Zai Lab Limited (ZLAB) Earnings

Management highlights

• Company Transformation: Xilabs is at an inflection point, evolving from a regional China-focused business to a global biopharmaceutical company, with the first US regulatory submission expected in 2028. The company has built integrated global development capabilities to advance multiple programs in parallel across geographies. • Pipeline Progress (Oncology): The lead asset Zosi (DLL3-targeted ADC) for small cell lung cancer (SCLC) and neuroendocrine carcinoma (NEC) has advanced from IND to global pivotal trials in less than two years, with three registrational programs expected by the end of 2026. A global phase 3 registration trial in second-line+ SCLC is on track to complete enrollment in H1 2027, with a US accelerated approval submission expected by end of 2027. Combination trials with PD-L1 (with/without chemo) for first-line SCLC are planned, and combinations with T-cell engagers via collaborations with Amgen and Boehringer Ingelheim are ongoing: the Amgen phase 1B study is currently enrolling, and the Boehringer Ingelheim study is expected to start in the coming months. DL6201, an LRRC15-targeting ADC, is actively enrolling a global phase 1 trial, with initial dose-escalation data expected in H1 2027. ZL1311, a next-generation MUC17-targeting T-cell engager for GI cancers, is on track for IND submission by the end of 2026. • Pipeline Progress (Immunology): GL1503 (also referred to as ZL1503), a potential first-in-class long-acting bispecific targeting IL-13 and IL-31 receptor alpha for moderate-to-severe atopic dermatitis, is in clinical testing. First-in-human data from healthy volunteers will be reported in H2 2026, with multiple ascending dose data in atopic dermatitis patients expected to be presented at a major medical conference in 2027. The asset has a differentiated profile designed to deliver robust skin clearance, rapid durable itch reduction, and extended dosing intervals, with potential expansion into other IL-13/IL-31 mediated diseases. • Commercial Operations: The company has sharpened focus on its highest priority commercial brands, laying the foundation for a return to meaningful year-over-year growth in 2027. Key priorities include driving underlying volume growth for core brands, executing a successful launch for CoxT, and preparing for NRDO (National Reimbursement Drug List) inclusion negotiations for CoxT and ViviGuard Hytrulo in 2027. The company is planning a gradual transition from IV to subcutaneous administration for the ViviGuard franchise.

Guidance

• Operating expenses are expected to remain broadly stable through the remainder of 2026, as the company maintains disciplined capital allocation focused on high-value programs. • Product sales are expected to stabilize in H2 2026, with a return to meaningful year-over-year growth projected for 2027, driven by CoxT launch, potential NRDO inclusion, and continued demand growth across core brands. • Zosi's global phase 3 enrollment in second-line+ SCLC is expected to complete in H1 2027, with US accelerated approval submission expected in late 2027 and approval anticipated in 2028. The first US product launch is targeted for 2028. • First-in-human data for GL1503 (ZL1503) from healthy volunteers will be reported in H2 2026, with multiple ascending dose data in atopic dermatitis patients expected in 2027. Initial data for DL6201 is expected in H1 2027, and the ZL1311 IND submission is on track for the end of 2026. Combination data for Zosi plus PD-L1 (with/without chemo) in first-line SCLC will be presented at ESMO in October 2026. • Three Zosi registrational programs are expected to be active by the end of 2026.

Segment performance

Xilabs reports one core commercial business segment for its existing products, with net product revenue of $105.8 million in Q2 2026, representing an 11% sequential increase from the prior quarter. The commercial business remained profitable in the quarter. ViviGuard volumes grew double digits sequentially, and demand for Doula remained strong despite supply constraints. The recently launched CoxT for schizophrenia had a successful early launch, with strong early physician interest and positive patient experiences. No other product segments are broken out with separate financial performance in the call.

Risks & headwinds

All forward-looking statements related to pipeline development, regulatory timelines, revenue growth, and profitability are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's SEC filings. Key risks identified during the call include: increasing competitive landscape in the atopic dermatitis space, potential for adverse safety events (including cytokine release syndrome for T-cell engagers and interstitial lung disease for DLL3 ADC combinations), immunogenicity/anti-drug antibody development risk for bispecific assets, and supply constraints for existing commercial products that can impact near-term revenue. Regulatory approval timelines and outcomes are inherently uncertain, and successful enrollment and completion of global clinical trials is not guaranteed.

Analyst Q&A

• Q: What data will be presented at ESMO for Zosi in first-line SCLC, what are the success benchmarks, and what is the rationale for the chemo-sparing design? /

  A: ESMO will include data from ~60 patients, mostly in the Zosi + PD-L1 doublet arm at 1.6 mg/kg, with 8-9 months of median follow-up. The clinical benchmark for a meaningful win is an ~80% response rate and 50% improvement in median PFS over the current standard of 60-70% response and 5-month median PFS. The chemo-sparing design was chosen for improved tolerability, not because of dose-limiting toxicities in the triplet combination, and it allows for higher sustained dose intensity of Zosi than chemo-based regimens. (419 characters)

• Q: The company previously guided to profitability by end of 2025; when can investors expect this goal to be revisited, and how does GL1503 differentiate from competing IL-13/IL-31 assets in the crowded atopic dermatitis space? /

  A: Xilabs already has a commercially profitable core business today, but the company is prioritizing disciplined investment in high-value global pipeline programs that create greater long-term value, so profitability will improve naturally over time as the pipeline matures post-2028 approvals. GL1503 is designed to combine three key differentiated attributes: robust dual pathway inhibition to rapidly reduce pruritus and break the itch-scratch-inflammation cycle, YTE modification to extend serum half-life for longer dosing intervals than current standards, and it is ahead of many competing assets in clinical development, with first data expected this year. The atopic dermatitis market is large and underpenetrated, so there is room for multiple differentiated assets. (607 characters)

• Q: What makes ZL1311, the upcoming MUC17 T-cell engager, able to overcome historical challenges for T-cell engagers in solid tumors? /

  A: ZL1311 is engineered with two key improvements over earlier T-cell engagers: it is biparatopic, targeting multiple epitopes of MUC17 to increase binding avidity and efficacy, and it has a silenced CD3 binding domain to reduce cytokine release syndrome (CRS), the primary safety issue that requires T-cell engagers to be administered in hospital settings. Preclinical data for the asset shows very favorable properties relative to competing MUC17-targeted programs. (334 characters)

• Q: What is the mechanistic rationale for combining Zosi (DLL3 ADC) with DLL3-targeted T-cell engagers, and how does this compare to combinations of DLL3 TCE with B7H3 ADCs? /

  A: The combination uses orthogonal mechanisms: Zosi acts as a cytotoxic to debulk high-volume SCLC tumors, releasing neoantigens as tumor cells die, which allows the T-cell engager to eliminate residual disease and maintain immune surveillance. Both agents can bind the same tumor cell, and Zosi's bystander effect even works on cells with low DLL3 expression, with minimal overlapping toxicity. Unlike B7H3, DLL3 is tumor-specific; B7H3 is expressed in normal lung tissue, increasing the risk of lung toxicity which is particularly problematic for SCLC patients already at risk for interstitial lung disease. (422 characters)