentum and clear strategic path, investors should be mindful of potential risks. The success of Zai Lab's strategy heavily relies on the successful clinical development and regulatory approval of its pipeline candidates, which is inherently uncertain (as demonstrated by the discontinuation of the ZL-1102 trial). Commercialization success in a competitive market like China is not guaranteed and depends on factors like market access, pricing, and physician/patient adoption. Competition from larger, more established players with greater resources remains a significant factor. Reliance on collaboration partners for global development and supply also introduces risks. Furthermore, foreign exchange fluctuations, particularly between the RMB and USD/HKD, can impact reported financial results and the value of investments. Geopolitical factors, including trade policies, could also potentially affect operations, although management currently sees no direct impact from tariffs on its existing revenue base.

Conclusion

Zai Lab is executing a compelling strategy to evolve into a profitable, high-growth global biopharmaceutical company. The first quarter of 2025 results underscore the strength of its commercial engine in Greater China, driven by key products like ZEJULA, VYVGART, and NUZYRA, and supported by efficient operational execution. The company's financial performance is trending towards profitability, with a clear target of achieving adjusted profitability by Q4 2025, fueled by anticipated accelerating revenue growth and operating leverage.

Looking ahead, Zai Lab's deep late-stage pipeline, featuring potential blockbusters like KarXT and bemarituzumab, alongside an accelerating global R&D platform focused on differentiated technologies such as the ZL-1310 ADC, provides substantial catalysts for future expansion and supports its ambitious 2028 revenue target. While navigating a competitive landscape, Zai Lab's strategic focus on addressing unmet needs, leveraging its China market expertise, and investing in innovative science positions it for continued value creation. For investors, Zai Lab represents an opportunity to participate in the growth story of a company transitioning to profitability while building a sustainable, innovation-driven business with increasing global reach.