Zai Lab Ltd

HKEX:9688

Earnings Call Transcript 2021-Q4

[Operator]

Hello, ladies and gentlemen, thank you for standing by, and welcome to Zai Lab's Fourth Quarter 2021 Financial Results Conference Call. [Operator Instructions] 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 Zai Lab, who will make introductory comments.

[Ki Chul Cho, executive]

Thank you, operator. Good morning, good evening, and welcome, everyone. Zai Lab recently issued a press release provided with details of the company's financial results for the 12 months ended and fourth quarter ended December 31, 2021, as well as product highlights and corporate update. The press release is available in the Investor Relations section of the company's corporate website at ir.zailaboratory.com.

Today's call will be led by Dr. Samantha Du, Zai Lab's Founder, Chairperson and Chief Executive Officer. She'll be joined by Dr. Alan Sandler, President and Head of Global Development Oncology, who will discuss advances with our oncology product candidate; Dr. Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases, who will speak about progress we've made in those 3 therapeutic areas. And I will discuss the performance of our market products and conclude with comments on our 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, Zai Lab will be making certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our business plans and objectives and timing and success of our clinical trials, our sales and revenue forecasts for our products and product candidates, regulatory applications and commercial launches. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today.

At this time, it is my pleasure to turn the call over to Zai Lab's Founder, Chairperson and Chief Executive Officer, Dr. Samantha Du.

[Ying Du, executive]

Thank you, Billy. Hello, everyone, and thank you all for joining us. On this call, I'll discuss highlights from our 2021 and what we expect to accomplish in 2022. '21 marked another year of strong growth and execution for Zai Labs. We significantly expanded our portfolio of potentially first-in-class and best-in-class assets. We made meaningful advances with our global pipeline of 11 assets, including achieving proof of concept for ZL-1102, our internally developed anti-IL-17A Humabody for chronic plaque psoriasis with global rights.

Through business development, we deepened our world-class gastric and lung cancer franchises with 4 additional promising drug candidates, including adagrasib; we bolstered our autoimmune franchise with efgartigimod, a pipeline-in-a-product opportunity; and we expanded into neuroscience with an exciting anchor asset KarXT. We achieved additional regulatory submissions and approvals, including our first non-oncology approval for NUZYRA. Our commercial execution continues to gain strong momentum for our 4 marketed products.

We are also pleased to have ZEJULA included in the NRDL for first-line ovarian cancer maintenance treatment, and we expect it to become the leading PARP inhibitor in the ovarian cancer in China given its unique label for ovarian cancer patients regardless of biomarker status. Last but not least, we further grew our talented global team both in the United States and China, building a solid foundation for continuing growth and execution.

We have set clear strategic priorities for 2022 to position ourselves to lead the next wave of biopharma innovation. First, we'll expedite bringing medicines to patients by accelerating the important data readouts and regulatory filings across our entire portfolio. We plan to file the NDA for efgartigimod in China in mid-2022, subject to ongoing discussion with NMPA, and to initiate a registrational study in China for bemarituzumab in first-line gastric cancer in Greater China. Second, we'll continue to invest in R&D and advance our internal pipeline with global rights.

We plan to move ZL-1102 into full global development and submit up to 2 INDs for internally developed compounds with global rights in 2022. Lastly, we'll leverage our leading position in China to accelerate our growing revenue base and to source innovation internally and externally with potentially transformative assets and partnership opportunities. Our mission is to build a leading global biopharmaceutical company.

Looking ahead, we plan to have at least 15 marketed products approved in more than 30 indications by 2025. We believe that the regulatory environment will continue to be supportive of innovative biopharma companies like Zai Lab. We are also confident in the long-term market potential of our differentiated world-class portfolio designed to address significant unmet medical needs and to create significant value for all of our constituents, including our shareholders. For example, we are presently forecasting that peak sales of the current assets in our lung and GI cancer franchises could generate up to a combined total of $2.5 billion to $3 billion through 2030.

And now, I'll turn the call over to Dr. Alan Sandler. Alan?

[Alan Sandler, executive]

Thank you, Samantha. Zai Labs oncology franchise continued to make progress on all fronts in the fourth quarter, and we expect to have a busy and productive year in 2022. For adagrasib, the FDA recently accepted the NDA filed by Mirati in second-line non-small cell lung cancer in the United States with a PDUFA date of December 14, 2022. In January of this year, Mirati announced exciting clinical data from a Phase II cohort of the KRYSTAL-1 study in patients with KRAS G12C-mutated GI cancers, revealing a 41% objective response rate and 100% disease control rate in the 27 evaluable patients. In addition, at ESMO in September, Mirati reported the top line results of the Phase II cohort in the KRYSTAL-1 study.

In this study, patients with second-line non-small cell lung cancer harboring the KRAS G12C-mutation were treated with adagrasib monotherapy at 600 milligrams BID revealing a 43% objective response rate and an 80% disease control rate. The safety and tolerability profile was consistent with previously reported findings for adagrasib in patients with advanced non-small cell lung cancer.

In addition, Mirati reported positive clinical data from a cohort of the Phase I/II KRYSTAL-1 study in patients with heavily pretreated colorectal cancer harboring the KRAS G12C mutation. These results showed that adagrasib alone and with cetuximab demonstrated significant clinical activity and broad disease control in these patients. These results are very encouraging and reinforce our view that adagrasib has the potential to be a best-in-class compound for patients with KRAS G12C-mutations. We plan to join global Phase III studies in second line plus non-small cell lung cancer and second-line colorectal cancer in mid-2022.

Moving to bemarituzumab, where we plan to initiate a China registrational study in first-line advanced gastric and gastroesophageal junction adenocarcinoma in Greater China in 2022. Bemarituzumab is a first-in-class FGFR2b inhibitor, with a sizable market opportunity in Greater China. There are no approved therapies specifically for these patients in China. For Tumor Treating Fields, Zai Lab's partner, Novocure, anticipates top line data from the Phase III pivotal LUNAR clinical trial testing the efficacy of TTFields together with physician's choice immune-checkpoint inhibitor or docetaxel for the treatment of patients with stage 4 non-small cell lung cancer by year end 2022.

You will recall that in May 2021, the FDA accepted the IDE supplement submitted by Novocure that incorporated recommended changes from the interim analysis of the LUNAR trial conducted by an independent data monitoring committee, including reductions in the sample size to 276 patients and in the follow-up period to 12 months. We believe that this protocol change is a reason for optimism. For margetuximab, we filed an NDA in HER2-positive breast cancer with the NMPA in December, and the filing was accepted.

Margenza is an Fc-engineered antibody molecule developed by MacroGenics and is an antagonist of a HER2 receptor and has been approved by the FDA to be used in combination with chemotherapy for the treatment of patients with metastatic HER2-positive breast cancer, following treatment with 2 or more anti-HER2 therapy. Zai conducted a bridging study of margetuximab in combination with chemotherapy in advanced previously, treated HER2 positive breast cancer that met its primary endpoint of median progression-free survival as defined by achievement of at least 50% of the efficacy of margetuximab plus chemotherapy in the SOPHIA study. The safety profile of margetuximab plus chemotherapy was acceptable and consistent with that seen in the SOPHIA trial.

Moving to our internal research and development program. You will recall from our R&D Day last year that we embraced an open innovation model. Our goal is to file at least 1 IND per year and in 2022, we plan to submit up to 2 INDs for compounds with global right. With an abundance of potentially best-in-class and first-in-class product, we are very excited about our oncology pipeline at Zai Lab.

And now I will turn the floor over to Harald Reinhart to discuss progress in our neuroscience, autoimmune and infectious disease therapeutic areas. Harald?

[Harald Reinhart, executive]

Yes. Thank you, Alan. The fourth quarter brought several very encouraging new developments, clinical and regulatory in our autoimmune and infectious diseases franchise and added a new therapeutic franchise, neuroscience. I'll start with autoimmune diseases and efgartigimod. We had a positive meeting with the NMPA on efgartigimod that suggests the potential for an accelerated regulatory approval for generalized myasthenia gravis in China.

Subject to further discussion with the NMPA, we expect to file the BLA in mid-2022. Zai's partner, argenx, received approval for efgartigimod in gMG in the United States in December 2021, and we initiated clinical trials for efgartigimod in China for other indications, primary immune thrombocytopenia ITP, chronic inflammatory demyelinating polyneuropathy CIDP, and pemphigus as well as the pharmacokinetic study.

Next I'll talk about ZL-1102 Zai Lab's internally developed novel human VH antibody fragment. ZL-1102 is potentially the first IL-17 targeting topical treatment for patients with mild to moderate plaque psoriasis. Last fall, ZL-1102 achieved proof of concept in a Phase Ib study and is now advancing into global clinical development. We believe this is the first study to ever demonstrate penetration of a protein biological through psoriatic skin, resulting in a clinical response. Skin penetration was demonstrated by changes in transcriptome for inflammatory markers.

With regards to efficacy, topical ZL-1102 resulted in a 45% relative clinical improvement in local PASI score, an improvement in erythema and scaling, in target lesion size and improved responder rates. Clinically, we observed an early onset of action and consistent improvement over time. ZL-1102 had a benign safety profile comparable to placebo, with treatment-emerging adverse events that were few in number and mild.

Pharmacokinetic studies confirmed lack of systemic absorption. Psoriasis affects approximately 125 million people worldwide, of which 80% to 90% suffer from chronic plaque psoriasis. As 70% to 80% of these patients have mild-to-moderate disease, there's a strong rationale and patient need to develop a topical formulation with IL-17 directed therapy that works directly on the lesion and avoids systemic exposure. Current topical therapies provide limited efficacy or have safety issues with long-term use.

Moving on to infectious diseases. Our partner Entasis announced positive top line results for Sulbactam-Durlobactam known as SUL-DUR, from the global Phase III registrational attack trial. This trial evaluated the safety and efficacy of SUL-DUR versus colistin in patients with serious infections caused by Acinetobacter baumannii. SUL-DUR achieved the primary endpoint of statistical noninferiority in 28-day all-cause mortality.

Most patients had pulmonary infections with carbapenem-resistant Acinetobacter baumannii known as CRAB. In addition, SUL-DUR met the primary safety objective of the study, achieving a statistically significant reduction in nephrotoxicity over colistin. SUL-DUR is the first investigation of drug to demonstrate efficacy against crab in a prospective, well-controlled clinical trial. Crab infections are among the worst spectral infections, safe and effective treatment options are almost nonexistent.

As a narrow spectrum antibiotic, SUL-DUR targets Crab bacteria preferentially, thus potentially avoiding the collateral damage associated with broad spectrum antibiotics. We look forward to bring this drug to China and Asia-Pacific where severe Crab infections are quite frequently seen in ICUs and associated with high mortality. We expect to file SUL-DUR with regulators in China in the fourth quarter of 2022. As Samantha mentioned, we received approval for omadacycline in NUZYRA for CAP or community-acquired pneumonia and ABSSSI skin infections. It launched the product in December. Billy Cho will have more to say about NUZYRA in a minute in his discussion of our commercial products.

And finally, in the fourth quarter, we entered into the neuroscience area with our agreement with Karuna Therapeutics for rights to KarXT in Greater China. KarXT is an oral investigational drug combination consisting of xanomeline a muscarinic agonist that stimulates M1 M4 receptors in the central nervous system and trospium, an approved muscarinic antagonist that reduces the incidence of peripheral GI side effects. KarXT has already demonstrated clinical benefits in Phase II studies in schizophrenia and Alzheimer's disease. In the Phase II Emergent-1 trial, KarXT demonstrated clinically meaningful and statistically significant improvement in PANSS total score, which is the total Positive and Negative Syndrome Scale and also in key secondary endpoints, including PANSS positive subscore and PANSS negative subscore.

KarXT was well tolerated, much better than xanomeline alone. Karuna is evaluating KarXT in late-stage clinical trials for the treatment of schizophrenia and psychosis in Alzheimer's disease. Recently, Karuna also initiated the Phase III ARISE trial, evaluating KarXT as an adjunctive treatment for schizophrenia in adults who inadequately respond to atypical antipsychotics in the fourth quarter of 2021. Additionally, Karuna plans to initiate a Phase III study in Alzheimer's patients with psychosis in mid-2022. Results from the Phase Ib trial in healthy elderly volunteers indicate that standard doses of KarXT can be administered to elderly adults while maintaining a favorable tolerability profile. Zai Lab will work with Karuna to design the optimal strategy to accelerate the development and regulatory timeline of KarXT in Greater China.

And now, Billy will speak about progress with our commercial products and financial results. Billy?

[Ki Chul Cho, executive]

Thank you, Harald. In December, the NMPA approved the NDA for NUZYRA, a novel antibiotic with both oral and intravenous formulations for the treatment of community-acquired bacterial pneumonia and acute bacterial skin and skin structure infection. The product was launched in December. NUZYRA was approved as a Category 1 innovative drug and is locally manufactured in China. It is the fourth Zai Lab product approved over the last 24 months. Our 3 other marketed products, ZEJULA, Optune and QINLOCK, continued to achieve robust revenue growth driven by strong demand and commercial execution. ZEJULA continued to perform well, building on the news from the last quarter when the first line of ovarian cancer indication was included in the NRDL. This is important as the first line ovarian cancer maintenance treatment is the largest indication for PARP inhibitors in China.

With this favorable reimbursement decision and ZEJULA's unique label for ovarian cancer patients regardless of biomarker status, we expect ZEJULA to gain strong momentum this year and to achieve market share leadership, no later than next year. In addition, as of December 31, 2021, ZEJULA was listed in nearly 1,300 hospitals in China, providing a strong foundation for further NRDL. Similarly, the launch of Optune is going well and we achieved solid growth. During the fourth quarter, our team focused on continuing to improve market access by expanding commercial insurance and supplemental insurance coverage for Optune and educating target physician about significant clinical benefits, including survival benefits.

Currently, Optune is covered by 33 municipal or provincial supplemental insurance plan and has become one of the top treatments reimbursed in 2021. As we go to last year or last quarter, I should say, we successfully launched QINLOCK in China starting last summer. The key focus of our launch is increasing physician awareness, market access and the number of patients treated by leveraging INVICTUS trial data and QINLOCK status as the only fourth-line GIST treatment regardless of the mutation status as well as the guideline recommendation by the Chinese Society of Clinical Oncology.

Currently, QINLOCK has been covered by 52 supplementary insurance plans since launch. We're still assessing the impact of the INTRIGUE results. However, we know that the fourth-line GIST indication has over 7,000 new patients every year in China and growing. And we are committed to establishing QINLOCK as a standard treatment for this indication.

Now I'll discuss our financial results. Product revenues for the fourth quarter and full year 2021 were $44 million and $144.1 million, respectively. Over the same period last year, product revenues were $15.1 million and $49 million, respectively. We just completed our first calendar year of commercialization and are very pleased with the successful launches and the sales trajectory of our market products. With many more product launches to come, our commercial platform over time is expected to generate strong continued growth and considerable operating efforts. ZEJULA sales for fourth quarter and full year 2021 were $29.4 million and $93.6 million, respectively. Over the same period last year, ZEJULA sales were $9.9 million and $32.2 million, respectively.

Note that there was a negative $7.5 million nonrecurring adjusted revenue in fourth quarter of 2021. This was due to onetime compensation to distributors for ZEJULA sold after 2021 price that remains in the distribution channel before the NRDL implementation. Optune sales for fourth quarter and full year 2021 were $11.6 million and $38.9 million, respectively. And over the same period last year, Optune sales were $5 million and $16.4 million, respectively.

QINLOCK sales for fourth quarter and full year 2021 were $2.9 million and $11.6 million, respectively. And over the same period last year, QINLOCK sales were $0.2 million and $0.4 million, respectively. R&D expenses were $573.3 million for 2021 compared to $222.7 million for the same period in 2020. The increase in R&D expenses was primarily attributable to $321.3 million in upfront payments for 8 new license agreements compared to $83.5 million in 2020, expenses related to ongoing and newly initiated late-stage clinical trials and payroll and payroll-related expenses from increased R&D headcount.

Excluding upfront payments for new license agreements, the core R&D expenses were $252 million in 2021 compared to $139.2 million in 2020. Selling, general and administrative expenses were $218.8 million in 2021 compared to $111.3 million for the same period in 2020. The increase was primarily due to payroll and payroll net expenses from increased commercial headcount and expanded commercial activities as Zai Lab continues to expand its commercial operations throughout Greater China. Zai Lab reported a net loss of $704.5 million for the full year of 2021 or a loss per share attributable to common stockholders of $7.58 compared to a net loss of $268.9 million or a loss per share attributable to common stockholders of $3.46 for the same period in 2020.

Excluding upfront payments for new licensing agreements, our cash used in operating activity and purchase of property and equipment and intangible assets was $309.2 million in 2021 compared to $143.2 million in 2020. As of December 31, 2021, cash and cash equivalents, short-term investments and restricted cash totaled $1.41 billion compared to $1.19 billion as of December 31, 2020.

We would now like to turn the call back over to the operator to open up the line for questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Michael Yee from Jefferies.

[Michael Yee, analyst]

Our question was around ZEJULA and thinking about the growth trajectory in 2022 and '23 and '24 as it relates to obviously getting expanded NRDL, but also, as Billy noted, there were some price adjustments in the fourth quarter. So how should we think about the growth in the future coming years, but appreciating that we might expect price cuts every couple of years. So talk about that in the outlook for ZEJULA.

[Ki Chul Cho, executive]

Mike, this is Billy. I'll take your question. So yes, we're pretty excited to see the momentum -- early momentum in ZEJULA and of course, looking forward to implementing now the NRDL inclusion for first line for all-comer patients, which, as we noted in the press release and the current call, it is the largest market opportunity for PARP inhibitors in China. I believe that AstraZeneca released in their earnings that the emerging market sales for Lynparza was around $400 million and more than 50% of that comes from China. And what we can share with you in terms of what we see so far based on the data that we are following is that with our entry, we've seen that the size of the pie, so the penetration of the PARP asset class in China.

And at the same time, our market share within that growing pie has both been increasing very nicely. We expect that to continue for the foreseeable future this year, next year and even beyond. And that's part of the reason why we had made a comment on this call that no later than next year, we actually also expect to be the market share leader in the PARP asset class and space. So hopefully that gives you a sense of the answer that you're looking forward to your question as well as the confidence that we have in both the opportunity and...

[Michael Yee, analyst]

May I ask a little follow-up on the second part of that question, which was related to the price adjustment in the fourth quarter? We saw this with another major drug as well in China. And so, I'm not sure that Wall Street analysts may appreciate this adjustment every couple of years and how we need to think about that and what is your opinion?

[Ki Chul Cho, executive]

Yes. Yes. So it is correct and this is universal, pretty common place in our industry in China, where every time you are included in the NRDL right before you're going to have a nonrecurring adjustment. So if your question, Mike, is for ZEJULA, in particular, what do we need to factor in every couple of years? Could there be a possibility that we have to renegotiate with NRDL? That will be a case-by-case decision.

Yes, as you know, we also have additional indications that we have time for place. But what I can tell you is that for renegotiating the current indication, it's a lot more modest than a lot of the headline numbers that you've seen. So for example, we had a 23.6% discount, right, to get the first-line indication, which is, again, a very significant piece of the PARP asset class. A couple of years later on, if we were to renegotiate, it'd be a lot more modest compared to the pricing that we've seen.

[Jonathan Wang, executive]

Yes, and then Mike, maybe just to add, sorry, it's Jonathan here. I was in a negotiation with the NRDL late last year. So maybe I can provide a bit more color. Look, I think it's an important addition for us first to include the first slot front line. That gives us a very strong competitive advantage given we're the only all-comer product in that frontline setting. So we are really going to expect to get a lot of volume in exchange for a modest discount. This discount would not come if we didn't add this indication.

So every 2 years, when we do renew, we do not expect -- although things would change, right? Things could change for the better too, we don't know. But if we didn't have to add that new indication this time, we would not have to be subject to that discount, but I think given our competitive product profile and given the volume exchange, I think we're already seeing that in Q1 that we're getting very good traction in terms of market share growth.

[Michael Yee, analyst]

That makes sense related to the expanded label.

[Operator]

Our next question comes from Yigal Dov Nochomovitz from Citigroup.

[Yigal Nochomovitz, analyst]

Samantha, Billy and team, you made some interesting comments in the opening remarks regarding the lung GI cancer franchises that can generate up to $2.5 billion to $3 billion through 2030. So I was just wondering if you could just drill down a bit into that projection, which products that you're referring to in lung and GI? Can you talk a little bit about the assumptions you're using to get into that $2.5 billion to $3 billion range and what the ramp may look like to get there? And of course, how confident are you that you can hit that $2.5 billion to $3 billion window by 2030?

[Ki Chul Cho, executive]

Yigal, this is Billy. I'll initiate and others can chime in. So yes, I could provide some more color. But before I do that, I'll just kind of recall that we just wrapped up our first calendar year of commercialization. So we're off to the races, and we have great momentum that we're going to build upon. And I think we have a lot of new products launching, as you know, pretty intense launch schedule over the next 3, 4 years. So we need to make sure that goes well. So we're still making investments. But we felt, as a team, at Zai Lab, it was -- it may be useful to both buy side and sell side for us to offer a kind of framework on how to think about the commercial opportunity. And so, we made those comments and you saw it in the release.

So Yigal, I mean additional color that I can provide -- that we can provide on the peak year revenue number of $2.5 billion to $3 billion is that, first of all, it only includes our current portfolio. A lot of the EpiData et cetera, were based on already statistics we've already publicly disclosed and what you guys have. The portfolio in terms of revenue mix is very diversified. And we're not giving specific numbers just yet, but it's not to say that that's a pretty diverse revenue portfolio. And because of the fact that we have so many products launching, you've got the waterfall effect as well. So over the next 3, 4 years, you've got products launching and building -- launching and building site at the same time. So the growth curve actually accelerates in the mid to later years. But Yigal I think that's the extent of kind of additional color that we provide at this time. But hopefully, you find it helpful.

[Yigal Nochomovitz, analyst]

Yes, no, that's definitely helpful anchor for our modeling. And then just one follow-up just on the broader portfolio strategy. Obviously, you have a very nice mix of therapeutic areas of oncology and infectious, autoimmune and now Karuna with neuroscience. So just wondering about how much broader you'd be willing to go therapeutically. As you know, there are many novel mechanisms in other areas, for instance, cardiovascular, nephrology, bone disease even platform approaches in gene and cell therapy are very interesting to potentially extend the portfolio. So just could you talk in broad brush strokes about how you're thinking about broadening the therapeutic reach with respect to your BD opportunities?

[Ki Chul Cho, executive]

Yes. I mean we've just broken into neuroscience and we're going to stay awfully busy with the 4 that we have, but maybe Samantha I don't know if you have any additional comments on additional TA strategy?

[Jonathan Wang, executive]

Yes. Billy, maybe I'll just chime in, it's Jonathan here. So I think for us, certainly, we want to continue to strengthen those therapeutic areas, which we have built leadership positions in. I think just in oncology alone, we're seeing really a lot of opportunities. But I think last year, in autoimmune, in neuroscience, we have expanded with 2 pipeline of product anchor opportunities in efgar and KarXT, I think we see a lot of these opportunities. I think what we're really building at Zai is a world-class company with truly innovative, best-in-class or first-in-class assets.

So if there are assets that are synergistic to what we have if there are assets which could help with a very large unmet medical need, we certainly continue to pursue those opportunities. We see a lot of these opportunities today actually. These pipeline of product opportunities, I think you can expect continued quantities of deal flow this year. So I think, especially in these areas where we have significant presence, you can expect us to do what we've been doing good at and potentially expand in other areas with -- as we pursue global opportunities or maybe other transformative opportunities as well.

[Operator]

Our next question comes from Anupam Rama from JPMorgan.

[Anupam Rama, analyst]

Just a quick specific question on adagrasib with the U.S. PDUFA in second line set for later this year, are there plans to speak to regional regulators on an approval on China data for second line lung for adagrasib?

[Ki Chul Cho, executive]

Alan, do you want to take this one?

[Alan Sandler, executive]

Yes. Sure, Billy. Yes, thanks for the question. So yes, so as you, of course, know that Mirati has announced the -- accepting the filing with the PDUFA date that we mentioned earlier in December. And we believe that we are already in contact with China regulators, and that will continue with our path forward. That should not change any of the timelines that we're looking for moving forward.

And also, I know our partners, Mirati, are optimistic that, as you know, in the U.S., sometimes with data that's very encouraging, those announcements can come before -- decisions can come before the PDUFA date. So we're looking forward to continue to work with our partner, Mirati on this exciting and potential first-in-class and best-in-class agent in China.

[Operator]

Our next question comes from Jonathan Chang from SVB Leerink.

[Jonathan Chang, analyst]

On bemarituzumab to clarify, are you planning to initiate a registrational frontline gastric study in China in 4Q as a separate study from the Amgen Phase III studies? And if so, can you discuss the rationale for this?

[Ki Chul Cho, executive]

Alan, back to you.

[Alan Sandler, executive]

Yes, sure. Thanks for the question. This is something that we're in discussion with our partners, Amgen, as the best method to move forward to get this exciting agent into patients in China. As you know, there's a significant number of patients that express FGFR2b. And so, this is something that we're, again, very excited about. We're still working on details as to how that is going to play out, and we'll, of course, be releasing more information as we get closer to that date.

[Ki Chul Cho, executive]

But Jonathan, I think you are correct in assuming that it will be a registrational trial for frontline...

[Jonathan Chang, analyst]

Got it. But is there a reason why it would be like a separate study from the Amgen studies versus participating in the Amgen studies?

[Ki Chul Cho, executive]

Yes. As Alan noted, I think right now we're prepared to say that it's going to be in one way or another an efficient registrational trial pathway. So we're still working closely with...

[Alan Sandler, executive]

Still working out... Yes, still working out the details, just the best way to move forward with the option I'm sorry, that can't be more specific.

[Operator]

Our next question comes from Ziyi Chen from Goldman Sachs.

[Ziyi Chen, analyst]

This is Ziyi from Goldman. I think I got 2 questions on the financials. Number one is on the gross margin in the fourth quarter. It looks relatively lower compared to previous quarters, 51% compared to 72% in the third quarter 2021. So I'm trying to understand a bit more about the reason behind, what's the impact from the sales milestones? And also what's the impact from the rebate to the inventory -- channel inventory in fourth quarter? And if we average out or back it out, what will be the reasonable gross margin assumptions -- should we assume for the portfolio going forward in 2022?

And secondly, given the current funding environment in China and also globally for biotech, last year, I think we still -- companies still spent a decent amount of money on BD deals, licensing fees up to about getting very close to USD 400 million. But now getting into 2022 when we are facing the challenge in the funding side, how should we think about the budgeting for those BD deals? Are we going to spend still a lot of money on the BD deals this year or we're going to be more focusing on budget control refocusing on the clinical trials instead of BD?

[Ki Chul Cho, executive]

Ziyi, thanks for your 2 questions. So in terms of gross margin, fourth quarter 2021, if you were to add back the nonrecurring items, the $7.5 million NRDL negative adjustment as well as -- which was in the press release and in our 10-K, it was also disclosed that in the cost of goods sold line item, there was also a onetime payment to GSK for hitting a certain revenue threshold of USD 8 million. And so, without those onetime adjustments, gross margin would have actually increased quarter-over-quarter, so from 72% in third quarter to about 73% in fourth quarter. So for the year, 2021, if you made the same adjustment, you would have also seen an increase as well.

So gross margin in 2020 was $56 million -- sorry, 56%, in 2021 normalized, it would have been around 70.9%. So in terms of going forward, gross margin for 2022 and even beyond, as you know, it's really driven by sort of the product mix and what the launch trajectories of each product at that particular point in time. So there might be some -- we'll need some time to find kind of a steady-state because we have such an intense launch schedule. But hopefully, you see that we're already seeing some certain productivity gains, right, even in the gross margin level.

So -- and then with that said, that segues into your second question. So yes, 2021 was our most active BD year, 8 new partnerships and assets, which we're quite excited about. And we are very confident that it could create a lot of value. But you do hit on the point as well that the current capital market environment is a little bit different than in the previous years. Now we believe, at Zai, that if kind of -- out nicely with where we are in our life cycle. So our revenue momentum will continue this year and beyond. We're already going into productivity drive.

So for example, in terms of our sales and marketing team size and spend, we don't expect to see a notable increase this year for the investments we made last year and even the prior years, we're going to enjoy some of the benefit while not sacrificing any growth and also with the mind towards preparing for additional launches in the coming years. But we will -- and we expect to do additional deals, and I'll let Jonathan and other colleagues chime in. We are very selective, as you know, but if there are opportunities, especially in this market where there's a little bit of dislocation, there are very value-creating opportunities that meet our very high threshold and criteria, we have the balance sheet to do it, and we are at the point in time for our company's lifecycle where we have that flexibility to manage growth and productivity.

[Operator]

Our next question comes from Seamus Fernandez from Guggenheim Securities.

[Seamus Fernandez, analyst]

So just one quick question. Your next big catalyst, I think, really will be tied to KarXT. Just love to get a sense for some of the key attributes that you think are likely to be most impactful? Is it -- does it relate to both negative and positive symptoms? And then just in terms of the overall environment in China for what I think is largely a nascent opportunity, but one supported by the Chinese government now. Can you just walk us through how to think about the opportunity for KarXT in schizophrenia, but then perhaps more broadly in Alzheimer's disease? Do you really view these as 2 unique potential indications?

[Ki Chul Cho, executive]

Harald, do you want to take the first part of the question and maybe Jon could chime-in in the second?

[Harald Reinhart, executive]

Yes. Thank you. Thanks for the question. It's really a new opportunity for us. It's an anchor asset, as you already heard from others. And we see this really differentiated -- as a differentiated product for us and in the market here in general and especially meeting an unmet need in China. So having said that, you already hinted at the efficacy side in the schizophrenia symptom scores on the negative symptom side on the -- which is something that is not well taken care of by current second-generation antipsychotics. But it's not -- by the way, it's also efficacious on the positive symptom side. So we are covering very broadly with this drug combination, the most important symptoms that you see in schizophrenia patients. The second point, which should really not be forgotten, is safety.

And the safety of this drug, it has a totally different safety profile from all the other antipsychotics with their EPS, the extrapyramidal symptoms and so on and so forth, which are a class effect seen regularly weight gain commonly seen, other side effects, all related to serotonin and dopamine urgent effects of this drug class. We are obviously different here, and this is one of the differentiating features.

What we believe is that schizophrenia is not well covered on the symptom score, the negative symptom score and that's a worldwide phenomenon. And we see ourselves differentiated here because there are no other drugs that really cover that area as well as Karuna XT. So having said that, the overall market size is considerable. It's considerable, in general, because schizophrenia is such a common indication, such common affliction. But it's also something which the government in China is trying to address.

Now there is still a deficit here in the coverage and in the clinical care setting in China for this indication. It was recognized by the government in recent years, and they will act accordingly. This is already a well-known thing. Schizophrenia is a very common affliction, as I said in China, what we assume is at least 8 million patients that are currently diagnosed as such. And we know that this doesn't cover everybody. This is not a very hard statistics. It's also a very concentrated market, I should say, because unlike the U.S. or Europe, you don't see the treatment really initiated in 1,000 small places, but it's much more concentrated in the medical centers. So we see this as a way to address rather quickly a high unmet medical need in China. Does that sort of answer your question or should I go into any details.

[Seamus Fernandez, analyst]

No, that's very helpful.

[Operator]

Our next question comes from Yang Huang from Credit Suisse.

[Yang Huang, analyst]

So I got a quick one too. So for 4Q, we saw Optune sales is about $11.6 million and then QINLOCK sales is about $2.9 million something. And so QINLOCK sales Q-over-Q is actually declining, and the growth for Optune sales in 4Q seems also a little bit slow down if we look at Q-over-Q. Just want to get some color, is there a particular reason for what we're asking for these 2 drug sales in 4Q? And what could we look forward for these 2 drugs commercial performance in the year?

[Ki Chul Cho, executive]

Yang, let me chime in here. Thanks for your question. So there are reasons, but at the same time, I think at the moment -- so kind of in a nutshell, maybe just walk you through those 2 questions then. So Optune fourth quarter sales was $11.6 million and so for the year, $38.9 million. So we've always said that the launch trajectory is not going to be the same as, let's say, a drug like ZEJULA, et cetera. But having said so, we expect a very durable growth curve over time. And we know this because we're also benchmarking -- such a unique product. We're also looking at how Optune has done -- sold throughout the world, including even in Asia. And so, we feel pretty -- as months go by, as quarters go by, we see the progress continuing well. We see that one of our focus areas, [ execution ] is doing well.

So for example, the supplemental insurance plan, we signed 33 plan, and it's one of the top assets that can be reimbursed and only kind of -- it's the only nondrug treatment option. So it really speaks volumes about how much value Optune in Tumor Treating Fields can have in the marketplace. Now we're not here to make excuses, but I will also note that there were some restrictions in large hospitals in the northern region of China due to COVID. But again, we're not going to sit here and complain about that. We're going to really just focus on making sure that the long-term trajectory remains robust. So the 9% quarter-over-quarter from third quarter to fourth quarter, one could say that it was lower than 12% from second quarter to third quarter, but I also want to make that small remark. But 2022, we're pretty keen on the supplemental insurance strategy.

We see nice robust volume uptake coming from major plant like Shanghai, like Hangzhou, and it's great to see patients getting access to this technology. QINLOCK in the fourth quarter was $2.9 million, $11.6 million for the year, a significant growth year-over-year, but it was down from third quarter, but it's not due to demand. We had some channel inventory build, and I think that it was impacted also from the INTRIGUE outcome. And I think that's all we're going to say at this moment. But the more important point is that we see strong hospital demand in fourth quarter, which was -- which allowed us to absorb the inventory build. And so I think we kind of reset our 2022 path.

[Operator]

Our next question comes from David Li from Bank of America.

[Bo Li, analyst]

Great. So some of my questions have been covered by the previous Q&A, so basically now I have 2 questions. #1 is -- so what's your NRDL plan for your newly approved assets for ZEJULA and QINLOCK and NUZYRA, how should we think about your revenue ramp up? So this is my first question. My second question is currently you have $1.4 billion cash on your balance sheet. So how do you spend this money with coming weeks and how's cash runway now? That's my second question.

[Ki Chul Cho, executive]

Thanks, David. So I'll try to quickly address your 2 questions. The first part on NRDL plan. So you are kind of right calling out NUZYRA in particular, a drug like that would require antibiotic in China, even though it's next-generation innovative second class, it would require NRDL for volume. So -- and it will be eligible for this year's negotiation. And then, I think you were mentioning about ZEJULA and maybe you talked about QINLOCK as well. So yes, QINLOCK is also eligible. It was eligible last year, and it will be eligible this year for NRDL negotiation for fourth line. So we'll make a nice strategic decision based on the outcome of those negotiations. Now to your second question about the cash burn or how to allocate our capital uses, we do have a strong balance sheet. We ended the year with a little over $1.4 billion.

And you will see that in terms of core cash spend outside of the upfront BD activities, it was just shy of $310 million. So it gives us a lot of flexibility and buffer, as I mentioned before. However, we're not going to rest on our laurels there. We are still in growth stage. There's no doubt about that, but we are also entering into productivity stage at the same time. So I made comments earlier about the -- some operating leverage and productivity drive in the commercial investments we made so far. Our R&D -- core R&D spend did increase 80% year-over-year from 2020 to 2021. Our R&D, quite frankly, has been very efficient given the size of our portfolio. It will increase this year given the progress we're making with many new assets we brought in last year as well. But you can expect us to maintain the same level of productivity and efficiency in the R&D side. So again, it gives us a lot of flexibility on how to manage growth and productivity from here on out.

[Operator]

Our next question comes from Wilfred Yuen from Macquarie.

[Wai Chak Yuen, analyst]

I've got a quick one on TTF, Tumor Treating Field. What is our expectation for gastric cancer as we have -- we will have -- expect to have a pilot trial data later this year? So how should we be thinking of the efficacy that will lead us to design to move further to a larger clinical trial?

[Ki Chul Cho, executive]

Alan, do you want to take the last question? Yes.

[Alan Sandler, executive]

Yes, sure. Thanks for the question. As you point out, what we'll be doing is we'll be analyzing the data, looking at, in particular, response rates, progression-free survival to see how that matches up with historical controls to see whether that data is exciting enough to move forward in a next registrational-type randomized study. So we're excited and looking forward to the data readout moving forward. So stay tuned, and hopefully, that addressed your question.

[Operator]

Right. I am showing no further questions at this time. I'll now turn the call back to Zai Lab's CEO, Samantha Du for closing remarks.

[Ying Du, executive]

Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and looking forward to updating you again after the fourth quarter. Operator, you may now discontinue the call. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.