"Ultimate operation + commercialization capability" builds a solid foundation, ZAI LAB (ZLAB.US) fulfills its commitment to commercialize profitability goals.

Recently, ZAI LAB (ZLAB.US) attracted extensive attention from the industry and the market by obtaining the authorization to sell BMS's star product PD-1 O drug in 10 provinces in China due to its outstanding commercialization capabilities. On February 27, ZAI LAB disclosed its 2023 annual report performance. In the current uncertain external environment of the biopharmaceutical industry, ZAI LAB achieved an excellent performance with a 25% year-on-year increase in total revenue, further deepening investors' recognition of the company's outstanding commercialization capabilities and bringing market sentiment to a small climax. On February 27, ZAI LAB's Hong Kong stock price rose sharply by 13.27%, reaching a highest stock price of 17.76 Hong Kong dollars during trading. Within half a month, the company's stock price had a highest increase of 25.78% in the price range. In fact, as domestic Biotech companies have successively entered the market with commercialized drugs in recent years, "differentiated innovative products + abundant cash flow + excellent commercialization strategy" has become the core competitiveness to outperform in the second half of the biopharmaceutical market. Innovative drug enterprises like ZAI LAB, which are at the forefront of the industry, are expected to lead another structural market rally, unleashing their valuation potential. Operational efficiency improvement, achieving commercialization profit targets Looking at the revenue data, in 2023, ZAI LAB continued its rapid growth in double digits, with the company's current product revenue reaching 267 million US dollars, a 25% year-on-year increase, and a 31% year-on-year increase calculated at fixed exchange rates. At the same time, the company's current net loss was 335 million US dollars, a significant decrease of 24.51% year-on-year. Under this scenario of gains and losses, ZAI LAB's operational efficiency has continued to improve. With current commercialized product net revenue exceeding sales costs and marketing expenses, the company also successfully achieved its promised 2023 commercial profit target. In view of this, ZAI LAB's achievement of the commercial profit target in 2023 was not the result of a single factor, but the collective result of multiple dimensions such as increased product revenue and cost reduction. The difficulty of "selling drugs" has always been a major issue that Biotech cannot avoid, especially with the arrival of the capital winter in recent years, leading to layoffs and bankruptcies of many Biotech companies. Currently, LianTuo Bio and Boji Bio have become the first batch of "disappeared" domestic Biotech companies in 2024, highlighting the importance of commercialization capabilities for an innovative drug enterprise. Again's commercialization capabilities are not only reflected in commercial coverage capabilities, but also in the high efficiency execution and sustainability of commercialization. It is understood that in order to accelerate product commercialization, Again gradually built a sales team of over a thousand people from scratch. As Again's core product, the PARP inhibitor joyously was listed in China in 2019, entering the medical insurance system the following year, with annual sales increasing from 32.14 million US dollars to 150 million US dollars within three years. Joyously also achieved commercial coverage in the mainland of China, Hong Kong, Macau, and Taiwan, showing efficient commercial execution. In 2023, despite facing competitive pressures, joyously' product revenue still reached 169 million US dollars, a 16% year-on-year increase. As the "explosive product" of 2023, in its commercial operation, Again once again demonstrated reliable commercial operation capabilities. The product was listed in the Greater China region within two and a half years of acquiring rights, and from approval to commercial listing, it took only 67 days. As Again's first product in the self-immunity track, within half a year of joyously' listing, it had already contributed 10 million US dollars in revenue to Again, covering most of the top hospitals in China before entering the medical insurance system and treating nearly 1,000 patients by the end of the fourth quarter last year. With efficient operations, the company's sustainable commercialization capabilities continue to be validated, and its hematopoietic capacity continues to strengthen. With the expansion of joyously' indications and the approval of its subcutaneous injection form, it is expected to accelerate volume production and become an important engine for Again's future performance growth. The company expects joyously to generate over 70 million US dollars in product revenue this year. "The advantage of hematopoietic capacity + stable cash flow" builds a solid foundation As mentioned earlier, during the reporting period, ZAI LAB's net loss decreased significantly by 24.51% year-on-year. In fact, behind this, Again's research and development expenses and SG&A in 2023 were 266 million US dollars and 282 million US dollars, respectively, with significant decreases in proportion to revenue compared to the previous year. While the company reduces costs and improves efficiency, Again still maintains a high cash reserve of 808 million US dollars, equivalent to 5.813 billion RMB. A stable cash flow is undoubtedly the key foundation for ZAI LAB's stable valuation and corporate development. It is understood that the global biopharmaceutical industry's financing expectations are rapidly falling as expectations of Fed rate cuts are shrinking and the financing winter's environment is uncertain. Data released by the US Department of Labor on February 13 showed that the US Consumer Price Index (CPI) for January exceeded market expectations significantly. After the inflation data was announced, the market significantly lowered its expectations for Fed rate cuts this year. Federal funds rate futures show that the window for the first rate cut has been further delayed to June, with the space for a total of four rate cuts by the Fed this year decreasing. Based on previous US bond trading data, if the Fed cuts rates for the first time in June this year and liquidity is released, it is expected that the global pharmaceutical primary investment data will not improve until the second half of this year or even the beginning of next year. From a financing perspective, this time window is obviously very unfavorable for "anemic" Biotech companies. In the tightening financing environment, based on the currently publicly disclosed cash reserves, about 30% of Hong Kong-listed 18A companies are expected to face a cash depletion situation in 2024 if their operations and financing conditions do not improve. From this perspective, in terms of future growth certainty, with a significant reduction in losses and a cash reserve of nearly 6 billion RMB, ZAI LAB's development prospects appear very promising. In fact, excellent financial performance also reflects that ZAI LAB's clinical research and development are gradually turning into fruitful commercialization efforts. The industrial results demonstrate that the company has become a pharmaceutical enterprise with strong innovation and clinical transformation capabilities. This conclusion will also be validated in the company's subsequent commercialization and international cooperation business.Continuously expanding the global FIC/BIC pipeline, the international commercialization level continues to rise. Throughout, being rooted in China and operating globally has been an important starting point for ZAI LAB. The company has always been committed to creating a global R&D pipeline through a combination of internal discovery and external introduction. The efforts in "expanding the global pipeline" can be seen from the research and development investment of ZAI LAB. Data shows that in 2023, the R&D expenses of ZAI LAB reached $266 million, accounting for over 99% of the current revenue. On the R&D side, in addition to 5 commercially available products, ZAI LAB also has over 50 clinical studies already in progress or planned, covering the fields of oncology, bacterial infections, central nervous system, and autoimmune diseases. Currently, ZAI LAB has multiple FIC/BIC products in late-stage clinical trials. In 2024, the subcutaneous injection formulation of Efgartigimod for myasthenia gravis, Ripotrectinib for ROS1-positive lung cancer, and Shubatan Sodium-Dulotan Sodium for the treatment of Acinetobacter infections are expected to be approved. Taking the ROS1 and NTRK inhibitor Ripotrectinib in ZAI LAB's oncology pipeline as an example, this drug may become one of the "blockbusters" in the ZAI LAB pipeline in the future. As an FIC/BIC product, the current indications developed by the company include TKI-nave and TKI-treated ROS1-positive advanced non-small cell lung cancer, NTRK-positive advanced solid tumors. It is worth mentioning that ROS1 fusion-positive NSCLC patients have a high proportion of patients with central nervous system (CNS) metastases at the time of diagnosis, and the intracranial activity of currently approved ROS1 inhibitors is not ideal, indicating a significant unmet clinical need. With promising improvements in progression-free survival, Ripotrectinib is expected to become a heavyweight in the new generation of ROS1-TKIs. Supported by multiple FIC/BIC products under development, ZAI LAB is confident in its future performance growth. According to the company's previous disclosure, it is expected that by 2028, the company's target revenue will exceed $2 billion, with a corresponding compound annual growth rate of 50%. In addition to deepening pipeline research and development, actively exploring international BD cooperation is also an important part of ZAI LAB's efforts to enhance its international commercialization level. Given the increasingly strict industry compliance requirements, when MNCs seek domestic partners, they often choose companies with high efficiency and quality in clinical development, registration evaluation, and commercialization, can quickly bring products to the market for commercialization, ZAI LAB is a typical representative of this. For example, in the collaboration with BMS, the most frequently asked question in the market is "Why did BMS choose ZAI LAB instead of other Chinese pharmaceutical companies?" In fact, this is also the first time BMS has directly collaborated with a domestic innovative drug company, to some extent also an acknowledgement of ZAI LAB's commercialization capabilities. Although ZAI LAB's product pipeline does not include PD-1/PD-L1 inhibitors, its key products, the PARP inhibitor Niraparib and the tumor field therapy Tumor Treating Fields, are both best-selling products in the oncology field and have been validated by sales performance. Furthermore, ZAI LAB's business operation philosophy, degree of international commercialization, and efficient market execution capabilities are closer to the requirements of MNCs. From a market perspective, with the sales range in 10 provinces in China covered by the agreement between the two parties, ZAI LAB has strategically positioned itself, with the help of ZAI LAB, O Drugs are expected to make a comeback in the domestic market. The collaboration with BMS will further accumulate experience in collaboration with MNCs, paving the way for more international cooperation in the future. In summary, with the successful achievement of commercial profit targets, ZAI LAB's domestic and international commercial channels have gradually become smooth, becoming an important support for the stable growth of the company's performance. The dual-driving innovation model of "independent internal R&D + external strategic cooperation" will accelerate the development and market launch of the company's pipeline products, further opening up the company's valuation ceiling and driving the continuous rotation of ZAI LAB's corporate flywheel.