5/10/2023

speaker
Operator

Hello ladies and gentlemen, thank you for standing by and welcome to Xylead's first quarter 2023 financial results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Billy Cho. Chief Financial Officer of Xyleb, who will make introductory comments.

speaker
Billy Cho

Thank you, operator. Good morning, good evening, and welcome, everyone. Xyleb recently issued a press release providing the details of the company's first quarter of 2023 financial results, as well as some recent product highlights and corporate updates. The press release is available in the investor relations section of the company's website at ir.xylebatory.com. Today's call will be led by Dr. Samantha Duke. ZyLabs founder, chief executive officer, and chairperson. She'll be joined by Josh Smiley, president and chief operating officer, Dr. Rafael Amado, president and head of global oncology research and development, who will discuss advances with our oncology product candidates, Dr. Harold Reinhart, president and head of global development, neuroscience, autoimmune, and infectious diseases, who will speak about progress we have made in those three therapeutic areas. And I will discuss the performance of our market products and conclude with comments on our first quarter financial results. Additional executives will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, Xilab will be making certain phone listing statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to our business plans and objectives, clinical trials, sales and revenue forecasts for our products and product candidates, regulatory applications, and commercial launches. But forward-looking statements are not guarantees of future performance, and therefore we should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties, and actual results could differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. At this time, it is my pleasure to turn the call over to Xyleps founder, chief executive officer, and chairperson, Dr. Samantha Du.

speaker
Samantha Duke

Thank you, Billy. Hello, everyone. Thank you all for joining us today. Our first quarter results and progress continue to demonstrate Satellite's potential global banking class portfolio and track record of execution despite challenges from China's reopening at the beginning of the year. The positive top-line results from the Phase III emergency trial of CAR-XT in schizophrenia and the positive interim analysis from the SIS2-ENOVA-TB207 study from TDAB in head and neck cancer. Further support our belief that this product provides important treatment options for patients in China and globally. We're very excited about the unanimous recommendation of the U.S. Food and Drug Administration's Advisory Committee in support approval of Subectum and Durabectum, the first pathogen targeted therapy for patients with severe and less threatening infections caused by Acinetobacter. Recently, we expanded our lung cancer franchise, and we reached our global oncology pipeline with a next-generation DLL3 antibody drug conjugate, or ADC program, DL1310. This global ADC program demonstrates our continuous focus on the ADC space and our extension to the global market. This product complements our lung cancer franchise. We will leverage our strong capabilities to develop CL1310. We look forward to seeing results in patients. I look forward to leading Zai into its next transformational stage of growth productivity, and global opportunities. To better support me and help meet the strategic and operational needs of our business during the next phase of growth, we are happy to announce that we have promoted JustSmiley to President and Chief Operating Officer. Just's rich experience and strategic vision will help us further grow as a leading global pharmaceutical company deliver on our mission to improve human health and on our corporate strategic goals of driving innovation in China and beyond. I'd like now to turn the call over to Josh. Josh?

speaker
Billy

Thank you, Samantha. I look forward to taking on this new role for the company and continue to work with Samantha and the rest of our team to move our company forward. I'm very excited about what is in store for us for the next few years that positions Zylab to be a leader in biopharma innovation. We're pleased with the overall environment this year in China for companies like Xilab with innovative therapies that meet significant unmet medical needs. As Samantha mentioned, as a result of the proactive steps taken by our team, Xilab has established a good foundation for future commercial execution and strong financial performance. Despite challenges from the COVID-19 reopening in China during the first two months of the quarter, Xilab continues to deliver solid growth and overall financial results. Our net loss in the first quarter of 2023 decreased 40% compared to the same period last year, primarily attributable to the increase in product revenue and non-operating income. And we expect strong growth momentum to continue throughout the remainder of this year. Zajula continues to perform well with increased PARP sales for ovarian cancer, and we believe Zajula remains on track to become the leader in its asset class for ovarian cancer in China starting this year. For Optune, our team continued to improve market access by expanding commercial insurance and supplemental insurance coverage. As of March 31st, 2023, Optune was covered by 96 municipal or provincial supplemental insurance plans, up from 37 as of March 31st, 2022. We're pleased to have added Kinloch and New Zyra to China's national reimbursement drug list effective in March 2023. As discussed earlier, we expect a strong revenue ramp up for these products as a result of their NRDL inclusion. For EFGAR Kijamod, the first and only U.S. approved FCRN blocker with a pipeline and a product potential, we're getting ready for a commercial launch later this year. As we communicated earlier, we plan to have a specialized and experienced team for EFGAR with approximately 100 employees at launch. We're excited about its potential in China. With respect to our 2023 strategic priorities, we've made progress towards the BLA approval of efcar-tigemod for generalized myasthenia gravis, or GMG, and the BLA submission for subcutaneous efcar-tigemod for GMG in China. The initiation of a bridging study for CAR-XT in schizophrenia in Greater China, the initiation of a registrational study for bemerituzumab in first-line gastric cancer in Greater China, and a full data readout of the tumor-treating field's lunar phase III study in non-small cell lung cancer. We're also advancing our proprietary pipeline with global rights, including by initiating a global phase one study for ZL1218, or CCR8, and moving ZL1102, our IL-17 hemo body, into full global development. We recently released our 2022 ESG report that details our ESG strategy, which we call Trust for Life. It has three commitments. First, improve human health. Second, create better outcomes. And third, act right now. We're benchmarking ourselves against commonly accepted standards and major indexes. We're continuing to reach more patients with our existing commercial products and are preparing to launch eight additional products as we take this step to achieve overall corporate profitability by the end of 2025 and reach 1 million patients by 2030. And now I will turn the call over to Dr. Amato. Rafael?

speaker
Samantha

Thank you, Josh. In the first quarter of 2023, Dyer Labs Oncology franchise continued to make progress on all fronts, and we expect to have a very productive year. Recall that earlier this year, our partner Novocare announced that the Lunar Clinical Trial met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in overall survival when DT field therapy was added to standard therapies compared to standard therapies alone in patients with platinum-resistant non-small cell lung cancer. We recently announced that the lunar data will be presented on the morning of Tuesday, June 6, as a late-breaking abstract in NASCO's metastatic non-small cell lung cancer session. We are pleased to have contributed and be part of the lunar study. In China, the incidence of non-small cell lung cancer is well over 700,000 new cancers per year, or 37% of all non-small cell lung cancer diagnosed worldwide. And it accounts for 39% of global deaths due to non-small cell lung cancer each year. We look forward to the presentation of the data at ASCO and are excited about the potential to address such enormous needs for patients with lung cancer, as well as for patients with other tumor types as subsequent results read out. As Samantha mentioned, in April, our partner CJEN presented encouraging efficacy results from the Phase II INNOVA-TV207 study of TIFTAC in patients with treatment refractory head and neck cancer at the 2023 ASDR annual meeting. At the data cutoff, the confirmed overall response rate was 40% with one complete response and five partial responses. The safety profile was generally consistent with that observed across diphthag monotherapy clinical study. Treatments for head and neck cancer remain a significant and met need in China with approximately 71,000 new cancers annually. Following progression on first-line standard therapy, there are limited treatment options. Immunotherapy and chemotherapy have low objective response rates with poor outcomes. While more data are required to expand on this result, we believe GIFT-APP could be a promising treatment option for patients with recurrent and or metastatic head and neck cancer. And we are planning to pursue this indication in China in collaboration with Segen. Moving now to Crisati or Atagrasis. Our partner, Mirati, presented updated phase two data on the CRYSTAL-1 study in patients with pancreatic adenocarcinoma, biliary tract cancer, another solid tumor, carbureting KRAS G12C mutations, at the plenary series program of the April session of ASCO, and subsequently published the results as a rapid communication in the Journal of Clinical Oncology. Results showed an objective response rate of 35% for the overall cohort. In patients with pancreatic cancer, the objective response rate was 33%, and for patients with biliary tract cancer, it was 42%. Notably, the safety profile of adagracia was aligned with that previously reported in patients with pre-treated non-small cell lung cancer and colorectal cancer. These findings demonstrate a meaningful improvement relative to the historically reported standard of care for these cancers. And we are very pleased to see the results of this phase two study, which demonstrate a marked improvement on the current standard of care for patients with unresectable or metastatic KRAS T2LC mutated solid tumors including gastrointestinal cancers, where few treatment options exist. We look forward to closely working with MIRADI to advance adagracis as a potential best-in-class treatment option for patients with tumors harboring KRAS T12C mutations. Moving to our internal global research and development programs, we presented new translation on clinical biomarker data from our global oncology program, VL1211. And anti-clotting 18.2 specific antibody at AACR showing the ZL1211 as monotherapy seemed to be tolerated well and showed early signs of anti-tumor activity. In addition to TIFDAC, we're expanding our pipeline into the antibody drug conjugate or ADC space and building a portfolio of potential first and or best in class ADCs through both internal discovery and external collaboration. Last month, we increased our lung cancer franchise and enriched our global oncology pipeline with a next-generation ADC program, DL1310. This compound is an innovative DLL3 ADC discovered by using MediLink's proprietary TamLyn platform. TamLyn is a next-generation ADC platform designed to leverage the tumor microenvironment to overcome the challenges in current ADC drugs. DOL3 is an inhibitor of the notch ligand that is overexpressed in small cell lung cancer and neuroendocrine tumors. We will leverage our global development capabilities to advance this product into clinical studies. We are on track to meet all the milestones this year, including the initiation of the marituzumab gastric cancer trial in China and the filing of Reputrectinase for ROS1 mutated non-small cell lung cancer with an abundance of potentially best-in-class and first-in-class products both in China and globally, we are very excited about our expanding oncology pipeline at ZyLab. And now I will turn the floor over to Dr. Harold Reinhart to discuss the progress in our autoimmune, infectious disease, and neuroscience therapeutic areas. Harold?

speaker
Josh

Thank you, Rafael. I'm excited for the opportunity to share with you today progress across our autoimmune, infectious diseases, and neuroscience therapeutic areas. Let's start with CARX-T, the combination of xenomaline and traspium, which we are developing with our partner, Corona, in acute schizophrenia. Results from Corona's EMERGEN3 trial were released in March 2023. This is now the third positive registration trial that has made its primary endpoint, with CARX-T demonstrating a reduction of 8.4 points in PAMS total score compared to placebo at week five. CARX-T also demonstrated reductions in positive and negative symptoms of schizophrenia as measured by PANS-positive, PANS-negative, and PANS-negative-marder factor subscales, which are secondary endpoints in the trial. Karuna plans to submit a new drug application to the FDA in the third quarter of 2023 with launch in the second half of 2024 if approved. As Samantha mentioned, CAR-CT could be a very important treatment option as a new class of medicine for schizophrenia patients in China and globally. Our proposed development plan for China has been accepted by the NMPA, and we're on track to start a clinical bridging project in June. Regarding our infectious diseases portfolio, the FDA Advisory Committee recently unanimously voted in favor of approval of Sulbactam-Dolabactam We're excited about the committee's strong vote of confidence. We submitted an NDA for the treatment of carbapenem-resistant Acinetobacter baumannii infection to the NMPA in December 2022, with priority review granted one month later. And in February, the NDA was officially accepted by the NMPA. We look forward to bringing this novel drug to China into Asia Pacific, where severe Crab infections are frequent and often can no longer be adequately treated because of multidrug resistance. Much progress was made this past quarter in VivGuard or Evgatigamot. We submitted the BLA for Evgatigamot IV for the treatment of patients with generalized myasthenia gravis or GMG in China in the second quarter of 2022. and expect approval in commercial launch this year. We also expect to submit a BLA for FGAT-Tigamot SC sub-Q for GMG in mid-2023. We continue to support our partner Argenix on indication expansion in China and worldwide. Last but not least, for our internally developed topical IL-17 product, CL1102, We are moving forward with preclinical and regulatory activities in preparation for our global phase two trial. Let me now hand over to Billy, who will speak about progress with our commercial products and financial results. Billy?

speaker
Billy Cho

Thank you, Harold. Now I will discuss our first quarter of 2023 financial results compared to the prior year period. Total net product revenues for the first quarter of 2023 were $62.8 million, compared to $46.1 million for the same period in 2022, representing 36% year-over-year growth. This included net product revenue of $42.7 million for Tejula, compared to $29.6 million for the same period in 2022, representing 44% year-over-year growth. $13.3M for Optum compared to $12.8M for the same period in 2022, $1.3M for Kinloch compared to $3M for the same period in 2022, and $5.5M for Muzaira compared to $0.7M for the same period last year. Note that net product revenue in the first quarter of 2023 included a negative $3.9M non-recurring adjustment to compensate distributors for sales of Kinloch and Nuzara at prices prior to the price reductions made in connection with their initial inclusion in the NRDL. Such sales rebates to distributors on previously purchased products are customary in our industry to compensate those distributors for the new NRDL summing price. Research and development expenses were $48.5 million for the first quarter of 2023, compared to $53.9 million for the same period last year. The decrease in R&D expenses was primarily due to cost-sharing compensation from collaboration partners related to our clinical trials, partly offset by higher payroll and payroll-related expenses from increased R&D headcounts. SG&A expenses were $62.5 million for the first quarter of 2023 compared to $57 million for the same period in 2022. The increase was primarily due to higher professional service fees and in connection with sales of our products in Greater China. and higher payroll and payroll-related expenses for increased commercial headcount, as ZyLab continues to expand and invest in its commercial operations in China and infrastructure in the United States in anticipation of substantial growth over the next few years. ZyLab reported a net loss of $49.1 million, or a loss per share attributable to common stockholders of 5 cents for the first quarter of 2023, compared to a net loss of $82.4 million for the same period in 2022, or a loss per share attributable to common stockholders of 9 cents. The decrease in net loss was primarily due to product revenue growing faster than operational expenses and the increase in non-operating income, including interest income and foreign currency gains. As of March 31st, 2023, cash and cash equivalent, short-term investments, and restricted cash totaled $931.4 billion, compared to $1 billion as of December 31st, 2022. We would now like to turn the call back over to the operator to open up the line for questions. Operator?

speaker
Operator

Thank you. We would now like to open the line for questions. If you have a question, please press star 11 at this time. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael E. from Jefferies. Please ask your question, Michael.

speaker
Michael E.

Thanks. Good morning. And we had two quick questions. On FGAR-Teja Mod, I know that you guys are waiting for approval.

speaker
Michael

Can you give us an update on your expected timing and ramifications or your expectations for getting that in for NRDL and what the timelines are for that and what our expectations should be for NRDL for 2024 and how that would work with the timing of approval? That would be our first question. And the second question is, obviously, there are a lot of focus on the TTF lung cancer data coming up at ASCO. You mentioned that in your prepared remarks. Can you help us understand the ramifications of that result for China, particularly as it relates to the strength of the data with combination PD-1 but not docetaxel and the use of PD-1 in second line and how you expect that to be important for China? Thank you.

speaker
Billy

Hi, Michael. It's Josh. Good to hear from you. I'm going to direct the questions to our executives this morning. So I'll start on F-Cartigimod and direct it to me. And then Rafael can talk a little bit about your question on Lunar. On F-Cartigimod, as you know, there's not a PDUFA date in China for reviews or approvals. What I can say is we're in discussions with the regulators that they're going well. And we're looking forward to a potential approval. And once we have that, we're prepared to move quickly to launch. As we mentioned in my comments, we have a plan to have about 100 sales reps at launch ready to promote the product and we'll be moving quickly then. toward developing packages and strategies for NRDL. You know, we need an approval, you know, sometime over the summer to, I think, fit into that window. But again, we'll keep you updated as we continue to go through. Everything's going well, and we're excited about the opportunity. Rafael, maybe you could address Lunar, please.

speaker
Samantha

Hi, Michael. So this is about the implications of the data for China. Clearly, this is a second-line study, so the question is, you know, have most patients received checkpoint inhibitors in front line, and therefore, the data would, you know, data that is significant and clinically meaningful with IO applicable if patients have received it in first line. I think the answer to that is that not every patient actually receives checkpoint inhibitors in front line, particularly patients with mutations, with EGFR mutations and resistant mutations. Oftentimes, the additional checkpoints don't tend to add that much benefit, and they may get it in second line. So there is some applicability there. There's also some evidence I think which is really demonstrated in this study of synergy between PTP fields and checkpoint inhibitors. And I think we will be able to corroborate this in the frontline study, which is Keynote B36. I think that that study would really establish, you know, this synergy that we believe is observing in lunar. And as you know, the standard of care in non-small cell lung cancer is really evolving. And, you know, there will be new agents and, you know, different ways of treating patients as new entrants come in. So I think we are pretty excited and share the enthusiasm of NovoCure on this data set that really shows particularly the synergy with ICIs and DT fields and, you know, based on the pattern of treatment in China, there will be patients that will definitely benefit from this combination.

speaker
Michael

Thank you. Just to be clear for Josh, we acknowledge we do want to get approval by summer and that there's a deadline that we need to hit for NRDL. That's correct?

speaker
Billy

Yeah, I mean, we would like approval as quickly as possible for sure. And as I say, we're at, reviews are going well. Yeah, I think to be eligible for a 2024 negotiation, we would need to have an approval over the summer. And again, things are going well, but we don't know until we get it. So, we'll keep everybody updated. Got it. Thank you, guys. Operator, next question, please.

speaker
Operator

Thank you. Our next question comes from the line of Igor Notromovic from CT Group. Please ask your question, Igor.

speaker
Igor Notromovic

Oh, hi. Yes, thank you. For Bama, can you just talk about the timelines for running the phase 3 and first-line gastric? When could that trial read out, and what is the current view on when that drug could launch in China? And then you also mentioned in the press release that you're joining two global phase 3s, Fortitude 101 and Fortitude 102. Can you just explain the differences between those two trials, please, both in first-line gastric?

speaker
Billy

Sure, yeah, thanks for the question. I think, Rafael, these are both for you.

speaker
Samantha

Yeah, so I'll start with the second part of the question, Igor. There are two studies in gastric cancer. The standard of care tends to be 446 plus a PD-1 inhibitor, either Optivo or Pembrolizumab. That is really the way that You know, most patients are treated, you know, some kind of variation of chemotherapy, such as Xelox, is sometimes used. There have been studies that have not used PD-1 because they started before these results really came about. So that's why we have two studies. One uses Folfox-6 with pembretuzumab, and the other uses pembretuzumab with chemotherapy plus PD-1. The second one hasn't started. We're in the process of getting it going on both Amgen and ourselves, but we obviously have made the decision to participate in that trial. So the first approval will be with chemotherapy alone, and that trial is ongoing from Amgen. There's been some discussion about the level of expression of SCFR2-alpha And we will enter that study imminently, actually. You know, we're just automating issues, you know, having to do with a diagnostic, et cetera. But the study is ready to start, and it will be shortly after followed by the ticket study, which is, you know, normal in China. So, with regards to timelines, you know, this study will follow its course and, you know, we'll have a filing in, you know, sometime in 25.

speaker
Igor Notromovic

Okay, great. Thank you very, very much.

speaker
Operator

Thank you. Well, our next question comes from the line of Anupam Rama from JP Morgan. Please ask a question, Anupam.

speaker
Anupam Rama

Hi, this is Priyanka on for Anupam. We just have one question. Can you give us a preview on what to expect at the investor day and if they're going to be more of a pipeline or development focused or is it more focused on commercial dynamics and potential for the pipeline products in China. Thanks.

speaker
Billy

Hi, Priyanka. It's Josh. I'll start and then Billy, please jump in. But, you know, we have not had an in-person investor day for quite some time and thought this was a good time to do it, particularly coming out of ASCO and some of the updates that we'll have there. So we will focus on, you know, the eight launches that are coming, as well as a look into our discovery strategy and some of our earlier global developments. We will talk about commercial dynamics and outlook for the medium term for the firm. But really, I think our primary goal here is to give investors a little bit deeper insight into the breadth and depth of our pipeline and the things that are coming sometime soon. Billy, if you have anything to add, please do.

speaker
Billy Cho

No, that was well covered, Josh. We'll be sending out a phase of date to all of our investors and sell side, you know, probably sometime this month and followed by, you know, some more details around the agenda. So stay tuned.

speaker
Operator

Thanks so much. Great. Thank you. Our next question comes from the line of Jonathan Chang from SVB Securities. Please go ahead, Jonathan.

speaker
Jonathan Chang

Hi guys, thanks for taking my questions and congrats to Josh and Christine. First question, in the context of a broad and expanding pipeline of commercial and clinical stage assets, what do you see as the most meaningful growth drivers for the company in 2023 and beyond? And my second question, can you tell us more about ZL1310, the construct itself and the timelines associated with the program? and discuss your thoughts on pursuing DLL-3 with an ADC versus a bispecific T-cell engager. Thank you.

speaker
Billy

Great. Thank you, Jonathan, and thanks for the congratulations. I think on growth drivers, I'll make a couple comments, ask Samantha to weigh in, and then we'll turn it to Rafael to talk about the DLL-3. I think on growth drivers, obviously, we're quite excited about the upcoming launch, hopefully, of F-Gar Tijamod. And as I mentioned, we're well prepared to hit the ground running there. We've learned, I think, a lot from the very successful launch in the U.S. And I think a lot of the dynamics that led to success in the U.S. actually can and should play out in China. We're looking forward to that as a new growth driver. Zajula continues to perform well, and we would expect, as we mentioned up front, to continue to grow share in that class, secure a place as the market leader, and continue to drive penetration, particularly in the first-line setting. And, of course, New Zyra and Kinloch on NRDL. beginning in March will drive good volume and good revenue growth for the remainder of 2023. I think as we get into 2024 then, looking forward to the next wave of potential launches in that period, which could include TT fields for lung cancer, Repo-Trexanib. And then, you know, we've talked a little bit about that as we get a little bit farther out, Membrutuzumab, Adagras of CAR-XT. So, you know, there are a lot of growth drivers. I think, again, for this year, it's execute on the four products that we have in the market and be ready to launch well with F-Cortegemods. Samantha, I don't know if you want to make any other comments on 2023 and beyond.

speaker
Samantha Duke

Well, you have covered pretty well.

speaker
Billy

Maybe we can go to Rafael to talk a little about our most recent deal with DLL3.

speaker
Samantha

Yeah. Hi, Jonathan. So, yeah, this is ZL1310. We were pretty impressed with the preclinical activity of this product. And as you know, we have TID-DAC, so this is a complement to our ADC pipeline. And as you know, ADCs are based on antibody, you know, the specificity and ability of the antibody are quite good for the target DLL3. And then the payload and linter tend to dictate the benefit-risk of the product. This payload is a topoisomerase inhibitor, and it has really high potency and high clearance and better permeability. So, we saw as a consequence very good efficacy and tolerability in preclinical studies, you know, as opposed to other ADCs that have less stable linkers that are not covalent. So this is, again, a covalent linker, and it actually releases in the tumor microenvironment. There are other linkers that actually don't allow, you know, the payload to remain bound, and therefore, you know, are fraught with toxicity, such as high toxicity, rash, myelosuppression, et cetera. And here we could see a very stable PK and be able to increase the doses to a relatively higher level. So, because of that, and also because, you know, this company also has a more advanced product, you know, that they're also moving ahead with, and, you know, it seems like it was a technology that was superior to many other ADC technologies that we've seen out there. That's how we chose it. We could have chosen perhaps a bispecific. You know, Amgen has biotechnology there. They've demonstrated actually impressive activity in, you know, difficult settings such as refractory or second line small cell lung cancer. And we have our own bispecific in the CB20 space with Regeneron. But here, because of the potency and the potential higher benefit risk given the stability of the linker, and, you know, trying to affect the avoidance of CRS and other IELTS-type toxicity from biospecifics, we opted to use an ADC. And then in terms of why we chose DLL-3, well, it's a target that's been validated by Amgen's data, and it's a real unmet medical need, and I think also has the opportunity to expand to neuroendocrine tumors, which is an area where there hasn't been really a lot of progress. So I think this, you know, this is a collection of information that led us to really choose this product as our next ADC to move into IMD, you know, in the near future.

speaker
Jonathan Chang

Got it. Thank you.

speaker
Operator

Thank you. Our next question comes from the line of Ziyi Chen from Goldman Sachs. Please ask your question, Ziyi.

speaker
Ziyi Chen

Hey, thank you. Thank you for taking my questions. A couple questions. Number one is, you know, now you're running more than 15 assets in a clinical stage, while based on first quarter and also third quarter, fourth quarter, you have been controlling the budget pretty tight. So we try to understand that how would you allocate the resources properly to make sure the programs, the progress of those programs could potentially make you ahead of peers in competition and how you're going to prioritize some of the key assets. Second question is more specific on Adagracib. Is there any updates on the regulatory timeline for Adagracib in China? When should we expect more visibility on the China filing strategy, you know, particularly what are the factors that management is considering while trying to determine the filing plan in China. A quick one also on ADC is this is probably the first time that we saw Scilab is partnering with one of the local players licensing their assets. So does that mean that you have been changing your strategies? You have been more looking into potentially domestic biotech company to collaborate with? Those are my three questions. Thank you.

speaker
Billy

Thanks for the questions. And we'll try to cover all three. Billy, maybe you could start on resource allocation. Rafael can talk about Adagraph. You can make any comments, Rafael, about business development. And then Jonathan, maybe you can provide some broader context around our business development strategy. So I'll start with Billy.

speaker
Billy Cho

Hey, D. Thanks for the question. So I think at this point in Dylab's sort of what I will say relevant scale and organization's lifecycle. You know, we think that we have turned a corner whereby we're going to be able to make sure that we achieve our strategic priorities, i.e., you know, we have about eight anticipated drug launches over the next two and a half years or so. Very important to us, clearly. while maintaining kind of a level of growth and productivity at the same time. So, therefore, you saw a snapshot of that in our quarterly results where, yes, from some non-operating items, such as interest income and foreign currency gains, But if you actually see the operating line items, you would also see, you know, improving profile, namely that revenue is growing faster than expenses. And you should expect that to continue from here on out. So year after year from here on out, we expect to see our financial profile on an operating basis look better and better. And that gave us the confidence and it felt like the time early on this year to make a commentary to the public that, you know, we expect to, we hope to target to reach commercial profitability this year and overall profitability by end of 25. So this was something that we expected and that we're starting to see from here on out. Now, there's going to be, of course, some quarterly quarter per quarter action. But year over year, we felt very comfortable that we're going to start to see improving financial picture. So that includes right that bakes in making sure that we execute on all of our priorities, including the anticipated launches we talked about.

speaker
Billy

Rafael, maybe you could

speaker
Samantha

Sure. Yeah. So, we obviously are pretty excited about Adagracib. You know, the data in second line on small cell lung cancer, the data in colorectal, which we referred to at the previous earnings call, and the data that I alluded to today in pancreatic as well as biliary tract. So, this is across, you know, solid tumors which you can see is performing exceedingly well. So we are very eager to get this product approved as soon as possible, obviously. We are participating on a number of trials, and in lung cancer, we are on K12, which is the second-line study against docetaxel, and we will participate in the front line, and we're also in the colorectal cancer study as well. Our filing was based in getting data from PFS on K12, and that would be something towards the end of 2024. But we are always looking for ways to accelerate filing. Obviously, we can't really control the approval because of lack of producer timelines, but we can control whether or not we can working with CDE accelerate the filing. So we are, we will try to leverage K12 data from Chinese patients to see whether we can file earlier. Obviously, no promises. Stay tuned and we'll see whether that's the case. But right now, the base case is end of 24 and, you know, hopefully it will be sooner. And I'll just make the comment that, you know, Sotirase apparently won't be approved in China. And there are some domestic products that, you know, one of them have breakthrough designation, and they obviously have Chinese patients, so they have an advantage over Adagrase. That's why we're eager to leverage K12. But these products really are very early. They have response rate. They don't have a lot of durability. They don't have a lot of PSS follow-up or survival. So we don't believe that we are behind in this field. There's really competition. But we will do our very best to try to make this available as soon as possible. And the last comment I'll make, I don't think we made any any comments to this last time, but we did start the PK study, which, again, is required for the filing, and we finished it already, actually. And so when we go to CDE to discuss these timelines, we would have more data, you know, from Chinese patients' PKs. So hope this helps. Stay tuned, and hopefully we'll be able to give you more granular data You know, as we continue our discussion. Jonathan, I think you can make perhaps a comment about the DL03 deal.

speaker
Jonathan

Yeah. Thank you for the question on the BD strategy. First of all, it's not a changing strategy. I like to see it as an evolution in our BD strategy. In fact, I think our BD strategy is multi-crawled. Um, so there are a couple of elements to it. Um, number one, I think, you know, we'll continue to do those type of deals, um, which maybe we are more well known for, you know, the Maradi, the, you know, the late stage assets with regional rights. Um, you know, the latest one is obviously with Seattle genetics, um, in this deal three, um, you know, it's the second point of our strategy. which is to help the company acquire global rights and complement our in-house discovery strategy. I think if you look at the success in BD, it really comes from the rigor in our scientific evaluation. And our scientific team is very good at picking assets. So we want to leverage the strength and extend these regional right deals to global rights in selected areas such as ADC, synthetic utilities and others where we're already building a portfolio of very synergistic assets. And today, you know, whether those assets come from globally or come from China, in the case of ADCs, I think China is actually, you know, making a lot of positive progress. And this particular company, a particular asset, you know, has shown or demonstrated very promising early data. So we're very excited by it. And I think, you know, we may do more deals with these type of profile, you know, going forward. And I think, you know, as we evolve as a company, you know, Selenium PD will continue to evolve and there will be other points and elements. And hopefully, you know, you'll hear more about other types of creative deals that we'll do in the future. Thank you.

speaker
Billy

Thanks, Jonathan. Next question, operator, please.

speaker
Operator

Certainly. Our next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please ask your question. Great.

speaker
Seamus Fernandez

Thanks, everybody. Thanks. Just a couple of quick questions. So first, just on Car XT, can you just help us understand what kind of commercial presence is likely to be necessary for you know, the launch to really capitalize on the size of the overall market opportunity. Can you just sort of remind us how the, you know, sort of relative generic utilization is in country versus kind of the undiagnosed patient population? Just trying to get a better sense of how we should be thinking about the commercial launch of CAR XT post-approval. And then the second question is really just on how you're thinking about the opportunity for another topical agent in the treatment of psoriasis. That area has been relatively slow to come on with two new agents in the space. Those agents have good efficacy, but what we continue to see across the board are challenges as it relates to, you know, growth to net dynamics in that market and reimbursement coverage. So, just how are you thinking about that opportunity for the topical IL-17 and the spend that you'll be pursuing associated with it? Is it perhaps an opportunity to pursue HS? or other potential opportunities outside of purely psoriasis. Thanks.

speaker
Billy

Thanks, Seamus. It's Josh. I'll make a brief comment on sort of commercialization, but I really want Harold to dive in on both of the topics. I think as it relates to CARXT and the commercialization opportunity, you know, our estimates are there are about 8 million patients with schizophrenia across China. at least 4 million of whom are actively seeking care in the equivalent of psychiatric wings or psychiatric hospitals in major settings. So I think our view at launch is probably somewhere in the range of 200 sales reps or so can cover the heavy treatment centers. Generics are prevalent, I think certainly thinking of like olanzapine and others, I think are well utilized in China today. But I think Harold can talk about the opportunity that CAR-XT presents in terms of either patients who aren't responding well to current therapies or the benefits from compliance and otherwise that may come. And then Harold, you can talk a little bit about why we're excited about IL-7.

speaker
Josh

Yeah, thank you. First, Karuna and the CAR-XT compound It's so different from existing anti-psychotics, anti-schizophrenia treatments, so that we really see this as a great opportunity to either complement existing regimens as an adjunct or as a standalone. The efficacy was clearly shown in the last studies. The E3 is just another basically confirmational trial that's already shown. the efficacy of this drug in this patient population with a similar kind of efficacy signal that we've seen in E1 and E2. So with that said, I think this is, you know, a new area in the market. And in China, as we've already told in previous meetings, there is a lot of undiagnosed schizophrenia. There is an effort by the government to activate more schizophrenia treatment. in the country, so we see this as a great commercial opportunity. Regarding the second part of your question about 1102 and the use of topicals in psoriasis where there are already quite a number of treatment options, recently tapenarof was added and roflumilast. Both of those drugs are quite different from ours. And I just would like to bring out again the uniqueness of 1102. which is an IL-17 mimetic, basically, or a blocker that works similar to the most active drug class for this disease. So we see this as a way to bring what is currently the best treatment by sub-Q treatment or IV treatment directly to the skin. And our proof of concept study has clearly shown that we achieve penetration and early success in clinical markers of benefit So we see ourselves as in a very unique situation, one in which, yes, other topical treatments exist, but they have systemic absorption, they have other issues, and the overall results are well documented. However, they are not IL-17 mimetics that are currently really the leading drug class for psoriasis. I hope I addressed your question.

speaker
Billy

Thank you, Harold. Next question, please.

speaker
Operator

Thank you. Our next question comes from the line of Yang Huang from Credit Suisse. Please ask your question, Yang.

speaker
Yang Huang

Hi, everyone. Thank you for taking my questions. I have two quick ones. First is first quarter commercialization progress. So we saw year-over-year product revenue increase by 36 percent look pretty strong and considering first quarter there are still some you know coveted impacts in january and also an ideal kind of just effective for one month so my question is first question is for the remaining quarters of the year should we expect to kind of accelerated kind of commercial progress even there will be no coveting impact and the two jobs in an rdl potentially should be more volume momentum that's the first question second question is um on car xp so you mentioned you are going to initiate a bridging study pretty soon this year but can you give us more color on the design and the scale and the potential kind of timeline of the bridging study for CAR-XT. Thanks.

speaker
Billy

Thank you for the question. Samantha, if you can cover the first one, which is sort of commercial outlook for the year and COVID impacts and other things that are going on. And then obviously, Harold, you can talk about CAR-XT.

speaker
Samantha Duke

Sure. Thanks, Yin, for the question. The first two months in China, we do experience the COVID impact. And also, like you said, NRDL inclusion last month. However, going forward, we start from March. We have seen the much lesser COVID effect. We are very optimistic about to continually deliver our goes for the rest of the year.

speaker
Billy

Great. Thanks. Harold, do you want to?

speaker
Josh

Yeah. The question was about the clinical study for CAR-XT in China, which is about to start. It's actually almost imminent to start out with a design very similar, almost identical to the emergent program studies that were conducted by Corona. It has the same kind of dose ramping schedule that you've seen there. So we will try to mimic the design, the duration, the details in the same way as it was seen in the global program. As far as the timelines, as I said, this study is about to start. We just finished our PK study, which was also on track. which allows us to feel confident about the clinical trial overall. And I think that was your question, unless I missed some piece.

speaker
Yang Huang

Thank you. So when do we expect that we can finish? Let's say, Bridget, sorry.

speaker
Josh

There is, at this point in time, no clear understanding how long it will take. This is the first study in a long time with a new drug So we have certain expectations. We think we have the centers lined up. So we do believe this can be done rather expeditiously, but I think this will be for a future conference call to get more clarity on.

speaker
Yang Huang

Okay, great. Thank you.

speaker
Operator

Thank you. Our next question comes from the line of Rebecca Liang from Bernstein. Please ask your question, Rebecca. Hi.

speaker
Rebecca Liang

Thanks for taking my question. Specifically on the two products that are already covered by NRDL, we saw that Nozara had a lot of growth in Q1, but the other one, Kinloch, had negative growth. And even after we adjust for the 3.9 million rebate, there's still a net decline. So could you help me understand better what's actually going on with Kinloch, and when will When do you expect the volume release effect from NRDL to take place?

speaker
Billy

Thank you. Thanks, Rebecca. It's Josh. Just to remind everybody that those two products were added effective March 1st. So in Q1, you're really not seeing a real effect of the NRDL listing. We're making good progress in terms of pulling that through to the local hospitals. So you should expect to see good Kinloch volume and net sales growth over the next three quarters. As Samantha mentioned, I think across all of our products, we saw a little bit of challenges in the first quarter just related to COVID. Again, not different than what you're seeing across China-based sales and marketing efforts. But we're quite confident that the volumes, you'll see them beginning in Q2 from both NewsIRA, and Kinloch. Thank you.

speaker
Operator

Thank you. I'm sure no further questions at this time. I'll now turn the call back to Xylep CEO, Samantha Du, for closing remarks.

speaker
Samantha Duke

Thank you, Operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and look forward to updating you again after the second quarter of 2023. Operator, you may now disconnect this call.

speaker
Operator

Thank you. That concludes today's conference call. Thank you for participating.

Disclaimer

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