ZAI LAB(ZLAB.US)：PRODUCT REVENUE IN LINE;WATCH PROGRESS OF DIFFERENTIATED PIPELINES

　　1H22 results in line with our forecast
　　Zai Lab announced 1H22 results: Revenue grew 66% YoY to US$94.9mn and attributable net loss was US$220mn, in line with our expectation.
　　Trends to watch
　　Commercialization of core products in line with expectation. Of the four commercialized products that the firm has launched in the domestic market: 1) Sales of the core product Niraparib (PARP) grew 77% YoY or 11% HoH to US$63.7mn in 1H22, and totaled US$29.6mn and US$34.1mn in 1-2Q22 (up 46% YoY or 15% QoQ in 2Q22). 2) Sales of Optune (Tumor Treating Fields) were US$24.4mn in 1H22, and reached US$12.8mn and US$11.6mn in 1-2Q22. We believe that Optune’s sales fell slightly in 2Q22 due to COVID-19 resurgence in Shanghai. 3) The firm adjusted prices of QINLOCK (Ripretinib) and NUZYRA (Omadacycline), as it is preparing for the negotiation of inclusion in the national reimbursement drug list (NRDL) for these two products at end-2022. As a result, the firm charged provision of compensation for distribution channels at US$2.9mn in 2Q22. The reported sales of QINLOCK and NUZYRA were US$3.6mn and US$2mn for 1H22.
　　Expense ratios gradually improving; ample cash on hand. As of June 2022, the firm’s cash on hand totaled US$1.26bn. Its 1H22 SG&A expenses reached US$120mn, with an expense ratio of 127%, down 24.8ppt from 2021. R&D expenses amounted to US$120mn in 1H22, higher than the core R&D expenses (excluding cooperative advance payment) of US$96mn in 1H21. In addition, the firm converted to primary listing on the Main Board of the Hong Kong Exchanges and Clearing in June 2022, and was included in the Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect successively in June-July 2022.
　　Watch milestones in development of products for mid- to late-stage diseases. The firm has made progress in clinical trials and applications for several products in the pipeline. Specifically, the firm applied for marketing approval for Efgartigimod (FcRn) for myasthenia gravis in China in July 2022, and we expect it to be approved in 2023. KarXT has achieved positive preliminary results in a Phase III clinical trial (EMERGENT-2) in adults with schizophrenia in August 2022. KarXT significantly improved positive and negative symptoms in early dosing and was generally well tolerated. The firm’s partner Karuna plans to apply for marketing approval for this product in the US and other markets in 2023. Multiple candidate molecules in the pipeline such as Adagrasib (KRAS G12C) had positive data readouts recently. In addition, the firm plans to start Phase II clinical trial for ZL-1102 (IL-17A) for chronic plaque psoriasis (for which the firm has global rights) in 4Q22. Meanwhile, according to the firm’s partner Novocure, Phase III clinical readouts for Tumor Treating Fields for second-line NSCLC and ovarian cancer are expected in 1Q23 and 2023.
　　Financials and valuation
　　Due to the impact of COVID-19 resurgence and product price adjustments, we adjust our 2022 and 2023 net loss forecasts from US$429mn and US$412mn to US$440mn and US$435mn.We maintain OUTPERFORM for H-shares but cut our DCF-based TP 32.1% to HK$56.00 (excluding the impact of changes in shares), offering 54% upside, due to the firm’s share split (1 share split into 10 shares) in 1H22 and the falling average valuation of the sector. We maintain OUTPERFORM for ADRs but cut our DCF-based TP 31.9% to US$72.00, offering 61% upside, given the falling average valuation of the sector.
　　Risks
　　Disappointing sales of products and outcome of trials; sharper-than-expected decline in product prices; failure in NRDL inclusion.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。