Former Innovative Pharma Star Faces Growing Pains—Why Zai Lab’s Stock Tumbled Despite Strong Results

In China’s innovative drug sector, sustained revenue growth and a narrowing loss profile typically herald a company’s transition into a robust commercial phase. Yet after Zai Lab reported a 15.35% year-on-year rise in first-half revenue to USD 216 million and a 33.33% reduction in net loss, its shares plunged more than 10% in Hong Kong and nearly 12% in the U.S. This stark market reaction underscores mounting doubts about the sustainability of its License-in business model.

To understand Zai Lab’s current predicament, one must revisit the pivotal policy shift of 2015, when the State Council’s new review and approval guidelines ushered in priority evaluation for innovative medicines. Prior to that reform, domestic firms focused almost exclusively on generics, and importing late-stage global assets took eight to ten years under opaque, protracted processes. The new framework cleared the way for established overseas drugs to enter China swiftly, creating fertile ground for the License-in approach.

Founder Du Ying was perfectly positioned to capitalize on this window. Armed with a biochemistry PhD from the University of Cincinnati and experience leading metabolic-disease R&D at Pfizer, she built Hutchison MediPharma from the ground up and later led healthcare investments at Sequoia Capital. In 2014, she launched Zai Lab with a US $30 million Series A from Sequoia and closed a US $100 million Series B in 2016, listing on Nasdaq in 2017 and in Hong Kong in 2020—an unusually rapid trajectory from inception to dual listing.

Zai Lab’s first blockbuster success came in 2019, when it introduced Zejula (a PARP inhibitor for ovarian cancer) under license from Clovis Oncology. Thanks to its deep understanding of China’s regulatory fast-track, Zejula was approved within three years of acquisition and generated US $32.2 million in its first full year, soaring past US $140 million by 2022. That triumph cemented Zai Lab as the poster child for License-in strategy.

However, the very popularity of the License-in model has crowded the field. Global pharmaceutical companies now routinely pursue China launches in parallel with other regions, eroding the early information asymmetry. Concurrently, government reforms—from the “4+7” centralized procurement to regular reimbursement negotiations and DRG payment pilots—have squeezed the margins on innovative drugs, driving up entry costs while compressing price leverage.

ai Lab’s latest interim report delivered mixed signals. While half-year revenue reached US $216 million and net loss narrowed to US $89 million, its flagship product, Zejula, saw Q2 sales fall 9.75% to US $41 million. Competition from AstraZeneca’s Olaparib and domestic PARP inhibitors like Hengrui’s Fluzoparib has chipped away at market share. A 20% price reduction in the national reimbursement listing further depressed average selling price, and anticipated volume gains have yet to offset the cut.

Efgartigimod, Zai Lab’s other core asset for generalized myasthenia gravis, grew just 14.47% year-on-year to US $26.5 million in Q2—below analyst forecasts of 20%–25%. The looming introduction of Rongchang Biotech’s Telitacicept into reimbursement threatens to erode efgartigimod’s pricing edge and prescription volumes. Meanwhile, smaller products such as the antibiotic NUZYRA achieved US $14.3 million in Q2 sales, but these niche revenues cannot compensate for the slowdown of Zai Lab’s pillars.

In Q1 2025, the company’s 22% revenue increase and narrowing loss sparked optimism that profitability was near and that efgartigimod would continue its rapid ascent. Q2’s tepid growth shattered that narrative, revealing investor concerns about the fragility of a model overly reliant on a handful of licensed drugs.

Despite maintaining full-year guidance of US $560 million to US $590 million in revenue—which implies average quarterly sales of US $140 million—Zai Lab’s recent performance suggests a significant shortfall. Core products now contribute roughly US $80 million per quarter, leaving a widening gap relative to targets.

Zai Lab’s strategy historically balanced manageable R&D risk, a diverse pipeline, and strong positioning in China’s reimbursement system. Early adoption of commercial insurance programs propelled products like efgartigimod into key municipal schemes, with commercial payers covering 35% of sales by 2022. Nonetheless, policy shifts and intensifying price competition continue to limit profitability.

Meanwhile, China’s domestic innovation landscape has matured. In 2024, local companies executed 94 license-out deals worth US $51.9 billion, with upfront payments exceeding US $3.16 billion—a sign that export of homegrown assets now eclipses inbound licensing. Firms pursuing global markets command greater upside, while the License-in approach gradually loses its luster.

Zai Lab has begun to pivot toward self-developed programs, but progress remains slow. The company’s strengths lie in clinical development and commercialization, not early-stage discovery. Its initial in-house antibody project launched only in 2020, behind the curve on ADC and bispecific antibody innovations. ZL-1310, a DLL3-targeting ADC for small-cell lung cancer, has received U.S. FDA fast-track designation but faces delays until 2027 due to limited R&D resources.

These challenges reflect a broader reality: transitioning from a License-in powerhouse to a self-sufficient innovator demands fundamentally different capabilities. Zai Lab must bridge gaps in early discovery, accelerate asset progression, and diversify revenue streams beyond a handful of licensed drugs.

Despite the headwinds, Zai Lab’s leadership remains confident. Founder Du Ying continues to be among the highest-paid industry CEOs, with compensation of US $21.01 million in 2021 and US $13.35 million in 2024, largely in equity. The company emphasizes its enduring strengths in identifying premium assets and executing efficient commercialization. Following the interim report, Zai Lab reaffirmed plans to augment its China portfolio through strategic licensing agreements and global collaborations, aiming to unlock full pipeline value on the world stage.