HAITONG INT'L: Maintaining "outperform" rating on ZAI LAB (09688) Dual engines help achieve long-term global value.

HAITONG INT'L released a research report, maintaining ZAI LAB (09688) with a "outperform" rating and a target price of 35.25 Hong Kong dollars. The bank has adjusted its revenue forecast for 2025-2027 to $470 million, $500 million, and $720 million, respectively. On one hand, the company aims to achieve stable revenue by introducing and commercializing overseas products, and on the other hand, it plans to drive global development of innovative pipelines through cross-border platforms. In the core pipeline, the ADC drug Zocilurtatug targeting DLL3 is planned to initiate three registration clinical trials by the end of 2026, covering small cell lung cancer and neuroendocrine cancer. Additionally, the company also has several early-stage global assets with differentiation potential, such as ZL-1503, ZL-6201, etc., collectively supporting its long-term value creation. Key points by HAITONG INT'L: ZAI LAB 2025 Performance Outlook It is estimated that in 2025, the company will achieve a net product revenue of $470 million, a year-on-year increase of 16.5%. The core product, Egamode (FcRn), is expected to generate revenue of $97.96 million, with a gross margin of 61.0%, R&D expenses of $200 million (down 12.8% year-on-year), and SG&A expenses of $280 million (down 5.0% year-on-year). Dual-wheel drive strategy to drive short-term performance and long-term global value creation In a recent investor conference, the management reiterated the company's core strategy of dual-wheel drive: 1) By introducing high-quality overseas products and achieving domestic commercialization, it provides a solid financial foundation for further investment in global innovation; 2) The highly integrated cross-border R&D platform can expedite the global market development of the company's quality pipeline. The bank believes that despite the management's previous downgrade of the 2025 full-year revenue guidance and delay in the company's profit target, it still expects strong performance from the company's rich commercial product portfolio in the domestic market (8 approved products on the market) and multiple potential differentiated global assets in the pipeline. Zocilurtatug (DLL3 ADC) expected to initiate three registration clinical trials this year Zocilurtatug (Zoci) is the company's DLL3-targeting ADC, and the company plans to initiate three registration clinical studies by the end of 2026 and submit an accelerated approval application in 2027: 1) For second-line/third-line small cell lung cancer (SCLC): Previous clinical data showed an ORR of 68.4%, good safety, with a low rate of grade 3 or higher adverse events at the dose of 1.6 mg/kg and no treatment-related discontinuations. A Phase III clinical trial has already started. 2) For first-line SCLC: An ongoing Phase I clinical trial of combination with PD-L1 chemotherapy, management expects to announce data in the second half of 2026. A Phase III clinical trial is expected to start by the end of the year. Additionally, a Phase I clinical trial of a new combination therapy is expected to begin in the first half of 2026., and 3) For neuroendocrine cancer (NEC): An ongoing Phase I clinical study is expected to announce data in the first half of 2026, and a registration clinical study is expected to start in the second half of 2026. Multiple early-stage clinical products expected to help the company achieve long-term global value 1) ZL-1503: ZL-1503 targets both IL-13 and IL-31R, designed for long-acting/low-frequency administration, aiming to quickly relieve itching and achieve broad disease control, poised to become a new dual-target therapy for atopic dermatitis. The company expects to announce the first human study data for healthy subjects by the second half of 2026. 2) ZL-6201 (LRRC15 ADC): Targeting tumor-associated fibroblasts to disrupt the tumor microenvironment, potentially used in sarcomas, breast cancer, non-small cell lung cancer, and other solid tumors. The management expects to initiate a global Phase I clinical trial in 1Q26. 3) ZL-1222 (PD-1/IL-12): Demonstrated strong anti-tumor activity in preclinical models, including sensitivity and resistance to PD-1, with better overall safety characteristics. Management expects to complete the clinical trial application within the year. 4) ZL-1311 (MUC17 TCE): MUC17 is a potential drug antigen overexpressed in approximately 50% of gastric cancer and gastroesophageal junction cancer cases. The management expects to enter global clinical development within the year. Risk Factors Risks in new drug development; risks in drug review and approval; risks of underperforming commercialization; risks related to partners; risks of technological iteration; risks of continuous losses.