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What changed in Zai Lab Ltd's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Zai Lab Ltd's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+561 added−579 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-27)

Top changes in Zai Lab Ltd's 2024 10-K

561 paragraphs added · 579 removed · 464 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

148 edited+34 added−55 removed116 unchanged
Biggest changeThe following table provides an overview of our significant product candidates, including key indications we are evaluating for those products, their clinical stage and related studies in which we are participating, and our partners and potential geographic markets : Product Description Potential Indications and Clinical Stage (Studies) Our Potential Markets Partner Oncology Pipeline Tumor Treating Fields Portable device for delivery of electric fields 2L NSCLC – Phase III (LUNAR) Brain Met from NSCLC-Phase III (METIS) Pancreatic Cancer – Phase III (PANOVA) Greater China NovoCure Tisotumab vedotin Tissue Factor ADC 2L/3L Cervical Cancer – Phase III (innovaTV-301) Greater China Seagen (now owned by Pfizer) Adagrasib KRAS G12C inhibitor 2L+ NSCLC – Phase III (KRYSTAL-12) 1L NSCLC – Phase III (KRYSTAL-7) 2L CRC – Phase III (KRYSTAL-10) Greater China Mirati (now owned by BMS) Bemarituzumab Anti-FGFR2b antibody Gastric/GEJ Cancer – Phase III (FORTITUDE-101 and FORTITUDE-102) Greater China Five Prime (now owned by Amgen) Repotrectinib TKI targeting ROS1 oncogenic fusions ROS1 + NSCLC – Phase I/II (TRIDENT-1) NTRK + Solid Tumors – Phase I/II (TRIDENT-1) Greater China Turning Point (now owned by BMS) Autoimmune Disorder, Infectious Disease, and Neuroscience Pipeline Efgartigimod FcRn blocker CIDP – Phase II (ADHERE) Greater China argenx Sulbactam-Durlobactam Combination of beta-lactam antibacterial and beta-lactamase inhibitor HABP/VABP caused by susceptible isolates of carbapenem-resistant Acinetobacter baumannii-calcoaceticus – Phase III (ATTACK) Asia Pacific Entasis (now owned by Innoviva) Xanomeline-Trospium (KarXT) Combination of muscarinic receptor agonist and antimuscarinic agent Schizophrenia – Phase III (EMERGENT) ADP – Phase III (ADEPT) Greater China Karuna * NSCLC = non-small cell lung cancer; Brain Met = brain metastases; CRC = colorectal cancer; GEJ = gastroesophageal junction; CIDP = chronic inflammatory demyelinating polyneuropathy; Asia Pacific = Greater China, South Korea, Vietnam, Thailand, Cambodia, Laos, Malaysia, Indonesia, the Philippines, Singapore, Australia, New Zealand, and Japan; HABP/VABP = hospital acquired bacterial pneumonia and ventilator-associated bacterial pneumonia; and ADP = Alzheimer’s Disease with Psychosis.
Biggest changeThe following table provides an overview of our key regional product candidates, including key indications we are evaluating for those products, their clinical stage and related studies in which we are participating, and our partners and potential geographic markets : Product Description Potential Indications and Clinical Stage (Studies) Our Potential Markets Partner Oncology Pipeline Bemarituzumab Anti-FGFR2b antibody 1L Gastric/GEJ Cancer – Phase III (FORTITUDE-101 and FORTITUDE-102) Greater China Five Prime (now owned by Amgen) Tumor Treating Fields Portable device for delivery of electric fields 2L+ NSCLC – Phase III (LUNAR) Pancreatic Cancer – Phase III (PANOVA-3) Greater China NovoCure Tisotumab vedotin (TIVDAK) Tissue Factor ADC 2L+ Cervical Cancer – Phase III (innovaTV 301) 1L r/m Cervical Cancer - Phase II (innovaTV 205) Greater China Seagen (now owned by Pfizer) Repotrectinib (AUGTYRO) TKI targeting ROS1 oncogenic fusions NTRK + Solid Tumors – Phase I/II (TRIDENT-1) Greater China Turning Point (now owned by BMS) Immunology, Neuroscience, and Infectious Disease Pipeline Efgartigimod (VYVGART, VYVGART Hytrulo, Pre-Filled Syringe) FcRn blocker TED – Phase III (UplighTED) Myositis - Phase III (ALKIVIA) sn-gMG - Phase III (ADAPT-SERON) Ocular MG - Phase III (ADAPT-OCULUS) LN - Phase II Greater China argenx Xanomeline and Trospium Chloride (COBENFY, KarXT) Combination of muscarinic receptor agonist and antimuscarinic agent Schizophrenia – Phase III (EMERGENT) ADP – Phase III (ADEPT-2 and ADEPT-3) Greater China Karuna (now owned by BMS) The following sections include more information on significant product candidates in our oncology and immunology, neuroscience, and infectious disease pipelines.
The royalty terms generally continue until the latest of: (i) the expiration of the last-to-expire valid claim with respect to licensed patent rights; (ii) the expiration of market or regulatory exclusivity; or (iii) or a specified period of time, generally around ten years, after the date of the first commercial sale of the licensed product.
The royalty terms generally continue until the latest of: (i) the expiration of the last-to-expire valid claim with respect to licensed patent rights; (ii) the expiration of market or regulatory exclusivity; or (iii) a specified period of time, generally around ten years, after the date of the first commercial sale of the licensed product.
GSK (Niraparib) In September 2016, we entered into a collaboration, development, and license agreement with Tesaro, Inc., a company later acquired by GSK, pursuant to which we obtained an exclusive sublicense under certain patents and know-how of GSK (including such patents and know-how licensed from Merck, Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., and AstraZeneca UK Limited) to develop, manufacture, and commercialize GSK’s proprietary PARP inhibitor, niraparib (ZEJULA), for the diagnosis and prevention of any human diseases or conditions (other than prostate cancer) in mainland China, Hong Kong, and Macau.
GSK (Niraparib) In September 2016, we entered into a collaboration, development, and license agreement with Tesaro, a company later acquired by GSK, pursuant to which we obtained an exclusive sublicense under certain patents and know-how of GSK (including such patents and know-how licensed from Merck, Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., and AstraZeneca UK Limited) to develop, manufacture, and commercialize GSK’s proprietary PARP inhibitor, niraparib (ZEJULA), for the diagnosis and prevention of any human diseases or conditions (other than prostate cancer) in mainland China, Hong Kong, and Macau.
We operate two manufacturing facilities in Suzhou, China, which support the commercial and clinical production of certain of our products and product candidates, including ZEJULA. • We have a small molecule facility that manufactures ZEJULA.
Our Manufacturing Facilities We operate two manufacturing facilities in Suzhou, China, which support the commercial and clinical production of certain of our products and product candidates, including ZEJULA. • We have a small molecule facility that manufactures ZEJULA.
Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Amgen (Bemarituzumab) In December 2017, we entered into a license and collaboration agreement with Five Prime (later acquired by Amgen), pursuant to which we obtained an exclusive license under certain patents and know-how of Five Prime to develop and commercialize products containing Five Prime’s proprietary afucosylated FGFR2b antibody known as bemarituzumab (FPA144) as an active ingredient in the treatment or prevention of any disease or condition in humans in Greater China.
Amgen (Bemarituzumab) In December 2017, we entered into a license and collaboration agreement with Five Prime (a company later acquired by Amgen), pursuant to which we obtained an exclusive license under certain patents and know-how of Five Prime to develop and commercialize products containing Five Prime’s proprietary afucosylated FGFR2b antibody known as bemarituzumab (FPA144) as an active ingredient in the treatment or prevention of any disease or condition in humans in Greater China.
The following provides additional information on our three lines of defense framework: • First Line of Defense: Our business functions are primarily responsible for identifying and evaluating risks in their areas of responsibility and for developing and implementing a risk management program, including appropriate controls and procedures, to monitor, manage, and communicate to management key information with respect to these risks.
The following provides additional information on our three lines of defense: • First Line of Defense: Our business functions are primarily responsible for identifying and evaluating risks in their areas of responsibility and for developing and implementing a risk management program, including appropriate controls and procedures, to monitor, manage, and communicate to management key information with respect to these risks.
We use our website as a means of disclosing material non-public information – including information on our products; business activities and partnerships; research; Trust for Life strategy, commitments, and reports; and other events and developments – and for complying with our disclosure obligations under Regulation FD. Our website address is -25- www.zailaboratory.com.
We use our website as a means of disclosing material non-public information – including information on our products; business activities and partnerships; research; Trust for Life strategy, commitments, and reports; and other events and developments – and for complying with our disclosure obligations under Regulation FD. Our website address is www.zailaboratory.com.
The laws of each jurisdiction vary, and patent term adjustment or patent term extension may not be available in any or all -13- jurisdictions in which we hold rights. For information on intellectual property included in our license and collaboration agreements for our commercial products, see Overview of Significant Licensed and Collaboration Arrangements .
The laws of each jurisdiction vary, and patent term adjustment or patent term extension may not be available in any or all jurisdictions in which we hold rights. For information on intellectual property included in our license and collaboration agreements for our commercial products, see Overview of Significant Licensed and Collaboration Arrangements .
Our CMOs provide services to us on a short-term and project-by-project basis. Our agreements with CMOs typically specify requirements, including product quality or service details, technical standards or methods, delivery terms, agreed price and payment, and product inspection and acceptance criteria. Our CMOs procure the necessary raw materials themselves.
Our CMOs provide services to us on a short-term and project-by-project basis. Our agreements with CMOs typically specify requirements, including product quality or service details, technical standards or methods, delivery terms, agreed price and payment, and product inspection and acceptance criteria. Our CMOs procure the necessary raw materials.
Zai Biopharmaceutical (Suzhou) Co., Ltd., an operating subsidiary of ours that is domiciled in mainland China, received $15.0 million in capital contributions via four separate contributions from Zai Lab (Hong Kong) Limited, its sole shareholder, domiciled outside of mainland China, from 2017 to 2018 to fund its business operations in mainland China.
Zai Biopharmaceutical (Suzhou) Co., Ltd., an operating subsidiary of ours that is domiciled in mainland China, received $15.0 million in capital contributions via four separate contributions from Zai Lab (Hong Kong) Limited, its sole -23- shareholder, domiciled outside of mainland China, from 2017 to 2018 to fund its business operations in mainland China.
Some of our competitors may have substantially greater financial, marketing, research and development, and other resources than we do. -20- We believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as established patent and other proprietary positions through research and development.
Some of our competitors may have substantially greater financial, marketing, research and development, and other resources than we do. We believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as established patent and other proprietary positions through research and development.
Pfizer (Tisotumab Vedotin) In September 2022, we entered into a collaboration and license agreement with Seagen (a company later acquired by Pfizer), pursuant to which we obtained an exclusive license to develop and commercialize tisotumab vedotin in Greater China. We will purchase the licensed products exclusively from Pfizer.
Pfizer (Tisotumab Vedotin) In September 2022, we entered into a collaboration and license agreement with Seagen (a company later acquired by Pfizer), pursuant to which we obtained an exclusive license to develop and commercialize tisotumab vedotin (TIVDAK) in Greater China. We will purchase the licensed products exclusively from Pfizer.
Rules for the Regulations on Supervision and Administration of Medical Devices : Laws and regulations in mainland China govern certain aspects of the production, distribution, and clinical trials of medical devices, including reporting, establishment, and maintenance of quality management and quality control measures covering the distribution process, self-inspection, and ethics review.
Rules for the Regulations on Supervision and Administration of Medical Devices : Laws and regulations in mainland China govern certain aspects of the production, distribution, and clinical trials of medical devices, including -17- reporting, establishment, and maintenance of quality management and quality control measures covering the distribution process, self-inspection, and ethics review.
We participate in clinical trials in multiple geographic locations, and compliance with the complex regulations applicable to the conduct of such trials and the use of data derived therefrom is critical to our ability to obtain approval for our products in mainland China and in our other markets.
We participate in clinical trials in multiple geographic -13- locations, and compliance with the complex regulations applicable to the conduct of such trials and the use of data derived therefrom is critical to our ability to obtain approval for our products in mainland China and in our other markets.
Pharmaceutical Distribution To distribute pharmaceutical products in mainland China, including wholesale and retail distribution, a pharmaceutical distribution enterprise must first obtain a Pharmaceutical Distribution Permit, which is effective for five years. Any enterprise holding a Pharmaceutical Distribution Permit is subject to periodic review and inspection by the relevant regulatory authorities.
Pharmaceutical Distribution To distribute pharmaceutical products in mainland China, including wholesale and retail distribution, a pharmaceutical distribution enterprise must first obtain a Pharmaceutical Distribution Permit, which is effective for five -14- years. Any enterprise holding a Pharmaceutical Distribution Permit is subject to periodic review and inspection by the relevant regulatory authorities.
While participation in this process can increase the reach and acceptance of our products, it can also result in significant negotiated reductions in the price paid for the products by hospitals or consortiums of hospitals bidding as a group.
While participation in this process can -15- increase the reach and acceptance of our products, it can also result in significant negotiated reductions in the price paid for the products by hospitals or consortiums of hospitals bidding as a group.
In mainland China, Acinetobacter baumannii infections are often seen in the hospital -9- setting. Based on the 2022 Annual Report of CARSS (China Antimicrobial Resistance Surveillance System), there were around 300,000 Acinetobacter infections reported in mainland China in 2022.
In mainland China, Acinetobacter baumannii infections are often seen in the hospital setting. Based on the 2022 Annual Report of CARSS (China Antimicrobial Resistance Surveillance System), there were around 300,000 Acinetobacter infections reported in mainland China in 2022.
We do not incorporate the information on or accessible through our website into this report, and you should not consider any information on, or that can be accessed through, our website as part of this report.
We do not incorporate the information on or accessible through our website into this report, and you should not consider any information on, or that can be accessed through, our website as part of this report. -24-
For our internally developed product candidates, we consider on a case-by-case basis whether to procure patent rights to protect certain innovation pertaining to our commercial products, product candidates and technologies.
For our internally developed product candidates, we consider on a case-by- -12- case basis whether to procure patent rights to protect certain innovation pertaining to our commercial products, product candidates and technologies.
Our sales and marketing teams cover medical centers across Greater China, and our commercial team has capabilities that cover the product sales cycle, including medical affairs, market access, and distributor management.
Our sales and marketing teams cover major medical centers across Greater China, and our commercial team has capabilities that cover the product sales cycle, including medical affairs, marketing, market access, and distributor management.
Novo Holdings (Omadacycline) In April 2017, we entered into a license and collaboration agreement with Paratek Bermuda Ltd., a subsidiary of Paratek (which was subsequently acquired by Gurnet Point Capital and Novo Holdings A/S), pursuant to which we obtained both an exclusive license under certain patents and know-how of Paratek Bermuda Ltd. and an exclusive sub-license under certain intellectual property that Paratek Bermuda Ltd. licensed from Tufts University to develop, manufacture, and commercialize products containing omadacycline (NUZYRA) as an active ingredient in the field of all human therapeutic and preventative uses other than biodefense in Greater China.
Novo Holdings (Omadacycline) In April 2017, we entered into a license and collaboration agreement with Paratek (which was subsequently acquired by Gurnet Point Capital and Novo Holdings A/S), pursuant to which we obtained both an exclusive license under certain patents and know-how of Paratek and an exclusive sub-license under certain intellectual property that Paratek licensed from Tufts University to develop, manufacture, and commercialize products containing omadacycline (NUZYRA) as an active ingredient in the field of all human therapeutic and preventative uses other than biodefense in Greater China.
Clinical trials on investigational products must be approved by the relevant authorities before their commencement. Following approval of a Clinical Trial Application ( “ CTA ” ) approval, the applicant (i.e., sponsor) generally conducts the clinical trial at one or more institutions, subject to rules and regulations governing good practices associated with such clinical trial.
Clinical trials on investigational products must be approved by the relevant authorities before their commencement. Following approval of a CTA approval, the applicant (i.e., sponsor) generally conducts the clinical trial at one or more institutions, subject to rules and regulations governing good practices associated with such clinical trial.
For example, our Chief Legal Officer, supported by our Chief Compliance Officer, is responsible for: developing and updating our enterprise risk management program and targets; reviewing and approving management or mitigation plans for major risk management issues; overseeing implementation of risk management measures; providing guidance and support on our risk management approach to the relevant departments in the Company; and reporting to management, the Board of Directors, and the Audit Committee, as deemed appropriate. • Third Line of Defense: Our Internal Audit function is responsible for evaluating the design, adequacy, operational effectiveness, and efficiency of our enterprise risk management program, including our risk governance structure, processes for enterprise risk identification and management, and risk control processes.
For example, our Chief Legal Officer is responsible for developing and updating our enterprise risk management program and targets; reviewing and approving management or mitigation plans for major risk management issues; overseeing implementation of risk management measures; providing guidance and support on our risk management approach to the relevant departments in the Company; and reporting to management, the Board of Directors, and the Audit Committee, as deemed appropriate. • Third Line of Defense: Our Internal Audit function is responsible for evaluating the design, adequacy, operational effectiveness, and efficiency of our enterprise risk management program, including our risk governance structure, processes for enterprise risk identification and management, and risk control processes.
For example, we have obtained the necessary licenses and engaged CMOs to locally manufacture NUZYRA and ZL-1102 in mainland China. By outsourcing a portion of our manufacturing activities, we can increase our focus on core areas of competence such as product candidate development, commercialization, and research.
For example, we have obtained the necessary licenses and engaged CMOs to locally manufacture NUZYRA in mainland China. By outsourcing a portion of our manufacturing activities, we can increase our focus on core areas of competence such as product candidate development, commercialization, and research.
We also launched ZEJULA in Hong Kong in 2018 for adult patients with platinum-sensitive, relapsed high-grade, serous epithelial ovarian cancer who are in a complete response or partial response to platinum-based chemotherapy and in Hong Kong and Macau in 2021 as a maintenance treatment for adult patients with high-grade serous epithelial ovarian cancer who are in a complete response or partial response to first-line platinum-based chemotherapy.
We also launched ZEJULA in Hong Kong in 2018 as a maintenance therapy for adult patients with platinum-sensitive, relapsed high-grade, serous epithelial ovarian cancer who are in a complete or partial response to platinum-based chemotherapy and in Hong Kong and Macau in 2021 as a maintenance therapy for adult patients with high-grade serous epithelial ovarian cancer who are in a complete or partial response to first-line platinum-based chemotherapy.
Zai Lab (Shanghai) Co., Ltd., an operating subsidiary of ours that is domiciled in mainland China, received $466.5 million in capital contributions via 24 separate contributions from Zai Lab (Hong Kong) Limited, its sole shareholder, domiciled outside of mainland China, from 2014 to 2023 to fund its business operations in mainland China.
Zai Lab (Shanghai) Co., Ltd., an operating subsidiary of ours that is domiciled in mainland China, received $466.5 million in capital contributions via 24 separate contributions from Zai Lab (Hong Kong) Limited, its sole shareholder, domiciled outside of mainland China, from 2014 to 2024 to fund its business operations in mainland China.
We also engage our employees through employee resource groups, such as our women’s leadership community and local diversity, equity, and inclusion committees. We seek to bring together employees with different backgrounds and expertise to support our growth while also creating an inclusive culture.
We also engage our employees through employee resource groups, such as our women’s leadership community and local diversity, equity, and inclusion committees. We seek to bring together employees with different backgrounds and expertise while also creating an inclusive culture.
Blocking the switch pocket region and the activation switch region locks KIT and PDGFRα kinases in an inactive conformation by a dual mechanism of action that provides broad inhibition of KIT and PDGFRα kinase activity thereby preventing downstream signaling and cell proliferation. We have an exclusive license from Deciphera Pharmaceuticals, Inc. (“Deciphera”) to develop and commercialize QINLOCK in Greater China.
Blocking the switch pocket region and the activation switch region locks KIT and PDGFRα kinases in an inactive conformation by a dual mechanism of action that provides broad inhibition of KIT and PDGFRα kinase activity thereby preventing downstream signaling and cell proliferation. We have an exclusive license from Deciphera to develop and commercialize QINLOCK in Greater China.
Item 1. Business Overview We are a patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, autoimmune disorders, infectious disease, and neuroscience.
Item 1. Business Overview We are a patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, immunology, neuroscience, and infectious disease.
BMS (Repotrectinib) In July 2020, we entered into an exclusive license agreement with Turning Point (a company later acquired by BMS) pursuant to which we obtained an exclusive license to develop and commercialize products containing repotrectinib as an -12- active ingredient in all human therapeutic indications in Greater China. We will purchase the licensed products exclusively from BMS.
BMS (Repotrectinib) In July 2020, we entered into an exclusive license agreement with Turning Point (a company later acquired by BMS) pursuant to which we obtained an exclusive license to develop and commercialize products containing repotrectinib -11- (AUGTYRO) as an active ingredient in all human therapeutic indications in Greater China. We will purchase the licensed products exclusively from BMS.
Blocking FcRn prevents FcRn from binding IgG antibodies and rescuing them from lysosomal degradation resulting in a reduction in circulating IgG antibodies which may include pathogenic IgG antibodies that contribute to certain autoimmune diseases such as gMG. We have an exclusive license from argenx BV (“argenx”) to develop and commercialize efgartigimod in Greater China.
Blocking FcRn prevents FcRn from binding IgG antibodies and rescuing them from lysosomal degradation resulting in a reduction in circulating IgG antibodies which may include pathogenic IgG antibodies that contribute to certain autoimmune diseases such as gMG and CIDP. We have an exclusive license from argenx to develop and commercialize efgartigimod in Greater China.
Under the terms of the agreement, we are responsible for recruiting patients in mainland China to argenx’s global registrational trials for the development of efgartigimod. We will purchase the licensed products exclusively from argenx.
Under the terms of the agreement, we are responsible for recruiting patients in Greater China to argenx’s global registrational trials for the development of efgartigimod. We will purchase the licensed products exclusively from argenx.
Innoviva (Sulbactam-Durlobactam) In April 2018, we entered into a license and collaboration agreement with Entasis, a wholly owned subsidiary of Innoviva, pursuant to which we obtained an exclusive license under certain patents and know-how of Entasis to develop and commercialize Entasis’s proprietary compounds, durlobactam with sulbactam (the combination, SUL-DUR) with the possibility of developing and commercializing a combination of such compounds with imipenem in all human diagnostic, prophylactic and therapeutic uses in Greater China, Korea, Vietnam, Thailand, Cambodia, Laos, Malaysia, Indonesia, the Philippines, Singapore, Australia, New Zealand, and Japan.
Innoviva (Sulbactam-Durlobactam) In April 2018, we entered into a license and collaboration agreement with Entasis (now a wholly owned subsidiary of Innoviva), pursuant to which we obtained an exclusive license under certain patents and know-how of Entasis to develop and commercialize Entasis’s proprietary compounds, durlobactam with sulbactam (the combination, SUL-DUR also known as XACDURO) with the possibility of developing and commercializing a combination of such compounds with imipenem in all human diagnostic, prophylactic and therapeutic uses in Greater China, Korea, Vietnam, Thailand, Cambodia, Laos, Malaysia, Indonesia, the Philippines, Singapore, Australia, New Zealand, and Japan.
For our U.S.-based employees, in addition to our health and welfare benefits and parental leave, we provide retirement benefits in the form of certain matching contributions to tax-qualified 401(k) plans. We provide professional development and training opportunities to our employees to help enhance their competencies and capabilities.
For our U.S.-based employees, we provide health and welfare benefits, paid parental leave, and retirement benefits in the form of certain matching contributions to tax-qualified 401(k) plans. We also provide professional development and training opportunities to our employees to help enhance their competencies and capabilities.
These confidentiality agreements are designed to protect our proprietary information and generally include clauses requiring assignment of inventions to us to grant us ownership of technologies that are developed through our relationship with the respective counterparty. Such agreements may not provide adequate protection of our intellectual property and proprietary information rights.
These confidentiality agreements are designed to protect our proprietary information and generally include clauses requiring assignment of inventions to us to grant us ownership of technologies that are developed through our relationship with the respective counterparty. Such agreements may not provide adequate protection of our proprietary information.
In the fourth quarter of 2023, we decided to discontinue our development of margetuximab and odronextamab, and we provided notice to terminate our related license agreements with MacroGenics and Regeneron in accordance with their terms, effective on May 14, 2024 and December 20, 2024, respectively.
For example, in the fourth quarter of 2023, we decided to discontinue our development of margetuximab and odronextamab, and we provided notice to terminate our related license agreements -5- with MacroGenics and Regeneron in accordance with their terms, effective on May 14, 2024 and December 20, 2024, respectively.
Trade Secrets In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. Such trade secrets and know-how can be difficult to protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our partners, collaborators, scientific advisors, employees, consultants, and other third parties.
Trade Secrets We also rely upon trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. Such trade secrets and know-how can be difficult to protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our partners, collaborators, scientific advisors, employees, consultants, and other third parties.
OPTUNE (Tumor Treating Fields) OPTUNE (“Tumor Treating Fields” or “TTFields”) is a cancer therapy that uses electric fields tuned to specific frequencies to kill tumor cells via a variety of mechanisms. TTFields therapy is delivered through a portable medical device. The complete delivery system for OPTUNE includes a portable electric field generator, arrays, rechargeable batteries, and accessories.
OPTUNE (Tumor Treating Fields) OPTUNE is a cancer therapy that uses electric fields tuned to specific frequencies to kill tumor cells via a variety of mechanisms. TTFields therapy is delivered through a portable medical device. The complete delivery system for OPTUNE includes a portable electric field generator, arrays, rechargeable batteries, and accessories.
Potential risks identified through this forum are escalated and managed both at the functional line level and through the Chief Compliance Officer directly to executive leadership and/or the Audit Committee, as deemed appropriate. • Audit Committee: The Audit Committee is responsible for assisting the Board of Directors in its oversight of the Company’s risk management and internal controls; the integrity of our financial statements; compliance with -23- applicable legal and regulatory requirements; the qualifications, independence, and performance of our auditors; and our internal audit and compliance functions. • Board of Directors: The Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our business strategies and is responsible for establishing our enterprise risk management and internal control system and reviewing its effectiveness.
Potential risks identified through this forum are escalated and managed at the functional line level and communicated directly to executive leadership and/or the Audit Committee, as deemed appropriate. • Audit Committee: The Audit Committee is responsible for assisting the Board of Directors in its oversight of the Company’s risk management and internal controls; the integrity of our financial statements; compliance with applicable legal and regulatory requirements; the qualifications, independence, and performance of our auditors; and our internal audit and compliance functions. • Board of Directors: The Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our business strategies and is responsible for overseeing our enterprise risk management and internal control system and reviewing its effectiveness.
These opportunities include formal and comprehensive company-level and department-level training for new employees followed by on-the-job training; periodic trainings to promote awareness and compliance with our policies and procedures; and cross-functional trainings to strengthen and reinforce employee collaborations across different functions, groups, and departments that work together to support our day-to-day operations.
These opportunities include formal and comprehensive company-level and department-level training for new employees followed by on-the-job training; periodic trainings to promote awareness and compliance with our policies and procedures; leadership development programs to cultivate leadership excellence; and cross-functional trainings to strengthen and reinforce employee collaborations across different functions, groups, and departments that work together to support our day-to-day operations.
Our senior management team is actively involved in setting quality policies and managing the internal and external quality performance of the Company. For information on risks related to our manufacturing and commercialization activities as well as our reliance on third parties, including our third-party partners, CMOs, and suppliers, see Risk Factors . Competition Competition in the biopharmaceutical industry is intense.
Our senior management team is actively involved in setting quality policies and managing the internal and external quality performance of the Company. -19- For information on risks related to our manufacturing and commercialization activities as well as our reliance on third parties, including our third-party partners, CMOs, and suppliers, see Risk Factors .
We strive to maintain a good working relationship with our employees. We are committed to encouraging a culture of open communication where employees can ask questions, raise concerns, and contribute creative solutions. Our management team routinely makes themselves available to all employees, including in regular town hall events that encourage open dialogue.
We are committed to encouraging a culture of open communication where employees can ask questions, raise concerns, and contribute creative solutions. Our management team routinely makes themselves available to all employees, including in regular town hall events that encourage open dialogue.
TTFields therapy was well tolerated with no added systemic toxicities and few grade 3 (and no grade 4 or 5) device-related adverse events. Lung cancer has the highest total incidence of any cancer in mainland China. According to the World Health Organization, the incidence of lung cancer in mainland China in 2020 was 815,563 cases.
TTFields therapy was well tolerated with no added systemic toxicities and few grade 3 (and no grade 4 or 5) device-related adverse events. Lung cancer has the highest total incidence of any cancer in mainland China. According to the World Health Organization, the incidence of lung cancer in mainland China in 2022 was around 1.1 million cases.
There are many companies, including biotechnology and pharmaceutical companies, engaged in developing products for the approved indications of our commercial products and the therapeutic areas we are targeting with our research and development activities.
Competition Competition in the biopharmaceutical industry is intense. There are many companies, including biotechnology and pharmaceutical companies, engaged in developing products for the approved indications of our commercial products and the therapeutic areas we are targeting with our research and development activities.
As a result, we have adopted a consolidated risk management methodology and program, which includes a three lines of defense risk management framework to identify, assess, evaluate, and monitor key risks associated with our strategic objectives on an on-going basis, and a risk governance structure that includes oversight by the Board of Directors (the “Board”), the Audit Committee of the Board of Directors (the “Audit Committee”), and management.
As a result, we have adopted a consolidated risk management methodology and program, which includes three lines of defense for risk management that identify, assess, evaluate, and monitor key risks associated with our strategic objectives on an on-going basis. We have also established a risk governance structure that includes oversight by the Board of Directors, the Audit Committee, and management.
Through our efforts, we seek to achieve overall corporate profitability by the end of 2025. We also seek to build and maintain the trust of our stakeholders, including through our Trust for Life strategy, which includes three commitments: improve human health, create better outcomes, and act right now with ethical business practices and strong corporate governance.
We also seek to build and maintain the trust of our stakeholders, including through our Trust for Life strategy, which includes three commitments: improve human health, create better outcomes, and act right now with ethical business practices and strong corporate governance.
We are participating in the Greater China portion of the global Phase III FORTITUDE-101 study of bemarituzumab plus chemotherapy, versus placebo plus chemotherapy, in first-line gastric cancer with FGFR2b overexpression.
We are participating in the Greater China portion of the global Phase III FORTITUDE-101 study of bemarituzumab plus chemotherapy, versus placebo plus chemotherapy, in 1L gastric or GEJ cancer with FGFR2b overexpression.
We also obtained the right of first negotiation to be Paratek Bermuda Ltd.’s partner to develop certain derivatives or modifications of omadacycline in our licensed territory. Paratek Bermuda Ltd. retains the right to manufacture the licensed product in our licensed territory to support development and commercialization of the same outside of our licensed territory.
We also obtained the right of first negotiation to be Paratek’s partner to develop certain derivatives or modifications of omadacycline in our licensed territory. Paratek retains the right to manufacture the licensed products in our licensed territory to support development and commercialization of the same outside of our licensed territory.
Under certain circumstances, our exclusive sub-license to certain intellectual property Paratek Bermuda Ltd. licensed from Tufts University may be converted to a non-exclusive license if Paratek Bermuda Ltd.’s exclusive license from Tufts University is converted to a -11- non-exclusive license under the Tufts Agreement.
Under certain circumstances, our exclusive sub-license to certain intellectual property Paratek licensed from Tufts University may be converted to a non-exclusive license if Paratek’s exclusive license from Tufts University is converted to a non-exclusive license under the Tufts Agreement.
Our Autoimmune Disorder, Infectious Disease, and Neuroscience Pipeline Additional Opportunities for Efgartigimod As discussed in Our Commercial Products and Operations , we have an exclusive license from argenx to develop and commercialize efgartigimod in Greater China, and we have commercially launched VYVGART (efgartigimod alfa injection) in mainland China for the treatment of adult patients with gMG.
Our Immunology, Neuroscience, and Infectious Disease Pipeline Additional Opportunities for Efgartigimod As discussed in Our Commercial Products and Operations , we have an exclusive license from argenx to develop and commercialize efgartigimod in Greater China, and in mainland China, we have launched VYVGART for the treatment of adult patients with gMG and VYVGART Hytrulo for gMG and CIDP.
We offer rebates to our distributors, consistent with pharmaceutical industry practice. We retain no ownership control over the products sold to our distributors, and all significant risks (including inventory risks) and rewards associated with the products are generally transferred to our distributors upon delivery to and acceptance by the distributors.
We retain no ownership control over the products sold to our distributors, and all significant risks (including inventory risks) and rewards associated with the products are generally transferred to our distributors upon delivery to and acceptance by the distributors.
To execute on that mission, we have developed a corporate strategy with the following three pillars to help us drive innovation in China and beyond: • Accelerate Medicines to Patients: We seek to advance our product pipeline by continuing to invest in research and development, including internal discovery activities; • Expanding Our Pipeline: We seek to continue to expand and strengthen our differentiated product pipeline through synergistic regional and global collaborations and corporate development activities; and • Continue Our Commercial Excellence and Execution: We seek to continue delivering strong financial performance, including by increasing access to our existing commercial products and driving further increases in our efficiency and productivity as we continue preparations to launch multiple additional products or new indications for existing products in Greater China in the next 2-3 years.
To execute on that mission, we have developed a corporate strategy with the following three pillars to help us drive innovation in China and beyond: • Accelerate Medicines to Patients: We seek to advance our global and regional pipelines by continuing to invest in research and development activities; • Expand and Strengthen Our Pipeline: We seek to continue to expand and strengthen our differentiated global and regional pipelines through our internal discovery efforts and synergistic collaborations and corporate development activities; and • Continue Our Commercial Excellence and Execution: We seek to continue delivering strong financial performance, including by increasing access to our existing commercial products and driving further increases in our efficiency and productivity as we prepare to launch additional products or new indications for existing products, as we advance along our path to achieve profitability.
The Phase III LUNAR trial met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in overall survival (“OS”) for patients with metastatic NSCLC after platinum-based therapies, and a profound OS benefit from TTFields therapy was demonstrated in the immune checkpoint inhibitors (“ICI”) subgroup.
The Phase III LUNAR trial met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in OS for patients with metastatic NSCLC after platinum-based therapies, and a profound OS benefit from TTFields therapy was demonstrated in the ICI subgroup.
Our commercial team has a proven track record and experience from leading global pharmaceutical companies including AstraZeneca, Roche, Novartis, and Bristol-Myers Squibb Company (“BMS”), and we tailor our commercialization strategies according to our -1- individual products and their market potential.
Our commercial team has a proven track record and experience from leading global pharmaceutical companies including AstraZeneca, Roche, Novartis, and BMS, and we tailor our commercialization strategies according to our individual products and their market potential.
Significant additional indications for TTFields therapy that we are evaluating include solid tumor types in second-line non-small cell lung cancer (“NSCLC”), brain metastases from NSCLC, and pancreatic cancer. • 2L NSCLC: We participated in the Greater China portion of the Phase III pivotal LUNAR trial, which was intended for patients who had recently been diagnosed with progression of NSCLC during or after platinum-based therapy.
Significant additional indications for TTFields therapy that we are evaluating include solid tumor types in 2L+ NSCLC and 1L pancreatic cancer. • 2L+ NSCLC: We participated in the Greater China portion of the Phase III pivotal LUNAR trial, which was intended for patients who had recently been diagnosed with progression of NSCLC during or after platinum-based therapy.
We will purchase the licensed products exclusively from Amgen.
We will purchase the licensed products exclusively from Innoviva.
None of our employees are represented by a labor union or covered by a collective bargaining agreement, and we have not experienced any material work stoppages or labor disputes. Further, we have been able to recruit strong employees to support our business and operations. -22- Risk Management We are committed to acting ethically, which includes identifying and responsibly managing risk.
None of our employees are represented by a labor union or covered by a collective bargaining agreement, and we have not experienced any material work stoppages or labor disputes. Risk Management We are committed to acting ethically, which includes identifying and responsibly managing risk.
Clinical Trials Clinical trials conducted both within and outside of mainland China, and the data derived from those trials, may be used to obtain marketing approval in mainland China, subject to various rules and regulations.
Clinical Trials Clinical trials conducted both within and outside of mainland China, and the data derived from those trials, may be used to obtain marketing approval in mainland China, subject to various rules and regulations, including the regulations for the use of patients’ human genetic resources and derived data.
In February 2024, BMS announced that, based on the results of the TRIDENT-1 trial, the FDA has accepted its sNDA for repotrectinib for the treatment of adult and pediatric patients 12 years of age and older with solid tumors that have a NTRK gene fusion, and are locally advanced or metastatic or where surgical resection is likely to result in severe morbidity.
In June 2024, BMS announced that, based on the results of the TRIDENT-1 trial, the FDA granted accelerated approval of AUGTYRO for the treatment of adult and pediatric patients 12 years of age and older with solid tumors that have a NTRK gene fusion, are locally advanced or metastatic, or where surgical resection is likely to result in severe -8- morbidity.
VYVGART (Efgartigimod) Efgartigimod alfa fcab (“efgartigimod”) is a human IgG1 antibody fragment that binds to the neonatal fragment crystallizable receptor (“FcRn”). FcRn is widely expressed throughout the body and plays a central role in rescuing IgG antibodies from lysosomal degradation.
VYVGART / VYVGART Hytrulo (Efgartigimod) Efgartigimod is a human IgG1 antibody fragment that binds to FcRn. FcRn is widely expressed throughout the body and plays a central role in rescuing IgG antibodies from lysosomal degradation.
If any of the parties we contract with in this manner breaches or violates the terms of any such agreement or otherwise discloses our proprietary information, we may lose our competitive position and trade secret protection.
If any of the parties we contract with in this manner breaches or violates the terms of any such agreement or otherwise discloses our proprietary information, we may lose our competitive position and ability to protect such proprietary information (e.g., trade secrets).
The following provides additional information on certain components of our risk governance structure: • Risk Coordination Council: The Risk Coordination Council, which is co-chaired by the Chief Compliance Officer and another rotating member and is comprised of governance function leaders as well as business operations leaders, provides a forum to discuss and identify, monitor, and manage risks across the organization.
The following provides additional information on certain components of our risk governance structure: • Risk Coordination Council: The Risk Coordination Council, which is comprised of governance function leaders as well as business operations leaders, provides a forum to discuss and identify, monitor, and manage -22- risks across the organization.
We believe our two manufacturing facilities are sufficient to support our commercial and clinical needs and our business growth in the near term. -19- Contract Manufacturing Organizations We outsource to a limited number of external contract manufacturing organizations (“CMOs”) the production of certain drug substances and products to meet pre-clinical, clinical, and commercial requirements of our products and product candidates.
We believe our two manufacturing facilities are sufficient to support our commercial and clinical needs and our business growth in the near term. CMOs We have engaged a limited number of external CMOs to produce certain drug substances and products to meet pre-clinical, clinical, and commercial requirements of our products and product candidates.
Patients purchasing medicines included in the NRDL are entitled to reimbursement of the entire amount or a certain percentage of the purchase price. We currently have four products included in the NRDL: ZEJULA for certain ovarian cancer indications, QINLOCK for fourth-line GIST, NUZYRA for CABP and ABSSSI, and VYVGART (efgartigimod alfa injection) for gMG.
Patients purchasing medicines included in the NRDL are entitled to reimbursement of the entire amount or a certain percentage of the purchase price. We currently have five products included in the NRDL: ZEJULA for certain ovarian cancer indications, VYVGART for gMG, NUZYRA for CABP and/or ABSSSI, QINLOCK for 4L GIST, and AUGTYRO for ROS1 + NSCLC.
Competition Laws : Under Chinese laws governing competition, commercial bribery is prohibited and subject to criminal liability. Further, under certain circumstances, a pharmaceutical company’s products may not be purchased by public medical institutions where that pharmaceutical company is involved in a criminal investigation or administrative proceedings related to bribery.
Further, under certain circumstances, a pharmaceutical company’s products may not be purchased by public medical institutions where that pharmaceutical company is involved in a criminal investigation or administrative proceedings related to bribery.
NUZYRA is locally manufactured by Contract Manufacturing Organizations (“CMOs”) in mainland China. We have an exclusive promotion agreement with Huizheng (Shanghai) Pharmaceutical Technology Co., Ltd. (“Huizheng”), a subsidiary of Hanhui Pharmaceutical Co., Ltd. (“Hanhui”), one of the leading pharmaceutical companies for antibiotics in mainland China, which allows us to use Hanhui’s existing infrastructure for sales of NUZYRA in mainland China.
NUZYRA is locally manufactured by CMOs in mainland China. We have an exclusive promotion agreement with Huizheng, a subsidiary of Hanhui, one of the leading pharmaceutical companies for antibiotics in mainland China, which allows us to use Hanhui’s existing infrastructure for sales of NUZYRA in mainland China.
Under the agreement, we agreed not to commercialize certain competing products in our licensed territory. argenx (Efgartigimod) In January 2021, we entered into a collaboration and license agreement with argenx, pursuant to which we obtained an exclusive license under certain patents and know-how of argenx to develop and commercialize products containing efgartigimod (including VYVGART) as an active ingredient in all human and animal uses for any preventative or therapeutic indications in Greater China.
We are not otherwise obligated to purchase ZEJULA or other licensed products from GSK. argenx (Efgartigimod) In January 2021, we entered into a collaboration and license agreement with argenx, pursuant to which we obtained an exclusive license under certain patents and know-how of argenx to develop and commercialize products containing efgartigimod (including VYVGART and VYVGART Hytrulo) as an active ingredient in all human and animal uses for -10- any preventative or therapeutic indications in Greater China.
We launched ZEJULA in mainland China in 2020, and have supported increased patient access through its inclusion in the NRDL since 2021, as a maintenance treatment for women with recurrent platinum-sensitive ovarian cancer and for adult patients with advanced ovarian cancer who are in a complete or partial response to first-line platinum-based chemotherapy, and since 2022, as a maintenance treatment for first-line ovarian cancer.
We launched ZEJULA in mainland China in 2020, and it has been included in the NRDL since 2021 as a maintenance treatment for women with recurrent platinum-sensitive ovarian cancer and for adult patients with advanced ovarian cancer who are in a complete or partial response to first-line platinum-based chemotherapy and since 2022 as a maintenance treatment for first-line ovarian cancer.
Human Capital Resources Our employees are integral to our success, and we are committed to building and maintaining a strong and engaged workforce that is focused on delivering on our mission to become a leading global biopharmaceutical company and to positively impact human health in China and beyond.
We do not maintain insurance to cover intellectual property infringement or misappropriation. -20- Human Capital Resources Our employees are integral to our success, and we are committed to building and maintaining a strong and engaged workforce that is focused on delivering on our mission to become a leading global biopharmaceutical company and to positively impact human health in China and beyond.
For example, we source OPTUNE from NovoCure, QINLOCK from Deciphera, VYVGART from argenx, tisotumab vedotin from Pfizer, adagrasib and repotrectinib from BMS, bemarituzumab from Amgen, and SUL-DUR from Innoviva. • Other Suppliers: We are dependent on third parties for certain raw materials in our supply chain.
For example, we source VYVGART and VYVGART Hytrulo from argenx, OPTUNE from NovoCure, QINLOCK from Deciphera, XACDURO from Innoviva, AUGTYRO from BMS, bemarituzumab from Amgen, and TIVDAK from Pfizer. • Other Suppliers: We are dependent on third parties for certain raw materials in our supply chain.
We launched VYVGART ( efgartigimod alfa injection ) in mainland China in September 2023 as an add on to standard therapy for the treatment of adult patients with gMG who are anti-acetylcholine receptor (“AChR”) antibody positive, and in January 2024, this product was added to the NRDL for this indication.
We launched the IV formulation of efgartigimod, under the brand name VYVGART, in mainland China in September 2023 as an add on to standard therapy for the treatment of adult patients with gMG who are AChR antibody positive, and in January 2024, this product was added to the NRDL for this indication.
NUZYRA (Omadacycline) NUZYRA, a novel tetracycline-class antibacterial with both oral and IV formulations, is a broad spectrum antibiotic. We have an exclusive license from Paratek Pharmaceuticals, Inc. (“Paratek”) (subsequently acquired by Gurnet Point Capital and Novo Holdings A/S) to develop, manufacture, and commercialize NUZYRA in Greater China.
NUZYRA (Omadacycline) NUZYRA, a novel tetracycline-class antibacterial with both oral and IV formulations, is a broad-spectrum antibiotic. We have an exclusive license from Paratek (subsequently acquired by Gurnet Point Capital and Novo Holdings) to develop, manufacture, and commercialize NUZYRA in Greater China. Our primary market for NUZYRA is patients with CABP or ABSSSI in mainland China.
GISTs are the most common mesenchymal tumors of the gastrointestinal tract, accounting for about 0.1-3% of gastrointestinal tumors, with an estimated annual incidence of around 30,000 newly diagnosed patients per year in mainland China.
Our primary market for QINLOCK is patients with GIST in mainland China, where we believe QINLOCK is the standard of care. GISTs are the most common mesenchymal tumors of the gastrointestinal tract, accounting for about 0.1-3% of gastrointestinal tumors, with an estimated annual incidence of around 30,000 newly diagnosed patients per year in mainland China.
Additionally, we rely on continuing technological innovation to develop and maintain our proprietary position. Patents Patent rights are important in our industry to protect innovation pertaining to our commercial products, product candidates, and technologies. We hold patent rights to our commercial products, product candidates, and technologies, in part, through our licenses or other agreements.
Patents Patent rights are important in our industry to protect innovation pertaining to our commercial products, product candidates, and technologies. We hold patent rights to our commercial products, product candidates, and technologies, in part, through our licenses or other agreements.
Ovarian cancer is one of the most common gynecological cancers in China, with over 55,000 newly diagnosed cases and 37,000 deaths in China annually.
Ovarian cancer is one of the most common gynecological cancers in China, with over 61,100 newly diagnosed cases and 32,600 deaths in China annually.
The Drug Administration Law and related implementing measures established the legal framework for the administration of pharmaceutical products, including the development and manufacturing of new drugs and the medicinal preparations by medical institutions.
The Drug Administration Law and related implementing measures established the legal framework for the administration of pharmaceutical products, including the development and manufacturing of new drugs and the medicinal preparations by medical institutions. The Drug Administration Law also regulates the distribution, packaging, labels and advertisements of pharmaceutical products in mainland China.
Lung cancer consists of NSCLC in approximately 85% of cases and small cell lung cancer (“SCLC”) in approximately 15% of cases.
Lung cancer consists of NSCLC in approximately 85% of cases and SCLC in approximately 15% of cases.
We maintain liability insurance for certain clinical trials, which covers the patient human clinical trial liabilities such as bodily injury, product liability insurance, general insurance policies covering property loss due to accidents or natural disasters, and director and officer (“D&O”) insurance. We do not maintain insurance to cover intellectual property infringement or misappropriation.
We maintain liability insurance for certain clinical trials, which covers the patient human clinical trial liabilities such as bodily injury, product liability insurance, general insurance policies covering property loss due to accidents or natural disasters, and D&O insurance.
Our Oncology Pipeline Additional Indications for Tumor Treating Fields (TTFields) As discussed in Our Commercial Products and Operations , we have an exclusive license from NovoCure to develop and commercialize any TTFields products in Greater China in the field of oncology, and we have commercially launched TTFields in mainland China, Hong Kong, Taiwan, and Macau under the brand name OPTUNE GIO for certain GBM indications.
Additional Indications for OPTUNE (TTFields) As discussed in Our Commercial Products and Operations , we have an exclusive license from NovoCure to develop and commercialize any TTFields products in Greater China in the field of oncology, and we have commercially launched TTFields in Greater China for certain GBM indications.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFor example, our business and financial results could be adversely affected by changes in global, economic, and industry conditions, including currency fluctuations, changes in interest rates, capital and exchange controls, inflation, recession, market volatility, and restrictive government actions such as changes in laws and regulatory requirements, intellectual property, legal protections and remedies, trade regulations, tax laws and regulations, and procedures and actions affecting approval, production, pricing, marketing, reimbursement, and access for our products or product candidates. -74- In addition, we, as well as our customers, vendors, partners, and patients, may be impacted by geopolitical events, including economic or political tensions between the United States and China; international war or conflicts, such as the war in Ukraine and the conflict between Israel and Hamas; and other instances of political or civil unrest, such as major hostilities or acts of terrorism.
Biggest changeFor example, our business and financial results could be adversely affected by changes in global, economic, and industry conditions, including currency fluctuations, changes in interest rates, capital and exchange controls, inflation, recession, market volatility, and restrictive government actions such as changes in laws and regulatory requirements, intellectual property, legal protections and remedies, trade regulations, tax laws and regulations, and procedures and actions affecting approval, production, pricing, marketing, reimbursement, and access for our products or product candidates.
Accordingly, our business, results of operations, financial condition, and prospects may be significantly influenced by economic, political, legal, and social conditions in mainland China. Mainland China’s economy differs from the U.S. economy in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources.
Accordingly, our business, financial condition, results of operations, and prospects may be significantly influenced by economic, political, legal, and social conditions in mainland China. Mainland China’s economy differs from the U.S. economy in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources.
If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our Chinese operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our Chinese operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund or expand our business.
The Chinese government may continue to strengthen its capital controls, and additional restrictions and substantial vetting processes may be instituted by SAFE for cross-border transactions falling under both the current account and the capital account.
The Chinese government may continue to strengthen its capital controls, and additional restrictions and substantial vetting processes may be instituted by the SAFE for cross-border transactions falling under both the current account and the capital account.
Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
The successful completion of clinical trials or regulatory approval in one country does not mean that clinical trials will be successful in, or regulatory approval will be obtained, in any other country.
The successful completion of clinical trials or regulatory approval in one country does not mean that clinical trials will be successful, or regulatory approval will be obtained, in any other country.
We may decide to focus our licensing, research, development, and commercialization programs to specific products and product candidates or to specific indications for those products and product candidates based on our expectations with respect to the potential benefits of the therapies, patient needs and the potential markets, synergies with our existing business, the competitive landscape, or otherwise.
We may decide to focus our licensing, research and development, and commercialization programs to specific products and product candidates or to specific indications for those products and product candidates based on our expectations with respect to the potential benefits of the therapies, patient needs and the potential markets, synergies with our existing business, competitive landscape, or otherwise.
Such developments would have an adverse effect on our business, results of operations, financial conditions, and prospects.
Such developments would have an adverse effect on our business, financial conditions, results of operations, and prospects.
We expect the evolution in the Chinese healthcare industry to continue.
We expect evolution in the Chinese healthcare industry to continue.
If we are unable to obtain NMPA approval for our products and product candidates to be eligible for an expedited registration pathway, the time and cost we incur to obtain regulatory approvals may increase. Even if we receive Category 1 drug designation, it may not lead to a faster development, review, or approval process.
If we are unable to obtain NMPA approval for our products and product candidates to be eligible for an expedited registration pathway, the time and cost we incur to obtain regulatory approvals may increase. Even if we receive a Category 1 drug designation, it may not lead to a faster development, review, or approval process.
A Category 1 designation by the NMPA may not be granted for any of our other product candidates that will not be first approved in mainland China or, if granted, such designation may not lead to faster development or regulatory review or approval process.
A Category 1 designation by the NMPA may not be granted for any of our other product candidates that will not be first approved in mainland China or, if granted, such designation may not lead to a faster development or regulatory review or approval process.
Additionally, any regulatory approvals that we receive for our products or product candidates may be subject to limitations on the approved indications for which the products may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing studies, including Phase IV studies for the surveillance and monitoring the safety and efficacy of the products.
Additionally, any regulatory approvals that we receive for our products or product candidates may be subject to limitations on the approved indications for which the products may be marketed or to the conditions of approval or may contain requirements for potentially costly post-marketing studies, including Phase IV studies for the surveillance and monitoring of the safety and efficacy of the products.
These and other risks may materially adversely affect our business, results of operations, and financial condition. We may engage in future partnerships, in-licensing arrangements, joint ventures, or other types of future business acquisitions that could disrupt our business, cause dilution to holders of our securities, and harm our financial condition and operating results.
These and other risks may materially adversely affect our business, results of operations, and financial condition. We may engage in future partnerships, in-licensing arrangements, joint ventures, or other types of business acquisitions that could disrupt our business, cause dilution to holders of our securities, and harm our financial condition and operating results.
If we fail to maintain such licenses or other intellectual-property-related agreements that are relevant to our products and product candidates, we may be unable to develop and commercialize the affected products or product candidates, and our business, results of operations, financial condition, and prospects could be materially harmed.
If we fail to maintain such licenses or other intellectual-property-related agreements that are relevant to our products and product candidates, we may be unable to develop and commercialize the affected products or product candidates, and our business, financial condition, results of operations, and prospects could be materially harmed.
If we fail to comply with our obligations under such agreements or if our licensors or collaboration partners fail to comply with obligations under such agreements or other agreements from which our rights are based, we may be unable to successfully develop and commercialize the affected products or product candidates, and our business, results of operations, financial condition, and prospects could be materially harmed.
If we fail to comply with our obligations under such agreements or if our licensors or collaboration partners fail to comply with obligations under such agreements or other agreements from which our rights are based, we may be unable to successfully develop and commercialize the affected products or product candidates, and our business, financial condition, results of operations, and prospects could be materially harmed.
Any uncured, material breach under such agreements could result in loss of our rights and may lead to a complete termination of our rights to the applicable products or product candidates. Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
Any uncured, material breach under such agreements could result in loss of our rights and may lead to a complete termination of our rights to applicable products or product candidates. Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
Such reliance on third-party manufacturers entails risks to which we would not be subject to if we manufactured product candidates or products ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing or supply agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our products or product candidates in accordance with our specifications), and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us.
Such reliance on third-party manufacturers entails risks to which we would not be subject to if we manufactured products or product candidates ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing or supply agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our products or product candidates in accordance with our specifications), and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us.
A loss of key personnel or their work product could hamper or prevent our ability to develop or commercialize our products and product candidates, which would have a material adverse effect on our business, results of operations, financial condition, and prospects.
A loss of key personnel or their work product could hamper or prevent our ability to develop or commercialize our products and product candidates, which would have a material adverse effect on our business, financial condition, results of operations, and prospects.
For example, in the last few years, the COVID-19 pandemic, tensions between the United States and China, and other geopolitical factors have negatively affected stock market and investor sentiment and resulted in significant volatility, including temporary trading halts.
For example, in the last few years, tensions between the United States and China, the COVID-19 pandemic, and other geopolitical factors have negatively affected stock market and investor sentiment and resulted in significant volatility, including temporary trading halts.
Such developments could have a material adverse effect on our business, including our clinical development, results of operations, financial condition, ability to raise capital or raise capital on favorable terms, and the market price of our securities.
Such developments could have a material adverse effect on our business, including our clinical development, financial condition, results of operations, ability to raise capital or raise capital on favorable terms, and the market price of our securities.
We may experience delays in completing our pre-clinical or clinical trials, and numerous unforeseen events could arise during, or as a result of, such clinical trials, which could delay or prevent us from receiving regulatory approval, including: • regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs who conduct clinical trials on our behalf, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or we may decide to abandon product development programs; • the number of patients required for clinical trials of our products and product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; • third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; • we may not be able to conduct a companion diagnostic test to identify patients who are likely to benefit from our products and product candidates in a timely manner or at all; • we may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that participants are being exposed to unacceptable health risks; • the cost of clinical trials may be greater than we anticipate; • the supply or quality of our product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate; and • our products and product candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs, or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other therapies that raise safety or efficacy concerns about our products and product candidates.
We may experience delays in completing our pre-clinical or clinical trials, and numerous unforeseen events could arise during, or as a result of, such clinical trials, which could delay or prevent us from receiving regulatory approval, including: • regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs who conduct clinical trials on our behalf, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; -44- • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or we may decide to abandon product development programs; • the number of patients required for clinical trials of our products and product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; • third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; • we may not be able to conduct a companion diagnostic test to identify patients who are likely to benefit from our products and product candidates in a timely manner or at all; • we may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that participants are being exposed to unacceptable health risks; • the cost of clinical trials may be greater than we anticipate; • the supply or quality of our product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate; and • our products and product candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs, or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other therapies that raise safety or efficacy concerns about our products and product candidates.
The degree of market acceptance of our commercial products among physicians, patients, healthcare payors, and the medical community may depend on a number of factors, including: • acceptable evidence of safety and efficacy; • relative convenience and ease of administration; • prevalence and severity of any adverse side effects; • availability of alternative treatments; • pricing, cost effectiveness, and value propositions; • effectiveness of our sales and marketing capabilities and strategies; • ability to obtain sufficient insurance coverage and reimbursement; • the clinical indications for which such product are approved, as well as changes in the standard of care for their targeted indications; • the effectiveness of manufacturing and supply chain; • warnings and limitations contained in the approved labeling; • safety concerns with respect to similar or competing products marketed by others; • our ability to comply with regulatory post-marketing requirements; • the market size for such product, which may be larger or smaller than expected; • entry timing and price for any competing products; and -41- • our ability to manage complications or barriers that inhibit our commercial team from reaching the appropriate audience to promote our product(s), such as because of government actions or business disruptions caused by public health crises, natural disasters, extreme weather events, and other significant or catastrophic events.
The degree of market acceptance of our commercial products among physicians, patients, healthcare payors, and the medical community may depend on a number of factors, including: • acceptable evidence of safety and efficacy; • relative convenience and ease of administration; • prevalence and severity of any adverse side effects; • availability of alternative treatments; • pricing, cost effectiveness, and value propositions; • effectiveness of our sales and marketing capabilities and strategies; • ability to obtain sufficient insurance coverage and reimbursement; • the clinical indications for which such product are approved, as well as changes in the standard of care for their targeted indications; • the effectiveness of manufacturing and supply chain; • warnings and limitations contained in the approved labeling; • safety concerns with respect to similar or competing products marketed by others; • our ability to comply with regulatory post-marketing requirements; • the market size for such product, which may be larger or smaller than expected; • entry timing and price for any competing products; and • our ability to manage complications or barriers that inhibit our commercial team from reaching the appropriate audience to promote our product(s), such as because of government actions or business disruptions caused by public health crises, natural disasters, extreme weather events, and other significant or catastrophic events.
Even after a product or product candidate receives regulatory approval, if we, our partners, or others identify undesirable side effects caused by such product candidates (or any other similar product candidates) after such approval, a number of significant negative consequences could result, including: • our revenue may be negatively impacted; • our regulatory authorities may withdraw or limit their approval of such products or product candidates; • our regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; -48- • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way such products or product candidates are distributed or administered, conduct additional clinical trials or change the labeling of our products or product candidates; • our regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS (or analogous requirement), plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools; • we may be subject to regulatory investigations and government enforcement actions; • we may decide to remove such products or product candidates from the marketplace; • we could be sued and held liable for injury caused to individuals exposed to or taking our products or product candidates; and • our reputation may suffer.
Even after a product or product candidate receives regulatory approval, if we, our partners, or others identify undesirable side effects caused by such product candidates (or any other similar product candidates) after such approval, a number of significant negative consequences could result, including: • our revenue may be negatively impacted; • our regulatory authorities may withdraw or limit their approval of such products or product candidates; • our regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way such products or product candidates are distributed or administered, conduct additional clinical trials or change the labeling of our products or product candidates; • our regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS (or analogous requirement), plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools; • we may be subject to regulatory investigations and government enforcement actions; • we may decide to remove such products or product candidates from the marketplace; • we could be sued and held liable for injury caused to individuals exposed to or taking our products or product candidates; and • our reputation may suffer.
If we are found to have infringed a third party’s patent rights, and we are unsuccessful in demonstrating that such patent(s) are invalid or unenforceable, we could be required to: • obtain royalty-bearing licenses from such third party to the relevant patent(s), which may not be available on commercially reasonable terms, require substantial licensing and royalty payments, or may not be available at all, and even if we were able to obtain such licenses, they could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us; • defend against additional litigation or administrative proceedings in the same and/or other jurisdiction(s); • reformulate affected product(s) so that they do not infringe the intellectual property rights of others, which may not be possible or could be expensive and time consuming; -63- • cease developing, manufacturing, and commercializing any infringing products, product candidates, or technologies; and • pay such third party significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed their patent.
If we are found to have infringed a third party’s patent rights, and we are unsuccessful in demonstrating that such patent(s) are invalid or unenforceable, we could be required to: • obtain royalty-bearing licenses from such third party to the relevant patent(s), which may not be available on commercially reasonable terms, require substantial licensing and royalty payments, or may not be available at all, and even if we were able to obtain such licenses, they could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us; • defend against additional litigation or administrative proceedings in the same and/or other jurisdiction(s); • reformulate affected product(s) so that they do not infringe the intellectual property rights of others, which may not be possible or could be expensive and time consuming; • cease developing, manufacturing, and commercializing any infringing products, product candidates, or technologies; and • pay such third party significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed their patent.
For example: • others may be able to make products that are similar to our products or product candidates or utilize similar technology that are not covered by the claims of the patents that we hold rights to; • patent rights we currently hold or that we may hold in the future might be from inventors that are not the first to make the inventions covered by such patent rights; • patent rights we currently hold or that we may hold in the future might be from inventors that are not the first to file patent applications covering such inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating, or otherwise violating our intellectual property rights; • patent rights we currently hold to any patent applications that are pending or such patent applications that we may hold patent rights to in the future may not result in issued patents; • issued patents that we hold rights to may be held invalid or unenforceable; • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may impede our ability to exploit our innovations and may harm our business; and • we may choose to maintain certain trade secrets or know-how, and a third party may discover such trade secrets or know-how through independent research and development, which may harm our business.
For example: • others may be able to make products that are similar to our products or product candidates or utilize similar technology that are not covered by the claims of the patents that we hold rights to; • patent rights we currently hold or that we may hold in the future might be from inventors that are not the first to file patent applications covering such inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating, or otherwise violating our intellectual property rights; • patent rights we currently hold to any patent applications that are pending or such patent applications that we may hold patent rights to in the future may not result in issued patents; • issued patents that we hold rights to may be held invalid or unenforceable; -64- • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may impede our ability to exploit our innovations and may harm our business; and • we may choose to maintain certain trade secrets or know-how, and a third party may discover such trade secrets or know-how through independent research and development, which may harm our business.
If we are required to conduct additional clinical trials or other testing of our products or product candidates beyond those that are currently contemplated, or if we are unable to successfully complete clinical trials of our products or product candidates or other testing, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: • be delayed in obtaining regulatory approval for our products and product candidates; • not obtain regulatory approval at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; • be subject to post-marketing testing requirements; • encounter difficulties obtaining or be unable to obtain reimbursement for use of our products and product candidates; • be subject to restrictions on the distribution and/or commercialization of our products and product candidates; or • have our products and product candidates removed from the market after obtaining regulatory approval.
If we are required to conduct additional clinical trials or other testing of our products or product candidates beyond those that are currently contemplated, or if we are unable to successfully complete clinical trials of our products or product candidates or other testing, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: • be delayed in obtaining regulatory approval for our products and product candidates; • not obtain regulatory approval at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; -45- • be subject to post-marketing testing requirements; • encounter difficulties obtaining or be unable to obtain reimbursement for use of our products and product candidates; • be subject to restrictions on the distribution and/or commercialization of our products and product candidates; or • have our products and product candidates removed from the market after obtaining regulatory approval.
Regardless of merit or eventual -54- outcome, the consequences to us from those claims (whether resulting from our sales in our licensed territories, or those of our licensors’ sales elsewhere in the world) may result in: • significant negative media attention and reputational damage; • withdrawal of clinical trial subjects and inability to continue clinical trials; • significant costs to defend related litigation; • substantial monetary awards to trial subjects or patients; • the inability to commercialize any products or product candidates that we may develop; • initiation of investigations by regulators; • a diversion of management’s time and our resources; and • a decline in the market price of our securities.
Regardless of merit or eventual outcome, the consequences to us from those claims (whether resulting from our sales in our licensed territories, or those of our licensors’ sales elsewhere in the world) may result in: • significant negative media attention and reputational damage; • withdrawal of clinical trial subjects and inability to continue clinical trials; • significant costs to defend related litigation; • substantial monetary awards to trial subjects or patients; • the inability to commercialize any products or product candidates that we may develop; • initiation of investigations by regulators; • a diversion of management’s time and our resources; and • a decline in the market price of our securities.
Failure of our third parties to supply us with a sufficient quantity of products, in a timely matter or at all, will adversely affect us; • Chinese manufacturing facilities have historically experienced issues operating in line with established GMPs and international best practices, and passing FDA, NMPA, and EMA inspections, which may result in a longer and costlier current GMP inspection and approval process by the FDA, NMPA, or EMA for our Chinese manufacturing processes and third-party contract manufacturers; • We rely on third parties to conduct our pre-clinical and clinical trials.
Failure of our third parties to supply us with a sufficient quantity of such products, in a timely matter or at all, will adversely affect us; • Chinese manufacturing facilities have historically experienced issues operating in line with established GMPs and international best practices, and passing FDA, NMPA, and EMA inspections, which may result in a longer and costlier current GMP inspection and approval process by the FDA, NMPA, or EMA for our Chinese manufacturing processes and third-party contract manufacturers; • We rely on third parties to conduct our pre-clinical and clinical trials.
In order to manufacture and distribute drug and medical device products in mainland China, we are required to: • obtain a manufacturing permit for each production facility from the NMPA and its relevant branches for the manufacture of drug and device products domestically; • obtain a marketing authorization, which includes an approval number, from the NMPA for each drug or device for sale in mainland China; • obtain a Pharmaceutical Distribution Permit from the provincial medical products administration if we were to sell drugs manufactured by third parties; and -53- • renew the Pharmaceutical Manufacturing Permits, the Pharmaceutical Distribution Permits, and marketing authorizations every five years, among other requirements.
In order to manufacture and distribute drug and medical device products in mainland China, we are required to: • obtain a manufacturing permit for each production facility from the NMPA and its relevant branches for the manufacture of drug and device products domestically; • obtain a marketing authorization, which includes an approval number, from the NMPA for each drug or device for sale in mainland China; • obtain a Pharmaceutical Distribution Permit from the provincial medical products administration if we were to sell drugs manufactured by third parties; and • renew the Pharmaceutical Manufacturing Permits, the Pharmaceutical Distribution Permits, and marketing authorizations every five years, among other requirements.
In recent years, the General Office of the Communist Party of China Central Committee and the General Office of the State Council have focused on enhancing enforcement against illegal activities in the securities markets and promoting the development of capital markets, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over Chinese companies listed overseas, and to establish and improve the system of extraterritorial application of the Chinese securities laws.
In recent years, the General Office of the Communist Party of China Central Committee and the General Office of the State Council have focused on enhancing enforcement against illegal activities in the securities markets and promoting the development of capital markets, which, among other things, requires the relevant governmental authorities to strengthen -26- cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over Chinese companies listed overseas, and to establish and improve the system of extraterritorial application of the Chinese securities laws.
Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following: • disagreement regarding the number, design, size, conduct, or implementation of our clinical trials; -40- • failure to demonstrate to the satisfaction of the regulator(s) that a product candidate is safe and effective for its proposed indication, including as a result of safety issues, product recalls, or other incidents related to products approved and marketed in other jurisdictions; • failure of CROs, clinical study sites, or investigators to comply with the ICH-good clinical practice, or GCP, requirements imposed by the regulator(s); • failure of the clinical trial results to meet the required level of statistical significance; • failure to demonstrate that clinical and other benefits outweigh safety risks; • disagreement regarding the interpretation of data from pre-clinical studies or clinical trials; • insufficient data collected from clinical trials to support the submission of an NDA, PMA, or other submission required to obtain regulatory approval in Greater China, the United States, the EU, or elsewhere; • failure to obtain approval of the manufacturing processes for our clinical and commercial supplies; • changes in the approval policies or regulations; and • actions by our CROs or licensors that materially and adversely affect the clinical trials.
Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following: • disagreement regarding the number, design, size, conduct, or implementation of our clinical trials; • failure to demonstrate to the satisfaction of the regulator(s) that a product candidate is safe and effective for its proposed indication, including as a result of safety issues, product recalls, or other incidents related to products approved and marketed in other jurisdictions; • failure of CROs, clinical study sites, or investigators to comply with the ICH-good clinical practice, or GCP, requirements imposed by the regulator(s); • failure of the clinical trial results to meet the required level of statistical significance; -39- • failure to demonstrate that clinical and other benefits outweigh safety risks; • disagreement regarding the interpretation of data from pre-clinical studies or clinical trials; • insufficient data collected from clinical trials to support the submission of an NDA, PMA, or other submission required to obtain regulatory approval in Greater China, the United States, the EU, or elsewhere; • failure to obtain approval of the manufacturing processes for our clinical and commercial supplies; • changes in the approval policies or regulations; and • actions by our CROs or licensors that materially and adversely affect the clinical trials.
Our ability to successfully generate revenue from our commercial products will depend on, among other things, our ability to: • maintain sufficient manufacturing or supply arrangements with third-party licensors or manufacturers; • produce through a validated process or procure internally or from third-party manufacturers sufficient quantities and inventory of our commercial products; • build and maintain sufficient internal sales, distribution and marketing capabilities; -39- • increase awareness and education for our commercial products to promote acceptance from physicians, healthcare payors, patients, and the medical community; • improve access to, and affordability of, our commercial products, such as through NRDL listings or supplemental insurance coverage in the private-pay market; • maintain compliance with ongoing regulatory labeling, packaging, storage, advertising, promotion, recordkeeping, safety, and other post-market requirements; • manage our growth and spending as costs and expenses increase due to commercialization; and • manage business interruptions resulting from the occurrence of any public health crisis, international war or conflict, natural disaster, extreme weather event, or other significant or catastrophic event outside of our control.
Our ability to successfully generate revenue from our commercial products will depend on, among other things, our ability to: • maintain sufficient manufacturing or supply arrangements with third-party licensors or manufacturers; • produce through a validated process or procure internally or from third-party manufacturers sufficient quantities and inventory of our commercial products; • build and maintain sufficient internal sales, distribution, and marketing capabilities; • increase awareness and education for our commercial products to promote acceptance from physicians, healthcare payors, patients, and the medical community; • improve access to, and affordability of, our commercial products, such as through NRDL listings or supplemental insurance coverage in the private-pay market; • maintain compliance with ongoing regulatory labeling, packaging, storage, advertising, promotion, recordkeeping, safety, and other post-marketing requirements; -38- • manage our growth and spending as costs and expenses increase due to commercialization; and • manage business interruptions resulting from the occurrence of any public health crisis, international war or conflict, natural disaster, extreme weather event, or other significant or catastrophic event outside of our control.
However, the tax resident status of an enterprise is subject to determination by Chinese tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If Chinese tax authorities determine that Zai Lab Limited or any of our subsidiaries outside of mainland China is a Chinese resident enterprise for EIT purposes that entity would be subject to a 25% EIT on its global income.
However, the tax resident status of an enterprise is subject to determination by Chinese -33- tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If Chinese tax authorities determine that Zai Lab Limited or any of our subsidiaries outside of mainland China is a Chinese resident enterprise for EIT purposes that entity would be subject to a 25% EIT on its global income.
The NMPA might require us to change our planned clinical study design or otherwise spend additional resources and effort to obtain approval of our product candidates. In addition, policy changes may contain significant limitations related to use restrictions for certain age groups, warnings, precautions, or contraindications, or we may be subject to burdensome post-approval study or risk management requirements.
The NMPA might -47- require us to change our planned clinical study design or otherwise spend additional resources and effort to obtain approval of our product candidates. In addition, policy changes may contain significant limitations related to use restrictions for certain age groups, warnings, precautions, or contraindications, or we may be subject to burdensome post-approval study or risk management requirements.
Our compliance with such existing laws, rules, and regulations, or any future related laws and regulations, could significantly increase our compliance costs, require significant changes to our operations, result in suspensions or delays of our clinical trials or impair or ability to initiate new clinical trials, or even prevent us from providing certain products in jurisdictions in which we currently operate or may in the future wish to operate.
Our compliance with such existing laws, rules, and regulations, or any future related laws and regulations, could significantly increase our compliance costs, require significant changes to our operations, result in suspensions or delays of our clinical trials or -28- impair or ability to initiate new clinical trials, or even prevent us from providing certain products in jurisdictions in which we currently operate or may in the future wish to operate.
Such statutory reserve funds and the accumulated after-tax profits that are used for covering the loss cannot be distributed to us as dividends. At their discretion, our Chinese subsidiaries may allocate a portion of their after-tax profits based on Chinese accounting standards to a discretionary reserve fund. RMB is not freely convertible into other currencies.
Such statutory reserve funds and the accumulated after-tax profits that are used for covering the loss -31- cannot be distributed to us as dividends. At their discretion, our Chinese subsidiaries may allocate a portion of their after-tax profits based on Chinese accounting standards to a discretionary reserve fund. RMB is not freely convertible into other currencies.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects. -66- Risks Related to Our ADSs and Ordinary Shares If we fail to maintain proper internal control over financial reporting, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects. Risks Related to Our ADSs and Ordinary Shares If we fail to maintain proper internal control over financial reporting, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
We rely on third-party vendors, including CROs, for some of our pre-clinical studies and clinical trials related to our product or drug development efforts. Switching or adding additional CROs involves additional cost and requires management time and focus. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach.
We rely on third-party vendors, including CROs, for some of our pre-clinical studies and clinical trials related to our product development efforts. Switching or adding additional CROs involves additional cost and requires management time and focus. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach.
In -61- patent litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are common, and there are numerous grounds upon which a party can assert invalidity or unenforceability of a patent. In addition to court proceedings, in certain jurisdictions, parties may initiate legal proceedings before administrative bodies to assert challenges to intellectual property rights, including patent rights.
In patent litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are common, and there are numerous grounds upon which a party can assert invalidity or unenforceability of a patent. In addition to court proceedings, in certain jurisdictions, parties may initiate legal proceedings before administrative bodies to assert challenges to intellectual property rights, including patent rights.
If we are unable to generate sufficient revenue from our approved commercial products, on the anticipated timeline or at all, at a level that more than offsets our expenses, we will be unable to achieve or maintain profitability; • We rely on our licensors, CMOs, and other third parties for the commercial and clinical supply of our products and product candidates.
If we are unable to generate sufficient revenue from our approved commercial products, on the anticipated timeline or at all, at a level that more than offsets our expenses, we will be unable to achieve or maintain profitability; • We rely on our licensors, CMOs, and other third parties for the commercial and clinical supply of certain of our products and product candidates.
Hence, the recognition and enforcement in -36- mainland China of judgments of a court in any of these jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or even impossible. Failure to renew our current leases or locate desirable alternatives for our leased properties could materially and adversely affect our business.
Hence, the recognition and enforcement in mainland China of judgments of a court in any of these jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or even impossible. Failure to renew our current leases or locate desirable alternatives for our leased properties could materially and adversely affect our business.
Our products and product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any. Undesirable side effects, including adverse safety events, caused by our products or product candidates could have a negative impact on our business.
Our products and product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval. Undesirable side effects, including adverse safety events, caused by our products or product candidates could have a negative impact on our business.
Such post-approval -49- development and regulatory requirements may limit how our commercial products are manufactured and marketed, and could materially impair our ability to generate revenue. As such, we and our partners and any of our and their respective contract manufacturers will be subject to ongoing review and periodic inspections to assess compliance with applicable post-approval regulations.
Such post-approval development and regulatory requirements may limit how our commercial products are manufactured and marketed, and could materially impair our ability to generate revenue. As such, we and our partners and any of our and their respective contract manufacturers will be subject to ongoing review and periodic inspections to assess compliance with applicable post-approval regulations.
We are closely monitoring legal and regulatory developments in this area to see how scientific data is interpreted, and we may be required to comply -57- with additional regulatory requirements for sharing clinical study or other scientific data with our licensors or foreign regulatory authorities, although the scope of such requirements, if any, is currently unknown.
We are closely monitoring legal and regulatory developments in this area to see how scientific data is interpreted, and we may be required to comply with additional regulatory requirements for sharing clinical study or other scientific data with our licensors or foreign regulatory authorities, although the scope of such requirements, if any, is currently unknown.
For these purposes, cash is generally a passive asset and the value of a non-U.S. corporation’s -70- goodwill (which may be determined by reference to the excess of the sum of its market capitalization and liabilities over its booked assets) generally should be an active asset to the extent attributable to business activities that produce non-passive income.
For these purposes, cash is generally a passive asset and the value of a non-U.S. corporation’s goodwill (which may be determined by reference to the excess of the sum of its market capitalization and liabilities over its booked assets) generally should be an active asset to the extent attributable to business activities that produce non-passive income.
While mainland China’s economy has experienced significant growth, such growth has been uneven across different regions and sectors. The Chinese government has implemented various measures to encourage economic development and allocation of resources. Some of these measures may benefit the overall economy in mainland China but may have a negative effect on our business.
While mainland China’s economy has experienced significant growth, such growth has been uneven across regions and sectors. The Chinese government has implemented various measures to encourage economic development and allocation of resources. Some of these measures may benefit the overall economy in mainland China but may have a negative effect on our business.
The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and additional restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business.
The incurrence of additional indebtedness or the -37- issuance of certain equity securities could result in increased fixed payment obligations and additional restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business.
Some of these competitive drugs and therapies are based on scientific approaches that are similar to that of our products and product candidates. Potential competitors also include academic institutions, government agencies, and other public and private research -44- organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
Some of these competitive drugs and therapies are based on scientific approaches that are similar to that of our products and product candidates. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
If we were to -75- become subject to class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. If analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, the market price and/or trading value of our securities could decline.
If we were to become subject to class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. If analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, the market price and/or trading value of our securities could decline.
The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition, and prospects significantly. Additionally, our products and product candidates could cause undesirable side effects related to off-target toxicity.
The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition, and prospects significantly. -46- Additionally, our products and product candidates could cause undesirable side effects related to off-target toxicity.
If we are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost, and we may not achieve or sustain profitability, which may harm our business, financial condition, and prospects significantly. Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.
If we are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost, and we may not achieve or sustain profitability, which may harm our business, financial condition, and prospects significantly. -48- Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.
We do not know whether the clinical trials for our product candidates will begin or be completed on schedule or at all or whether the clinical trial results will be favorable. -45- We may incur additional costs or experience delays in completing pre-clinical or clinical trials or ultimately be unable to complete the development and commercialization of our product candidates.
We do not know whether the clinical trials for our product candidates will begin or be completed on schedule or at all or whether the clinical trial results will be favorable. We may incur additional costs or experience delays in completing pre-clinical or clinical trials or ultimately be unable to complete the development and commercialization of our product candidates.
Our success depends significantly on our ability to develop, manufacture, market, and sell our commercial products and use our proprietary technologies without infringing, misappropriating, or otherwise violating the patents and other proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights.
Our success depends significantly on our ability to develop, manufacture, market, and sell our commercial products and use our proprietary technologies without infringing, misappropriating, or otherwise violating the patents and other -61- proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights.
For example, as a result of economic or political conditions or tensions between the United States and China, the United States and other nations have raised the possibility of trade or other sanctions on China, Chinese banks, and companies with operations in China as well as legislation that restricts or prohibits U.S. investment in certain companies operating in China.
For example, as a result of economic or political conditions or tensions between the United States and China, the United States and other nations have raised the possibility of tariffs and trade or other sanctions on China, Chinese banks, and companies with operations in China as well as legislation that restricts or prohibits U.S. investment in certain companies operating in China.
Our shareholders that are residents of mainland China are required to register with local branches of SAFE or competent banks designated by SAFE in connection with their direct establishment or indirect control of an offshore entity, -33- for the purpose of overseas investment and financing, with such residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, being considered a “special purpose vehicle.” If such shareholders do not complete their registration with the local SAFE branches or otherwise fail to comply with SAFE registration requirements, the Chinese subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer, or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its Chinese subsidiaries.
Our shareholders that are residents of mainland China are required to register with local branches of the SAFE or competent banks designated by the SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, being considered a “special purpose company.” If such shareholders do not complete their registration with the local SAFE branches or otherwise fail to comply with the SAFE registration requirements, the Chinese subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer, or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its Chinese subsidiaries.
Our future capital requirements will depend on many factors, including: • revenues from our approved commercial products and related product costs; • the cost and timing of future commercialization activities for our products and any other product candidates for which we receive regulatory approval; • the cost, timing, and outcome of seeking, obtaining, and maintaining regulatory approval for our products and product candidates; • the scope, progress, timing, results, and costs of researching and developing our product candidates, including additional indications for our existing commercial products, and conducting pre-clinical and clinical trials; • our ability to establish and maintain strategic partnerships, including collaboration, licensing, or other arrangements and the economic and other terms, timing, and success of such arrangements, such as with respect to any upfront fees, development and regulatory milestones that may be payable prior to commercialization or before we have generated any revenue from the related product, and sales-based milestones or royalty payments; • the cost, timing, and outcome of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property related claims; • cash requirements of any future acquisitions; • resources and costs required to promote compliance with applicable laws and regulations by us and our third-party partners; • costs of our personnel; and • the costs of operating as a public company in both the United States and Hong Kong.
Our future capital requirements will depend on many factors, including: -36- • revenues from our approved commercial products and related product costs; • the cost and timing of future commercialization activities for our products and any other product candidates for which we receive regulatory approval; • the cost, timing, and outcome of seeking, obtaining, and maintaining regulatory approval for our products and product candidates; • the scope, progress, timing, results, and costs of researching and developing our product candidates, including additional indications for our existing commercial products, and conducting pre-clinical and clinical trials; • our ability to establish and maintain strategic partnerships, including collaboration, licensing, or other arrangements and the economic and other terms, timing, and success of such arrangements, such as with respect to any upfront fees, development and regulatory milestones that may be payable prior to commercialization or before we have generated revenue from the related product, and sales-based milestones or royalty payments that may be payable after commercial launch; • the cost, timing, and outcome of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property related claims; • cash requirements of any future acquisitions; • resources and costs required to promote compliance with applicable laws and regulations by us and our third-party partners; • costs of our personnel; and • the costs of operating as a public company in both the United States and Hong Kong.
Cybersecurity risks for companies like ours have significantly increased in recent years, in part because of the proliferation of new technologies, the use of the internet and certain technologies to conduct business, and the increased sophistication and activities of organized crime, hackers, terrorists, and other external parties, including foreign state-sponsored actors.
Cybersecurity risks for companies like ours have significantly increased in recent years, in part because of the proliferation of new technologies, the use of the internet and certain technologies to conduct business, and the increased -53- sophistication and activities of organized crime, hackers, terrorists, and other external parties, including foreign state-sponsored actors.
We cannot predict future changes in the interpretation of patent laws or changes to -62- patent laws that might be enacted into law by any legislative body. Such changes could materially affect our patent rights and could have a material adverse effect on our business, results of operations, and prospects.
We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by any legislative body. Such changes could materially affect our patent rights and could have a material adverse effect on our business, results of operations, and prospects.
In the future, we may grow our business by acquiring complementary businesses. Complying with the necessary notification and review requirements to complete such transactions may be time consuming, and our ability to obtain any necessary approvals, such as from the MOFCOM or its local counterparts, may delay or prevent our ability to complete such transactions.
In the future, we may grow our business by acquiring complementary businesses. Complying with the necessary notification and review requirements to complete such transactions may be time consuming, and our ability to obtain any necessary approvals, such as from the MOFCOM or its local counterparts, may delay or -32- prevent our ability to complete such transactions.
As a result, we may forego or delay pursuit of opportunities for other products or product candidates or for other indications that later prove to have greater commercial potential, and our resource allocation decisions may cause us to fail to capitalize on promising commercial drugs or profitable market opportunities.
As a result, we may forego or delay pursuit of opportunities for other products or product candidates or for other indications that later prove to have greater commercial potential, and our resource allocation -41- decisions may cause us to fail to capitalize on promising commercial drugs or profitable market opportunities.
None of our clinical study or other scientific data has been created or managed with government funds or funded by any source that concerns state secrets, national security, or social and public interests. To date, we have received requisite permissions to transfer clinical study data abroad.
None of our clinical study or other scientific data has been created or managed with government funds or funded by any source that concerns state secrets, national security, or social and public -55- interests. To date, we have received requisite permissions to transfer clinical study data abroad.
For example, in the United States, a single patent (provided it claims the approved drug or method for using it, or a method for manufacturing the drug) may be eligible for patent term extension of up to five years, although it cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval.
For example, in the United States, a single patent (provided it claims the approved drug or method for using it, or a method for manufacturing the drug) may be eligible for patent term extension of up to five years, although it cannot extend the remaining term of a patent beyond a total of 14 years from the date of -63- product approval.
Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries may result in resources being further concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries may result in resources being further concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through -43- collaborative arrangements with large and established companies.
An adverse determination in any such litigation could materially impair our intellectual property rights and may harm our business, financial condition, results of operations, prospects, and reputation. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain jurisdictions, including mainland China.
An adverse determination in any such litigation could materially impair our intellectual property rights and may harm our business, financial condition, results of operations, prospects, and reputation. -60- Many companies have encountered significant problems in protecting and defending intellectual property rights in certain jurisdictions, including mainland China.
The market price of our securities has been volatile, and will likely continue to be volatile and subject to wide fluctuations in response to a variety of factors, including the following: • announcements of competitive developments; • regulatory developments affecting us, our licensors and partners, our customers, or our competitors; • announcements regarding litigation or administrative proceedings involving us or our licensors and partners; • actual or anticipated fluctuations in our period-to-period operating results; • changes in financial estimates by securities research analysts; • additions or departures of our executive officers; • fluctuations of exchange rates between the RMB and the U.S. dollar; • release or expiration of lock-up or other transfer restrictions on our outstanding securities; and -67- • sales or perceived sales of additional securities.
The market price of our securities has been volatile, and will likely continue to be volatile and subject to wide fluctuations in response to a variety of factors, including the following: • announcements of competitive developments; -65- • regulatory developments affecting us, our licensors and partners, our customers, or our competitors; • announcements regarding litigation or administrative proceedings involving us or our licensors and partners; • actual or anticipated fluctuations in our period-to-period operating results; • changes in financial estimates by securities research analysts; • additions or departures of our executive officers; • fluctuations of exchange rates between the RMB and the U.S. dollar; • release or expiration of lock-up or other transfer restrictions on our outstanding securities; and • sales or perceived sales of additional securities.
In addition, our currency exchange losses may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency. -68- Holders of our ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
In addition, our currency exchange losses may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency. Holders of our ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
To the extent that we incur additional indebtedness, the foregoing risks could increase. -38- We may enter into certain capital raising, business collaboration, or other arrangements that may cause dilution to our shareholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates.
To the extent that we incur additional indebtedness, the foregoing risks could increase. We may enter into certain capital raising, business collaboration, or other arrangements that may cause dilution to our shareholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates.
As a result, our results of operations, and the commercial prospects for our products and product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed or compromised. If we lose our relationships with CROs, our product or drug development efforts could be delayed.
As a result, our results of operations, and the commercial prospects for our products and product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed or compromised. If we lose our relationships with CROs, our product development efforts could be delayed.
These restrictions may cause a material decline in the value of our ADSs. -69- Rights of our shareholders in the United States to participate in any future rights offerings may be limited, which may cause dilution to their holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities.
These restrictions may cause a material decline in the value of our ADSs. Rights of our shareholders in the United States to participate in any future rights offerings may be limited, which may cause dilution to their holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities.
The assignment of intellectual property rights may not be self-executing, or the assignment -64- agreements may be breached, and we may be forced to bring claims against our employees, contractors, or other third parties, or defend claims that they may bring against us, to determine the ownership of certain intellectual property.
The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against our employees, contractors, or other third parties, or defend claims that they may bring against us, to determine the ownership of certain intellectual property.
Conversely, if we decide to convert our RMB or HK dollars into U.S. dollars for the purpose of making payments for business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.
Conversely, if we decide to convert our RMB or HK dollars into U.S. dollars for the purpose of making payments for business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount -66- available to us.
The tax laws applicable to our business activities, however, are subject to change and uncertain interpretation. Our tax position -71- could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations, or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business.
The tax laws applicable to our business activities, however, are subject to change and uncertain interpretation. Our tax position could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations, or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business.
We have established a branch register of members in Hong Kong (the “Hong Kong share register”) for our ordinary shares that are traded on the Hong Kong Stock Exchange, and the trading of these ordinary shares on the Hong Kong Stock Exchange will be subject to the Hong Kong stamp duty.
We have established a branch register of members in Hong Kong (the “Hong Kong share register”) for our ordinary shares that are traded on the Hong Kong Stock Exchange, and the trading of these ordinary shares on the Hong Kong Stock -71- Exchange will be subject to the Hong Kong stamp duty.
This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition, and results of operations. In addition, we compete with other businesses for premises at certain locations or of desirable sizes.
This could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition, and results of operations. In addition, we compete with other -35- businesses for premises at certain locations or of desirable sizes.
Further, the NMPA, FDA, or other applicable regulatory authorities may disagree with our clinical trial design or our interpretation of data from clinical trials or may change the requirements for -46- approval even after it has reviewed and commented on the design for our clinical trials.
Further, the NMPA, FDA, or other applicable regulatory authorities may disagree with our clinical trial design or our interpretation of data from clinical trials or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.
For example, in January 2021, we entered into a strategic collaboration with argenx BV pursuant to which we obtained an exclusive license for the development and commercialization of efgartigimod in Greater China in exchange for a combination of cash and ordinary shares.
For example, in January 2021, we entered into a strategic collaboration with argenx pursuant to which we obtained an exclusive license for the development and commercialization of efgartigimod in Greater China in exchange for a combination of cash and ordinary shares.
Although our cash and cash equivalents in mainland China, Hong Kong, Australia, and the United States are deposited with various major reputable financial institutions, deposits placed with these financial institutions are not protected by statutory or commercial insurance.
Although our cash and cash equivalents in mainland China, Hong Kong, Australia, Taiwan, and the United States are deposited with various major reputable financial institutions, deposits placed with these financial institutions are not protected by statutory or commercial insurance.
Changes in patent laws and regulations in various countries or jurisdictions, changes in the governmental bodies that enforce them, or changes in how the relevant governmental authority enforces them may weaken our ability to obtain new patents or patent rights through our licensors or to enforce any patents in the future.
Changes in patent laws and regulations in various jurisdictions, changes in the governmental bodies that enforce them, or changes in how the relevant governmental authority enforces them may weaken our ability to obtain new patents or patent rights through our licensors or to enforce any patents in the future.
If we are unable to maintain the confidentiality of our trade secrets, our business and competitive position may be harmed. We rely upon proprietary confidential information, including trade secrets and know-how to maintain our competitive position. However, such confidential information can be difficult to protect.
If we are unable to maintain the confidentiality of our trade secrets, our business and competitive position may be harmed. We rely upon proprietary information, including trade secrets and know-how to maintain our competitive position. However, such information can be difficult to protect.
If our two manufacturing facilities are unable to meet our intended production capacity in a timely fashion, we may have to engage a CMO(s) for the production of clinical supplies of our products or product candidates.
If our manufacturing facilities are unable to meet our intended production capacity in a timely fashion, we may have to engage a CMO(s) for the production of clinical supplies of our products or product candidates.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity risk management program is based on the National Institute of Standards and Technology (“NIST”) framework. -76- Key components of our cybersecurity risk management program include the use of third-party service providers, as appropriate, to assess, test, or otherwise assist with aspects of our security processes.
Biggest changeKey components of our cybersecurity risk management program include the use of third-party service providers, as appropriate, to assess, test, or otherwise assist with aspects of our security processes. For example, we employed a third-party cyber risk consultant to assess our overall cybersecurity risk framework against NIST standards.
Periodically, the Audit Committee reviews and discusses with management, our internal auditor, and, in its discretion, third party vendors or other external experts, the adequacy of security for our information technology systems, processes, and data; our incident response and contingency plans in the event of a breakdown or security breach affecting the security of our information technology systems or data or the information technology systems, processes, and data of our clients; and any new threats or incidents that have or may impact us.
Periodically, the Audit Committee reviews and discusses with management, our internal auditor, and, in its discretion, third party vendors or other external experts, the adequacy of -74- security for our information technology systems, processes, and data; our incident response and contingency plans in the event of a breakdown or security breach affecting the security of our information technology systems or data or the information technology systems, processes, and data of our clients; and any new threats or incidents that have or may impact us.
We oversee risks from cybersecurity threats associated with our use of third-party service providers by requiring our vendors to agree that they have and will maintain appropriate cybersecurity controls, such as through standard contractual provisions, and by coordinating with key vendors with respect to integration with our systems.
We oversee risks from cybersecurity threats associated with our use of third-party service providers by requiring our vendors to agree that they have and will maintain appropriate cybersecurity controls, such as through standard contractual provisions, and by coordinating with key vendors with respect to integration with our systems. Our cybersecurity risk management program is based on the NIST framework.
For example, we employed a third-party cyber risk consultant to assess our overall cybersecurity risk framework against NIST standards. We have also engaged third-party experts to perform penetration testing of our IT systems, and we have considered the results of such tests to enhance our cybersecurity systems and controls, as appropriate.
We have also engaged third-party experts to perform penetration testing of our IT systems, and we have considered the results of such tests to enhance our cybersecurity systems and controls, as appropriate.
The Board also receives briefings from management on our cybersecurity risk management program. Although we have not experienced a cyberattack or other cybersecurity incident that has materially affected us, we cannot guarantee that we will not experience cybersecurity incidents that may have a material effect on us in the future.
Although we have not experienced a cyberattack or other cybersecurity incident that has materially affected us, we have been subject to cybersecurity attacks in the past, and we cannot guarantee that we will not experience cybersecurity incidents that may have a material effect on us in the future.
Added
The Board also receives briefings from management on our cybersecurity risk management program.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease two manufacturing facilities, including a small molecule and a large molecule facility, in Suzhou to support production of certain of our products and product candidates. In addition, we are constructing a new office and research building in Suzhou. We believe these facilities are sufficient to meet our near-term needs.
Biggest changeWe also lease two manufacturing facilities, including a small molecule and a large molecule facility, in Suzhou to support production of certain of our products and product candidates. In addition, we have completed the construction of a new office and research building in Suzhou. We believe these facilities are sufficient to meet our near-term needs.
Item 2. Properties We lease our principal executive offices in Shanghai and Cambridge, Massachusetts as well as various administrative offices in Shanghai, Beijing, Guangzhou, Hong Kong, and San Francisco, California and research and development facilities in Shanghai and a small site in San Diego, California.
Item 2. Properties We lease our principal executive offices in Shanghai and Cambridge, Massachusetts as well as various administrative offices in Shanghai, Beijing, Guangzhou, Hong Kong, Taiwan, and South San Francisco, California and research and development facilities in Shanghai and a small site in San Diego, California.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeHowever, we do not consider any such claims, lawsuits, or proceedings that are currently pending, individually or in -77- the aggregate, to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition or cash flows. Item 4. Mine Safety Disclosures Not applicable. -78- PART II
Biggest changeHowever, we do not consider any such claims, lawsuits, or proceedings that are currently pending, individually or in the aggregate, to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition, or cash flows. Item 4. Mine Safety Disclosures Not applicable. -75- PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph assumes an investment of $100 at market close on December 31, 2018 and reinvestment of any dividends. -79- The shareholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future shareholder returns. 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Zai Lab Limited 100.00 179.11 528.86 270.67 132.21 117.70 Nasdaq Composite Index 100.00 135.23 194.24 235.78 157.74 226.24 Nasdaq Biotechnology Index 100.00 124.41 156.36 155.37 138.42 143.60 Recent Sales of Unregistered Securities None.
Biggest changeThe cumulative total shareholder returns over the indicated period are based on historical data and should not be considered indicative of future shareholder returns. -76- The shareholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future shareholder returns. 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Zai Lab Limited 100.00 325.41 151.12 73.82 65.71 62.97 Nasdaq Composite Index 100.00 143.64 174.36 116.65 167.30 215.22 Nasdaq Biotechnology Index 100.00 125.69 124.89 111.27 115.42 113.84 Recent Sales of Unregistered Securities None.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our ADSs are traded on the Nasdaq Global Market under the symbol “ZLAB.” Our ordinary shares are publicly traded on the Hong Kong Stock Exchange under the stock code “9688.” Shareholders As of February 21, 2024, we had approximately 11 holders of record of our ordinary shares.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our ADSs are traded on Nasdaq under the symbol “ZLAB.” Our ordinary shares are publicly traded on the Hong Kong Stock Exchange under the stock code “9688.” Shareholders As of February 21, 2025, we had approximately 11 holders of record of our ordinary shares.
The following graph compares the yearly percentage change in the cumulative total shareholder return of our ADSs with the cumulative total return of the NASDAQ Composite Index (U.S.) and the NASDAQ Biotechnology Index for the past five years.
The following graph compares the yearly percentage change in the cumulative total shareholder return of our ADSs with the cumulative total return of the NASDAQ Composite Index (U.S.) and the NASDAQ Biotechnology Index for the past five years. The graph assumes an investment of $100 at market close on December 30, 2019 and reinvestment of any dividends.
Removed
Issuer Purchases of Equity Securities The following table presents acquisitions of the Company’s ADSs from employees by the Company to satisfy tax withholding obligations due in connection with exercise of option shares or vesting of restricted shares during the fourth quarter of 2023: Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1 – 31, 2023 1,907 $ 24.00 — — November 1 – 30, 2023 — — — — December 1 – 31, 2023 — — — — Total 1,907 Item 6. [Reserved] Not applicable. -80-
Added
Issuer Purchases of Equity Securities There were no repurchases of our equity securities during the fourth quarter of 2024. Item 6. [Reserved] Not applicable. -77-

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table presents our results of operations ($ in thousands): Year Ended December 31 Change 2023 2022 $ % Revenues Product revenue, net 266,719 212,672 54,047 25 % Collaboration revenue — 2,368 (2,368) (100) % Total revenues 266,719 215,040 51,679 24 % Expenses Cost of sales (95,816) (74,018) (21,798) 29 % Research and development (265,868) (286,408) 20,540 (7) % Selling, general and administrative (281,608) (258,971) (22,637) 9 % Gain on sale of intellectual property 10,000 — 10,000 NM Loss from operations (366,573) (404,357) 37,784 (9) % Interest income 39,797 14,582 25,215 173 % Foreign currency loss (14,850) (56,403) 41,553 (74) % Other income, net 7,006 3,113 3,893 125 % Loss before income tax and share of loss from equity method investment (334,620) (443,065) 108,445 (24) % Income tax expense — — — — % Share of loss from equity method investment — (221) 221 (100) % Net loss (334,620) (443,286) 108,666 (25) % Net loss attributable to ordinary shareholders (334,620) (443,286) 108,666 (25) % NM - Not Meaningful Product Revenue The following table presents the components of the Company’s product revenue ($ in thousands): Year Ended December 31 Change 2023 2022 $ % Product revenue — gross 298,911 234,009 64,902 28 % Less: Rebates and sales returns (32,192) (21,337) (10,855) 51 % Product revenue — net 266,719 212,672 54,047 25 % Our product revenue is derived from the sales our commercial products primarily in mainland China, net of sales returns and rebates to distributors with respect to the sales of these products. -84- Our net product revenue increased by $54.0 million in 2023 primarily driven by increased sales volumes, the launch of VYVGART, and decreased negative effects from the COVID-19 pandemic, partially offset by an increase in sales rebates to distributors resulting from price reductions in connection with NRDL listings for certain products and the effects on hospital and physician practices from the recent industry-wide anti-corruption enforcement efforts in China in the second half of 2023.
Biggest changeResults of Operations The following table presents our results of operations ($ in thousands): Year Ended December 31 Change 2024 2023 $ % Revenues Product revenue, net 397,614 266,719 130,895 49 % Collaboration revenue 1,374 — 1,374 NM Total revenues 398,988 266,719 132,269 50 % Expenses Cost of product revenue (147,118) (95,816) (51,302) 54 % Cost of collaboration revenue (742) — (742) NM Research and development (234,504) (265,868) 31,364 (12) % Selling, general and administrative (298,741) (281,608) (17,133) 6 % Gain on sale of intellectual property — 10,000 (10,000) (100) % Loss from operations (282,117) (366,573) 84,456 (23) % Interest income 37,105 39,797 (2,692) (7) % Interest expenses (2,254) — (2,254) NM Foreign currency losses (15,137) (14,850) (287) 2 % Other income, net 5,300 7,006 (1,706) (24) % Loss before income tax (257,103) (334,620) 77,517 (23) % Income tax expense — — — — % Net loss (257,103) (334,620) 77,517 (23) % NM - Not Meaningful Revenues Product Revenue, Net The following table presents net revenue by commercial program ($ in thousands): Year Ended December 31 Change 2024 2023 $ % ZEJULA 187,082 168,843 18,239 11 % VYVGART / VYVGART Hytrulo 93,639 10,011 83,628 835 % NUZYRA 43,199 21,656 21,543 99 % OPTUNE 40,475 46,969 (6,494) (14) % QINLOCK 28,826 19,240 9,586 50 % XACDURO 3,305 — 3,305 NM AUGTYRO 1,088 — 1,088 NM Total 397,614 266,719 130,895 49 % NM - Not Meaningful -81- Our product revenue is derived from the sales of our commercial products, primarily in mainland China, net of sales returns and rebates to distributors with respect to the sales of these products.
These assumptions include: (i) the expected volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected term), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates.
These assumptions include: (i) the volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected term), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates.
Since we do not have sufficient historical information since to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.
Since we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.
Our most critical accounting policies and estimates, including those that require the most difficult, subjective, or complex judgments and are the most inherently uncertain, are described below. -87- Revenue Recognition We sell our products to distributors (our customers), who ultimately sell the products to healthcare providers, primarily in mainland China.
Our most critical accounting policies and estimates, including those that require the most difficult, subjective, or complex judgments and are the most inherently uncertain, are described below. Revenue Recognition We sell our products to distributors (our customers), who ultimately sell the products to healthcare providers, primarily in mainland China.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes in this report. This section generally discusses year-over-year comparisons between 2023 and 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes in this report. This section generally discusses year-over-year comparisons between 2024 and 2023.
We expect our cost of sales to increase as the volume of products sold increases. Research and Development Expenses We believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness, as well as our future growth and development.
We expect our cost of product revenue to increase as the volume of products sold increases. Research and Development Expenses We believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness, as well as our future growth and development.
Basis of Presentation Our consolidated statement of operations data for the years ended December 31, 2023 and 2022 and our consolidated balance sheet data as of December 31, 2023 and 2022 have been derived from our audited consolidated financial statements included in Financial Statements and Supplementary Data .
Basis of Presentation Our consolidated statement of operations data for the years ended December 31, 2024 and 2023 and our consolidated balance sheet data as of December 31, 2024 and 2023 have been derived from our audited consolidated financial statements included in Financial Statements and Supplementary Data .
We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, autoimmune disorders, infectious disease, and neuroscience. We intend to leverage our competencies and resources to positively impact human health in Greater China and worldwide.
We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, immunology, neuroscience, and infectious disease. We intend to leverage our competencies and resources to positively impact human health in Greater China and worldwide.
For more information on our commercial products and product pipeline, including status and developments in 2023, see Business – Our Commercial Products and Operations and Business – Our Pipeline of Product Candidates and R&D Activities . We also continued to strengthen our business in 2023 through key new additions to our global leadership team. For example, we promoted Dr.
For more information on our commercial products and product pipeline, including status and developments in 2024, see Business – Our Commercial Products and Operations and Business – Our Pipeline of Product Candidates and R&D Activities . We also continued to strengthen our business through key new additions to our global leadership team. For example, after we promoted Dr.
We further discuss in MD&A below key factors affecting our results of operations, key components and primary drivers of changes in our results of operations in 2023, and our liquidity and capital resources.
We further discuss in MD&A below key factors affecting our results of operations, key components and primary drivers of changes in our results of operations in 2024, and our liquidity and capital resources.
In addition, we have raised approximately $164.6 million in private equity financing and approximately $2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering and subsequent follow-on offerings on Nasdaq and our initial public offering on the Hong Kong Stock Exchange.
In addition, we have raised approximately $164.6 million in private equity financing and approximately $2,677.8 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering and subsequent follow-on offerings on Nasdaq and our initial public offering on the Hong Kong Stock Exchange.
We currently have five commercial products – ZEJULA, OPTUNE, QINLOCK, NUZYRA, and VYVGART – that have received marketing approval and that we have commercially launched in one or more territories in Greater China. We also have multiple programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.
We currently have seven commercial programs – ZEJULA, VYVGART / VYVGART Hytrulo, NUZYRA, OPTUNE, QINLOCK, XACDURO, and AUGTYRO – with products that have received marketing approval and that we have commercially launched in one or more territories in Greater China. We also have multiple programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.
For a discussion of year-over-year changes in our financial condition and results of operations between 2022 and 2021, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 1, 2023.
For a discussion of year-over-year changes in our financial condition and results of operations between 2023 and 2022, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 27, 2024.
Recently Issued Accounting Standards For more information regarding recently issued accounting standards, see Financial Statements and Supplementary Data – Recent Accounting Pronouncements .
Recently Issued Accounting Standards For more information regarding recently issued accounting standards, see Part II - Item 8. Financial Statements and Supplementary Data – Recent Accounting Pronouncements .
Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $198.2 million and $367.6 million in 2023 and 2022, respectively.
Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $214.9 million and $198.2 million in 2024 and 2023, respectively.
Elements of research and development expenditures primarily include: • payroll and other related costs of personnel engaged in research and development activities; • in-licensed patent rights fees of exclusive development rights of products granted to the Company; • costs related to pre-clinical testing of the Company’s technologies under development and clinical trials, such as payments to contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), investigators, and clinical trial sites that conduct our clinical studies; • costs to develop the product candidates, including raw materials and supplies, product testing, depreciation, and facility-related expenses; and • other research and development expenses.
Elements of research and development expenditures primarily include: • payroll and other related costs of personnel engaged in research and development activities; • fees for exclusive development rights of products granted to the Company; • costs related to pre-clinical testing of the Company’s technologies and clinical trials, such as payments to CROs and CMOs, investigators, and clinical trial sites that conduct our clinical studies; and • costs to produce the product candidates, including raw materials and supplies, product testing, depreciation, and facility-related expenses.
Our cost of sales mainly consists of the costs of manufacturing ZEJULA and NUZYRA, costs of purchasing OPTUNE, QINLOCK, and VYVGART from our collaboration partners, any royalty fees incurred as a result of sales of our commercial products under our license and collaboration agreements, and amortization of any sales-based milestone payments incurred under our license and collaboration agreements.
Our cost of product revenue mainly consists of the costs of manufacturing ZEJULA and NUZYRA, costs of purchasing VYVGART / VYVGART Hytrulo, OPTUNE, QINLOCK, XACDURO, and AUGTYRO from our collaboration partners, any royalty fees incurred as a result of sales of our commercial products under our license and collaboration agreements, and amortization of capitalized post-approval milestone fees incurred under our license and collaboration agreements.
We expect our revenue to increase in coming years as we continue to focus on increasing patient access to our existing commercial products, such as through NRDL listing or increased supplemental insurance coverage in the private-pay market.
We expect our product revenue to increase in coming years as we continue to focus on increasing patient access to our existing commercial products, such as through NRDL listing or increased supplemental -79- insurance coverage in the private-pay market, and as we launch additional commercial products, if and when we obtain required regulatory approvals.
In 2024, we seek to continue advancing our mission of becoming a leading global biopharmaceutical company, driving innovation in treatment options for patients in China and beyond, by focusing on the following corporate strategic goals: accelerating medicines to patients through our R&D activities, including internal discovery; further expanding our product pipeline through synergistic regional and global collaborations and corporate development activities; and continuing our commercial excellence and execution, including by delivering strong financial performance and preparing for the launch of multiple new products and obtaining overall corporate profitability by the end of 2025.
In 2025, we seek to continue advancing our mission of becoming a leading global biopharmaceutical company, driving innovation in treatment options for patients in China and beyond, by focusing on the following corporate strategic goals: accelerate medicines to patients through our R&D activities; expand and strengthen our global and regional pipelines through our internal discovery efforts and synergistic collaborations and corporate development activities; and continue our commercial excellence and execution, including by delivering strong financial performance as we prepare to launch additional products or new indications for existing products and seek to achieve profitability by the end of 2025.
As of December 31, 2023, we also may be required to pay sales-based milestone payments of up to an additional aggregate amount of $2,457.5 million as well as certain royalties at tiered percentage rates on annual net sales that are contingent on product performance.
As of December 31, 2024, we also may in the future be required to pay sales-based milestone payments of up to an -80- additional aggregate amount of $2,620.0 million as well as certain royalties at tiered percentage rates on annual net sales.
Other Income, Net Other income, net increased by $3.9 million to $7.0 million in 2023 primarily due to an increase of gain on equity investments of $11.7 million, driven by the shift from a loss of $9.0 million in 2022 to a gain of $2.8 million in 2023 for our investment in MacroGenics as a result of changes in its stock price, partially offset by a decrease of $9.0 million in government grant income.
Other Income, Net Other income, net decreased by $1.7 million in 2024 primarily due to the shift from a gain of $2.8 million in 2023 to a loss of $6.1 million in 2024 for our investment in MacroGenics as a result of changes in its stock price, partially offset by an increase of $5.7 million in government grants.
Income Taxes We recognize deferred tax assets and liabilities for temporary differences between the financial statement and income tax bases of assets and liabilities, which are measured using enacted tax rates and laws that will be in effect when -88- the differences are expected to reverse.
If actual results vary from our estimates or our expectations change, our reported expenses and earnings for the corresponding period may be affected. -84- Income Taxes We recognize deferred tax assets and liabilities for temporary differences between the financial statement and income tax bases of assets and liabilities, which are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.
We expect these costs to continue to be significant to support sales of our commercial products and preparation to launch and subsequent sales of additional product candidates if and when approved.
We expect these costs to continue to be significant to support sales of our commercial products and preparation to launch and subsequent sales of additional product candidates if and when approved. Our Ability to Commercialize Our Product Candidates We have multiple product candidates in late-stage clinical development and various others in clinical and pre-clinical development in Greater China and globally.
As of December 31, 2023, we may be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $303.5 million for our current clinical programs and $673.2 million for other programs that are contingent on the progress of our product candidates prior to commercialization.
As of December 31, 2024, we may in the future be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $211.5 million for our current clinical programs and $766.9 million for other programs.
In February 2024, we entered into three such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow approximately $164.5 million (or RMB1,171.7 million) to support our working capital needs in mainland China.
In 2024, we entered into four such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow up to approximately $198.9 million (or RMB1,421.7 million) to support our working capital needs in mainland China. As of December 31, 2024, we had short-term debt of approximately $131.7 million (or RMB946.8 million) pursuant to these debt arrangements.
Based on our current operating plan, we expect that our cash, cash equivalents, restricted cash, and short-term investments will enable us to meet our cash requirements and fund our operating expenses and capital expenditure requirements for at least the next 12 months.
As of December 31, 2024, we had cash and cash equivalents, current restricted cash, and short-term investments of $879.7 million, which we expect will enable us to meet our cash requirements including the funding of operating expenses, capital expenditures, and debt obligations for at least the next 12 months.
Our Ability to Commercialize Our Product Candidates We have multiple product candidates in late-stage clinical development and various others in clinical and pre-clinical development in Greater China and the United States. Our ability to generate revenue from our product candidates is dependent on our receipt of regulatory approvals for and successful commercialization of such product candidates, which may not occur.
Our ability to generate revenue from our product candidates is dependent on our receipt of regulatory approvals for and successful commercialization of such product candidates, which may not occur. Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvals in multiple jurisdictions, manufacturing supply, and significant marketing efforts before we generate any revenue from product sales.
Net Cash (Used in) Provided by Investing Activities Net cash used in investing activities was $10.8 million in 2023, compared to net cash provided by investing activities of $420.0 million in 2022.
Net Cash Used in Financing Activities Net cash provided by financing activities was $349.9 million in 2024, compared to net cash used in financing activities of $6.4 million in 2023.
For information on these activities and related expenditures, see the Research and Development Expenses , Selling, General, and Administrative Expenses , License and Collaboration Arrangements , and Results of Operations sections in MD&A above. In addition, as of December 31, 2023, we had commitments for capital expenditures of $1.2 million, mainly for the purpose of plant construction and installation.
For information on our research and development activities and related expenditures see the Research and Development Expenses , Selling, General, and Administrative Expenses , License and Collaboration Arrangements , and Results of Operations sections above.
Further, if we receive such regulatory approval, we cannot predict whether or when we may be able to successfully commercialize such product or whether or when such product may become profitable. Business Developments and Corporate Strategic Goals In 2023, we were excited to launch a fifth commercial product, VYVGART, for gMG in China.
Further, if we receive such regulatory approval, we cannot predict whether or when we may be able to successfully commercialize such products or whether or when such products may become profitable.
The following table presents our research and development expenses by program ($ in thousands): Year Ended December 31 Change 2023 2022 $ % Clinical programs 112,158 155,792 (43,634) (28) % Pre-clinical programs 17,356 6,644 10,712 161 % Unallocated research and development expenses 136,354 123,972 12,382 10 % Total 265,868 286,408 (20,540) (7) % Research and development expenses attributable to clinical programs decreased by $43.6 million in 2023 primarily driven by a decrease in licensing fees of $45.2 million.
The following table presents our research and development expenses by program ($ in thousands): Year Ended December 31 Change 2024 2023 $ % Clinical programs 86,126 112,158 (26,032) (23) % Pre-clinical programs 31,913 17,356 14,557 84 % Unallocated research and development expenses 116,465 136,354 (19,889) (15) % Total 234,504 265,868 (31,364) (12) % Research and development expenses attributable to clinical programs decreased by $26.0 million in 2024 primarily driven by a decrease of $28.7 million in CROs/CMOs/Investigators expenses related to the progress of existing studies, offset by an increase of $2.7 million in licensing fees.
This shift was primarily due to a decrease of $587.6 million in proceeds from maturity of short-term investments, partially offset by a decrease of $126.3 million in purchases of short-term investments, a decrease of $17.4 million in purchases of property and equipment, and proceeds of $13.9 million from a sale of intellectual property and a disposal of land use rights in 2023.
Net Cash Used in Investing Activities Net cash used in investing activities increased by $364.4 million in 2024, primarily due to an increase of $196.0 million purchases of short-term investments, a decrease of $101.4 million in proceeds from maturity of short-term investments, an increase of $54.6 million in acquisition of intangible assets, a decrease of $10.0 million in proceeds from sale of intellectual property, and a decrease of $3.9 million in proceeds from land use right, partially offset by a decrease of $1.6 million in purchases of property and equipment.
In 2024, we expect our product revenues to continue to increase, such as from the new NRDL listings for VYVGART and NUZYRA. We also continued to make progress across our product pipeline.
In 2025, we expect our revenues to continue to increase for our existing and more recently launched commercial products. -78- We also continued to make progress across our product pipeline.
Income Tax Expense Income tax expense was nil in both 2023 and 2022. For more information on income taxes, see Note 11 .
Income Tax Expense Income tax expense was nil in both 2024 and 2023.
Foreign Currency Loss Foreign currency loss decreased by $41.6 million to $14.9 million in 2023, due to the decrease in the remeasurement loss due to the lesser extent of U.S. dollar appreciation against the RMB.
Foreign Currency Losses Foreign currency losses increased by $0.3 million in 2024, primarily driven by increased remeasurement loss due to depreciation of the RMB against the U.S. dollar.
Research and development expenses attributable to pre-clinical programs increased by $10.7 million in 2023, primarily driven by an increase in licensing fees related to an upfront payment for a new business collaboration.
Research and development expenses attributable to pre-clinical programs increased by $14.6 million in 2024, primarily driven by an increase of $9.0 million in licensing fees and an increase of $5.6 million in CROs/CMOs/Investigators expenses related to newly initiated studies.
Research and Development Expenses The following table presents the components of our research and development expenses ($ in thousands): Year Ended December 31 Change 2023 2022 $ % Personnel compensation and related costs 115,749 105,561 10,188 10 % Licensing fees 19,291 53,441 (34,150) (64) % CROs/CMOs/Investigators expenses 103,333 100,544 2,789 3 % Other costs 27,495 26,862 633 2 % Total 265,868 286,408 (20,540) (7) % -85- Research and development expenses decreased by $20.5 million in 2023 primarily due to: • a decrease of $34.2 million in licensing fees as a result of decreased upfront and milestone payments for our license and collaboration agreements; partially offset by • an increase of $10.2 million in personnel compensation and related costs primarily due to grants of share options and restricted shares and the continued vesting of option and restricted share awards. • an increase of $2.8 million in in CROs/CMOs/Investigators expenses related to newly initiated studies and progress of existing studies.
Research and Development Expenses The following table presents the components of our research and development expenses ($ in thousands): Year Ended December 31 Change 2024 2023 $ % Personnel compensation and related costs 106,154 115,749 (9,595) (8) % Licensing fees 30,997 19,291 11,706 61 % CROs/CMOs/Investigators expenses 69,870 103,333 (33,463) (32) % Other costs 27,483 27,495 (12) — % Total 234,504 265,868 (31,364) (12) % Research and development expenses decreased by $31.4 million in 2024 primarily due to: • a decrease of $33.5 million in CROs/CMOs/Investigators expenses related to ongoing clinical trials; and • a decrease of $9.6 million in personnel compensation and related costs primarily driven by the Company’s ongoing resource prioritization and efficiency efforts; partially offset by • an increase of $11.7 million in licensing fees in connection with increased upfront and milestone payments for our license and collaboration agreements.
Net Loss Net loss was $334.6 million for 2023, or a loss per ordinary share attributable to common stockholders of $0.35 (or loss per ADS of $3.46), compared to a net loss of $443.3 million for 2022, or a loss per ordinary share of $0.46 (or loss per ADS of $4.63).
Net Loss Net loss was $257.1 million in 2024, or a loss per ordinary share attributable to common stockholders of $0.26 (or loss per ADS of $2.60), compared to a net loss of $334.6 million in 2023, or a loss per ordinary share of $0.35 (or loss per ADS of $3.46). -83- Critical Accounting Policies and Significant Judgments and Estimates We prepare our financial statements in conformity with U.S.
So far, our subsidiaries have entered into working capital loans with an aggregate principal amount of RMB390.0 million ($54.8 million), which are guaranteed by us. These debt arrangements will provide us with additional capital capacity that gives us enhanced flexibility to execute on our corporate strategic goals.
In January 2025, we entered into a working capital loan contract with another Chinese financial institution with respect to a revolving credit facility of up to RMB300.0 million (approximately $41.1 -85- million). These debt arrangements will provide us with additional capital capacity that gives us enhanced flexibility to execute on our corporate strategic goals.
Although we do not currently anticipate entering into additional debt arrangements, we may consider, or we may ultimately need, additional funding sources to bring to fruition or research and development objectives or otherwise, and there can be no assurances that such funding will be made available to us on acceptable terms or at all. -89- The following table presents information regarding our cash flows ($ in thousands): Year Ended December 31, Change 2023 2022 $ Net cash used in operating activities (198,178) (367,642) 169,464 Net cash (used in) provided by investing activities (10,776) 420,016 (430,792) Net cash used in financing activities (6,433) (1,730) (4,703) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (2,622) (6,274) 3,652 Net (decrease) increase in cash, cash equivalents and restricted cash (218,009) 44,370 (262,379) Net Cash Used in Operating Activities Net cash used in operating activities decreased by $169.5 million in 2023, primarily due to a decrease of $108.7 million in net loss and an increase of $105.9 million in net changes in operating assets and liabilities, partially offset by a decrease of $45.1 million in adjustments to reconcile net loss to net cash used in operating activities.
The following table presents information regarding our cash flows ($ in thousands): Year Ended December 31, Change 2024 2023 $ Net cash used in operating activities (214,869) (198,178) (16,691) Net cash used in investing activities (375,193) (10,776) (364,417) Net cash provided by (used in) financing activities 349,889 (6,433) 356,322 Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (310) (2,622) 2,312 Net decrease in cash, cash equivalents and restricted cash (240,483) (218,009) (22,474) Net Cash Used in Operating Activities Net cash used in operating activities increased by $16.7 million in 2024, primarily due to a decrease of $77.5 million in net loss and an increase of $13.8 million in adjustments to reconcile net loss to net cash used in operating activities, partially offset by a decrease of $108.0 million in net changes in operating assets and liabilities.
For example, in the first quarter of 2023, QINLOCK was added to the NRDL for fourth-line GIST and NUZYRA for the IV treatment of adult patients with CABP and ABSSSI.
The growth in NUZYRA sales was supported by the inclusion in the NRDL for its IV formulation for the treatment of CABP and/or ABSSSI in the first quarter of 2023 and for its oral formulation for these indications in the first quarter of 2024.
Net Cash Used in Financing Activities Net cash used in financing activities increased by $4.7 million in 2023, primarily due to a decrease of $3.5 million in proceeds from exercises of share options and an increase of $1.2 million in taxes paid related to settlement of equity awards.
This shift was primarily due to an increase of $216.1 million in proceeds from issuance of ordinary shares upon public offerings net of offering costs, an increase of $131.6 million in proceeds from short-term debt, and a decrease of $8.8 million in taxes paid related to settlement of equity awards.
If these milestones or royalties do occur, we view related payments as favorable because such payments signify that the product or product candidate is achieving higher sales levels or advancing toward potential commercial launch.
Such sales-based milestone and royalty payments are contingent on the performance of our commercial products, and we see these payments as favorable because they signify that a product is achieving higher sales levels.
Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvals in multiple jurisdictions, manufacturing supply, substantial investment, and significant marketing efforts before we generate any revenue from product sales. License and Collaboration Arrangements Our results of operations have been, and will continue to be, affected by our license and collaboration agreements.
License and Collaboration Arrangements Our results of operations have been, and will continue to be, affected by our license and collaboration agreements.
In terms of revenue growth by product, ZEJULA continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China; increased sales for QINLOCK and NUZYRA were supported by their inclusion in the NRDL in the first quarter of 2023, and we commercially launched VYVGART for gMG in mainland China in September 2023.
ZEJULA sales remained strong as it continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China.
Rafael Amado, President, Head of Global Oncology Research and Development at Zai Lab, and provides strategic leadership and support with respect to the clinical development of our oncology pipeline.
Rafael Amado to President, Head of Global Research and Development, expanding his role to encompass our R&D efforts across all of our therapeutic areas in June 2024, we appointed Dr. Prista Charuworn as our Vice President, Immunology, Global R&D to provide strategic leadership and support with respect to the development of our immunology, neuroscience, and infectious disease pipeline.
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Sales increased for each of our commercial products, ZEJULA continued to lead PARP inhibitor sales for ovarian cancer in the hospital setting, and we were able to increase patient access for QINLOCK and NUZYRA from their new NRDL listings and for OPTUNE as a result of increased supplemental insurance coverage in the private-pay market.
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Business Developments and Corporate Strategic Goals In 2024, we continued to demonstrate strong financial performance, with a 50% increase in total revenue to $399.0 million and a 23% decrease in net loss to $257.1 million compared to the prior year.
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For example, the NMPA accepted NDAs for SC efgartigimod for the treatment of gMG, SUL-DUR for infections caused by Acinetobacter baumannii , including MDR and CRAB strains, and repotrectinib for locally advanced or metastatic ROS1+ NSCLC.
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Our revenue increase was primarily driven by VYVGART, which has steadily increased sales since its strong commercial launch in September 2023 and initial NRDL listing in January 2024, ZEJULA, which continued to lead PARP inhibitor sales for ovarian cancer in the hospital setting, and NUZYRA, which was supported by the inclusion in the NRDL of its IV formulation for the treatment of CABP and/or ABSSSI in January 2023 and its oral formulation for these indications in January 2024.
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We also had several positive data readouts during the year, including for TTFields therapy in 2L NSCLC, TIVDAK in 2L+ cervical cancer, SC efgartigimod -81- in CIDP, and KarXT in schizophrenia. We also advanced our global pipeline, initiating Phase I studies for our DLL3 ADC program and for ZL-1218, a humanized, IgG1 monoclonal antibody that binds to human CCR8.
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Since the fourth quarter of 2024, we are excited to have expanded our commercial portfolio with the launch in mainland China of VYVGART Hytrulo, the subcutaneous formulation of VYVGART, for gMG and CIDP, XACDURO for HABP and VABP caused by ABC, and AUGTYRO for ROS1 + NSCLC. AUGTYRO was included in the NRDL for this indication in January 2025.
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And, we increased our pipeline assets through our business development activities with our strategic collaboration with MediLink for the license of a next generation DLL3 ADC program, which further deepened our lung cancer franchise.
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For our global assets, we had promising results from the global Phase I study of ZL-1310, a potential first-in-class and best-in-class DLL3-targeted ADC for the treatment of extensive stage SCLC, and promising pre-clinical data for ZL-1503, our internally developed IL-13/IL-31R bispecific antibody for atopic dermatitis.
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Yajing Chen to Chief Financial Officer on July 7, 2023. Dr. Chen previously served as our Senior Vice President and Deputy Chief Financial Officer, helping to oversee finance, planning and forecasting, accounting, tax, treasury, and procurement matters since joining the Company in September 2021.
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For our late-stage regional pipeline, we had positive data readouts during the year, including for KarXT in schizophrenia, and we completed enrollment for the second Phase III study of bemarituzumab for the treatment of gastric cancer.
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She is a seasoned finance executive with more than 20 years of experience in the life sciences industry as well as a Ph.D. trained scientist. Dr. Chen succeeded Billy Cho, who stepped down from his role and left the Company on July 7, 2023. In addition, the Company appointed Dr.
Added
We have also expanded and strengthened our global and regional pipelines through synergistic business development activities, including a strategic collaboration and worldwide license agreement with MediLink to use MediLink’s TMALIN ADC platform for the development of ZL-6201, a novel potential first-in-class LRRC15 ADC consisting of an antibody discovered by Zai Lab, for the treatment of certain solid tumors and a strategic collaboration with Vertex for the license of povetacicept, a potential best-in-class treatment for IgAN and other B-cell mediated diseases, in mainland China, Hong Kong, Macau, Taiwan, and Singapore.
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Robert Brown as Chief Medical Officer, Oncology in September 2023 to help accelerate the growth and development for our global oncology pipeline. Dr. Brown is an oncology drug development leader, with more than 16 years of translational, research, and clinical development expertise in the areas of oncology, immunology, and neurology. Dr. Brown reports to Dr.
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Such development and regulatory milestone payments are contingent on the progress of our product candidates prior to commercialization, and we see these payments as favorable because they indicate that product candidates are advancing.
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In the first quarter of 2024, VYVGART (efgartigimod alfa injection) was added to the NRDL for -82- gMG and NUZYRA for the oral treatment of adult patients with CABP and ABSSSI. We also expect revenue to increase in coming years as a result of our launch of additional commercial products, if and when we obtain required regulatory approvals.
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Our net product revenue increased by $130.9 million in 2024, primarily driven by increased sales for VYVGART since its launch in September 2023 and NRDL listing in January 2024 for the treatment of gMG. Other key drivers of net product revenue growth include increased sales volumes for ZEJULA and NUZYRA in 2024.
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We had $19.3 million and $53.4 million of research and development expenses in 2023 and 2022, respectively, related to upfront -83- fees and development milestones.
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Although we manage our external research and development expenses by program, we do not allocate our internal research and development expenses by program because our employees and internal resources may be engaged in projects for multiple programs at any given time. -82- Selling, General, and Administrative Expenses The following table presents our selling, general, and administrative expenses by category ($ in thousands): Year Ended December 31 Change 2024 2023 $ % Personnel compensation and related costs 174,958 173,389 1,569 1 % Other costs 123,783 108,219 15,564 14 % Total 298,741 281,608 17,133 6 % Selling, general, and administrative expenses increased by $17.1 million in 2024 primarily due to higher general selling expenses and personnel compensation and related costs for VYVGART, which was launched in September 2023, and NUZYRA, which was first included in the NRDL for its IV formulation in January 2023 and for its oral formulation in January 2024.
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The effects of the COVID-19 pandemic had an adverse impact on our sales volumes for 2022 and the first quarter in 2023, due to decreased patient access to our products, such as through reduced hospital access during periods of lockdown or high infection rates, fewer newly diagnosed oncology patients, and delayed or interrupted treatments.
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Gain on Sale of Intellectual Property We had a gain on sale of intellectual property of $10.0 million in 2023 in connection with our sale of certain patent rights and related know-how to a third party. We had no such gain or loss in 2024.
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The COVID-19 pandemic has not had a material adverse effect on our sales volume since the second quarter of 2023. Sales rebates to distributors resulting from price reductions in connection with NRDL listings were $13.0 million for 2023, which increased from $5.3 million for 2022.
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Interest Income Interest income decreased by $2.7 million in 2024, primarily due to decreased cash and cash equivalents. Interest Expense Interest expense increased by $2.3 million in 2024, primarily due to interest expense on short-term debt we entered into in 2024. We had no such interest expense in 2023.
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These sales rebates in 2023 were driven by price reductions in connection with the inclusion of QINLOCK and NUZYRA (IV formulation) in the first quarter of 2023 and the inclusion of VYVGART and NUZYRA (oral formulation) and the renewal of ZEJULA as a maintenance treatment in the fourth quarter of 2023.
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In addition, as of December 31, 2024, we had commitments for capital expenditures of $6.8 million mainly for the purpose of commercial manufacturing development and facilities construction and improvement activities.
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These sales rebates in 2022 were driven by price reductions in connection with the inclusion of ZEJULA for certain treatments in December 2021 and price reductions for QINLOCK and NUZYRA in the second quarter of 2022 in connection with NRDL pricing negotiations.
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For more information, see Note 12 and Note 22. We may consider, or we may ultimately need, additional funding sources to bring to fruition our strategic objectives, and there can be no assurances that such funding will be made available to us on acceptable terms or at all.
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The following table presents net revenue by product ($ in thousands): Year Ended December 31 Change 2023 2022 $ % ZEJULA 168,843 145,194 23,649 16 % OPTUNE 46,969 47,321 (352) (1) % QINLOCK 19,240 14,957 4,283 29 % NUZYRA 21,656 5,200 16,456 316 % VYVGART 10,011 — 10,011 NM Total 266,719 212,672 54,047 25 % NM - Not Meaningful Cost of Sales Cost of sales increased by $21.8 million to $95.8 million in 2023 primarily due to increasing sales volumes.
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Although we manage our external research and development expenses by program, we do not allocate our internal research and development expenses by program because our employees and internal resources may be engaged in projects for multiple programs at any given time.
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Selling, General, and Administrative Expenses The following table presents our selling, general and administrative expenses by program ($ in thousands): Year Ended December 31 Change 2023 2022 $ % Personnel compensation and related costs 173,389 162,045 11,344 7 % Professional service fees 22,507 35,414 (12,907) (36) % Other costs 85,712 61,512 24,200 39 % Total 281,608 258,971 22,637 9 % Selling, general , and administrative expenses increased by $22.6 million in 2023 primarily due to: • an increase of $24.2 million in other costs mainly related to selling, rental, and administrative expenses for commercial operations in mainland China, Hong Kong, and Taiwan; • an increase of $11.3 million in personnel compensation and related costs which was primarily driven by grants of share options and restricted shares and the continued vesting of option and restricted share awards; partially offset by • a decrease of $12.9 million in professional service fees primarily related to legal and other administrative expenses. -86- Gain on Sale of Intellectual Property We had a gain on sale of intellectual property of $10.0 million in connection with our sale of certain patent rights and related know-how to a third party in the second quarter of 2023.
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We had no such intellectual property sales resulting in gains or losses in 2022. Interest Income Interest income increased by $25.2 million to $39.8 million in 2023, mainly due to increased interest rates.
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Share of Loss from Equity Method Investment Share of loss from equity method investment was $0.2 million in 2022 due to losses from our investment in JING Medicine Technology (Shanghai) Ltd., an entity that provides services for drug discovery and development, consultation, and transfer of pharmaceutical technology. There was no change on the equity method investment in 2023.
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The decrease in net loss was primarily due to product revenue growing faster than net operating expenses, increased interest income, and decreased foreign currency loss. Critical Accounting Policies and Significant Judgments and Estimates We prepare our financial statements in conformity with U.S.
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Since we do not have sufficient trading history since our September 2017 initial public offering on Nasdaq to cover the expected term of our share options, we estimate expected volatility based on movements in the share price of certain companies we consider comparable over the most recent equivalent historical period.
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If actual results vary from our estimates or our expectations change, our reported expenses and earnings for the corresponding period may be affected.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2023 and 2022, we had cash and cash equivalents of $790.2 million and $1,008.5 million and short-term investments of $16.3 million and nil, respectively.
Biggest changeAs of December 31, 2024 and 2023, we had cash and cash equivalents of $449.7 million and $790.2 million, restricted cash of $101.1 million and $1.1 million, and short-term investments of $330.0 million and $16.3 million, respectively.
While our financial statements are presented in U.S. dollars, our business mainly operates in mainland China with a significant portion of our transactions settled in RMB, and as such, we do not believe that we currently have significant -90- direct foreign exchange risk and have not used derivative financial instruments to hedge our exposure to such risk.
While our financial statements are presented in U.S. dollars, our business mainly operates in mainland China with a significant portion of our transactions settled in RMB, and as such, we do not believe that we currently have significant direct foreign exchange risk and have not used derivative financial instruments to hedge our exposure to such risk.
The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.
The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the -86- China Foreign Exchange Trading System market.
These notes receivable were used to collect the receivables based on an administrative convenience, given these notes are readily convertible to known amounts of cash. In accordance with the sales agreements, whether to use cash or bank acceptance promissory notes to settle the receivables is at our discretion, and this selection does not impact the agreed contractual purchase prices. -91-
These -87- notes receivable were used to collect the receivables based on an administrative convenience, given these notes are readily convertible to known amounts of cash. In accordance with the sales agreements, whether to use cash or bank acceptance promissory notes to settle the receivables is at our discretion, and this selection does not impact the agreed contractual purchase prices.
Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs and ordinary shares will be affected by the exchange rate between the U.S. dollar and the RMB and between the HK dollar and the RMB, respectively, because the value of our business is effectively denominated in RMB, while ADSs and ordinary shares are traded in U.S. dollars and HK dollars, respectively.
Although, in general, our exposure to foreign exchange risk should be limited, the value of your investment in our ADSs and ordinary shares will be affected by the exchange rate between the U.S. dollar and the RMB and between the HK dollar and the RMB, respectively, because the value of our business is effectively denominated in RMB, while ADSs and ordinary shares are traded in U.S. dollars and HK dollars, respectively.
As of December 31, 2023 and 2022, all of our cash and cash equivalents and short-term investments were held by major financial institutions located in mainland China and international financial institutions outside of mainland China which we believe are of high credit quality and for which we monitor continued credit worthiness.
As of December 31, 2024 and 2023, all of our cash and cash equivalents, restricted cash, and short-term investments were held by major financial institutions located in mainland China and international financial institutions outside of mainland China which we believe are of high credit quality and for which we monitor continued credit worthiness.
Accounts receivable are typically unsecured and are derived from product sales and collaborative arrangements. We manage credit risk related to our accounts receivable through ongoing monitoring of outstanding balances and limiting the amount of credit extended based upon payment history and credit worthiness. Historically, we have collected receivables from customers within the credit terms with no significant credit losses incurred.
Accounts receivable are typically unsecured and are derived from product revenue. We manage credit risk related to our accounts receivable through ongoing monitoring of outstanding balances and limiting the amount of credit extended based upon payment history and credit worthiness. Historically, we have collected receivables from customers within the credit terms with no significant credit losses incurred.
Credit Risk Financial instruments that are potentially subject to significant concentration of credit risk consist of cash and cash equivalents, short-term investments, accounts receivable, and notes receivable. The carrying amounts of cash and cash equivalents and short-term investments represent the maximum amount of loss due to credit risk.
Credit Risk Financial instruments that are potentially subject to significant concentration of credit risk consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, and notes receivable. The carrying amounts of cash and cash equivalents and short-term investments represent the maximum amount of losses due to credit risk.
As of December 31, 2023, our two largest customers accounted for approximately 18% of our total accounts receivable collectively. Certain accounts receivable balances are settled in the form of notes receivable. As of December 31, 2023, such notes receivable included bank acceptance promissory notes that are non-interest bearing and due within six months.
As of December 31, 2024, our two largest customers accounted for approximately 23% of our total accounts receivable collectively. Certain accounts receivable balances are settled in the form of notes receivable. As of December 31, 2024, such notes receivable included bank acceptance promissory notes that are non-interest bearing and due within six months.
Since 1983, the Hong Kong Monetary Authority (“HKMA”) has pegged the HK dollar to the U.S. dollar at the rate of approximately HK$7.80 to US$1.00. However, there is no assurance that the HK dollar will continue to be pegged to the U.S. dollar or that the HK dollar conversion rate will remain at HK$7.80 to US$1.00.
Since 1983, the HKMA has pegged the HK dollar to the U.S. dollar at the rate of approximately HK$7.80 to US$1.00. However, there is no assurance that the HK dollar will continue to be pegged to the U.S. dollar or that the HK dollar conversion rate will remain at HK$7.80 to US$1.00.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk including foreign exchange risk, credit risk, and inflation risk. Foreign Exchange Risk Renminbi, or RMB, is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the People’s Bank of China (“PBOC”), controls the conversion of RMB into foreign currencies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk including foreign exchange risk, credit risk, and interest rate risk. Foreign Exchange Risk Renminbi, or RMB, is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the PBOC, controls the conversion of RMB into foreign currencies.
The cash and cash equivalents of the Company included aggregated amounts of $25.1 million and $45.5 million, which were denominated in RMB, as of December 31, 2023 and 2022, respectively, representing 3% and 5% of the cash and cash equivalents as of December 31, 2023 and 2022, respectively.
The cash and cash equivalents of the Company included aggregated amounts of $19.0 million and $25.1 million, which were denominated in RMB, representing 4% and 3% of the cash and cash equivalents as of December 31, 2024 and 2023, respectively.
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Interest Rate Risk We are exposed to risks related to changes in interest rates on our cash and cash equivalents, restricted cash, and short-term investments.
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As of December 31, 2024 and 2023, we had cash and cash equivalents of $449.7 million and $790.2 million, restricted cash of $101.1 million and $1.1 million, and short-term investments of $330.0 million and $16.3 million, respectively. Our investment portfolio, which relates to cash equivalents and short-term investments, primarily consists of time deposits.
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The primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. Given the short‑term nature of our deposits and investments, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation.
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For example, a hypothetical 10% relative change in interest rates during any of the periods presented would not have a material impact on future interest income. We are also exposed to risks related to changes in interest rates on our short-term debt, which is currently subject to a mix of fixed and floating interest rates.
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We had $131.7 million of short-term debt as of December 31, 2024. A 100-basis point increase in interest rates as of December 31, 2024 would not materially increase our interest expense. Our interest rate exposure from short-term debt is also offset by our exposure in cash and cash equivalents, restricted cash, and short-term investments, as discussed above.
Added
For more information on our short-term debt, see Note 12 and Note 22 .

Other ZLAB 10-K year-over-year comparisons