Zai Lab Limited (ZLAB) Q2 2019 Earnings Call Transcript

Zai Lab Limited (ZLAB 1.55%)
Q2 2019 Earnings Call
September 3, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Zai Lab first half 2019 financial results and corporate progress update conference call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *1 on your telephone. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Billy Cho from Zai Lab. Please go ahead.

Bill Cho -- Chief Financial Officer 

Thank you, Operator. Good morning and welcome to Zai Lab's first half 2019 earnings conference call. Earlier this morning, Zai Lab issued a press release providing the details of the company's financial results for six months ended June 30th, 2019 as well as a corporate and clinical 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 and Chief Executive Officer, and will be joined by Tao Fu, President and Chief Operating Officer, who will provide more detail on our pipeline, product highlights, including upcoming milestones and commercial progress. Dr. Yong-Jiang Hei, Chief Medical Officer for Oncology, and Jon Wang, Head of Business Development, 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. To the extent that statements discussed on this call are not descriptions of the historical facts regarding Zai Lab, they are forward-looking statements reflecting the current beliefs and expectations of management. Such forward-looking statements involve substantial risks and uncertainties that could cause future results, performance, or achievements to differ significantly from those expressed or implied by the forward-looking statements.

Factors that may materially affect future results include, among other things, the scope, rate, and progress of clinical and pre-clinical trials in other research and development activities, the timing of new clinical trials, plans to commercialize Zai Lab's product candidates, and the timing of and ability to obtain and maintain necessary regulatory approvals for product candidates.

Such forward-looking statements made on this call speak only as to the date of this presentation. Zai Lab undertakes no obligation to update or revise any forward-looking statements made on this call to reflect any change in expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law.

For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements as well as risks relating to Zai Lab's business in general, please refer to the end report on Form 20-F filed in March of this year with the Securities and Exchange Commission and Zai Lab's future, current, and periodic reports filed with the Securities and Exchange Commission.

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

Samantha Du -- Chairman and Chief Executive Officer

Thank you, Billy. The first half of 2019 was an exciting period for Zai Lab, during which we made significant progress toward our goal of building a biotech leader in China and a global commercial biopharma company. Importantly, the advancements we have made since the beginning of the year have set the stage for potentially transformative events to take place in the second half of 2019. Today, I would like to comment on some key highlights from the first half of the year and why these milestones provide us such great enthusiasm about what the future holds for Zai Lab.

Our current portfolio consists of ten late-stage assets, targeting over 20 indications across oncology and infectious disease. In the first half 2019, we initiated on the first commercial launch in Hong Kong and Macau and Optune in Hong Kong. I'm pleased to report that both products are outperforming our target through the first several months of commercialization. Our team is gaining real and significant market insight, which we believe will be valuable as we prepare for the anticipated launches to be made in China.

Regarding remaining China opportunities for our two lead programs, our Niraparib as a second line treatment for ovarian cancer was granted priority review by the NMPA. We have ongoing dialogue with the agency. We are making good progress toward receiving approval for Niraparib before the end of the year.

Our partner, GSK, recently reported positive topline results from PRIMA, the p3 study of ZEJULA as a maintenance therapy in patients with first line ovarian cancer following platinum-based chemotherapy. The study met its primary endpoint of a statistically significant improvement in progression-free survival regardless of the market set and we expect full results of the study to be reported at a future scientific meeting.

In addition, we recently submitted our market authorization application for Optune, a revolutionary system that uses electric stimulus to disrupt cancer cell division, inhibit tumor growth and causing effective cancer cells to die. Just recently in August, Optune was granted innovative medical device designation by the NMPA. This designation will allow us to be on the fast-track with the NMPA.

We are working closely with the agency to potentially have Optune approved before year end. Simultaneously, we're encouraged that a recent approval [inaudible] for Optune. This is the first indication approved outside of [inaudible]. We will work closely with the agency to pursue approval of these indications quickly.

In the first half of the year, our partner, MacroGenics announced positive topline results from its Phase 3 SOPHIA study for Margetuximab, an Fc-optimized monoclonal antibody in patients with HER2-positive metastatic breast cancer, showing us how the first primary endpoint of prolonged progression-free survival. MacroGenics plans to file a [inaudible] in the second half of this year and initiate a global Phase 3 MAHOGANY trial in HER2-positive gastric cancer in collaboration with Zai Lab.

In addition to the important regulatory progress that we have made, our business development efforts continue to yield impressive results and have recently enhanced our portfolio, with two new partners, Deciphera for their lead asset, Ripretinib, for the treatment of GIST and the Incyte [inaudible], a promising PD-1 monoclonal antibody.

Ripretinib is a novel late-stage oncology asset that's highly synergistic with our current pipeline, both clinically and commercially. Licensing of Ripretinib is consistent with our successful business development strategy. It's best in class [inaudible] with China's rapidly grow settlement of the oncology market. Earlier this year, Deciphera announced positive topline results from INVICTUS, its pivotal study of Ripretinib as a fourth line of GIST, which Tao will discuss momentarily.

GIST presents a major unmet medical need for therapeutics in the second line and beyond, not only in China but globally. The usage in China is much greater than that of the western world, which results in a significantly larger patient population in China compared to the combined markets of the US and Europe. There are 100,000 patients being treated currently in China, with over 30,000 new cases diagnosed each year.

Additionally, in July, we announced a licensing collaboration agreement with Incyte for 0012 for investigation on the PD-1 monoclonal antibody. This is highly compelling and the PD-1 expands our oncology portfolio and is expected to generate significant combination potential and synergies with our existing pipeline products. In addition to these important clinical regulatory and commercial milestones, we continued to build out assets to our global team and proud to report that as of July 31st, our employee count stood at 577, roughly 213 employees on a commercial team and 215 discovered developments.

We have recruited many new talents, both in greater China and at other US sites in San Francisco and Boston to help improve our strategic and operational objectives. This includes the hiring of Dr. Valeria Fantin. She's an oncology-literate scientist to lead our global discovery efforts. This is a very exciting time at Zai Lab. We have some great goals and high ambition on a global scale and have this strategy and resources, most importantly, the team needed to be successful. As always we thank you all for your support and look forward to the many opportunities that lie ahead.

With that said, I would now like to turn the call over to our President and CEO, Tao Fu. Tao?

Tao Fu -- President and Chief Operating Officer

Thank you, Samantha. As Samantha mentioned, the first half of 2019 was an extremely busy and exciting period for Zai Lab across a variety of fronts. We became a commercial stage company with the launches of Optune and ZEJULA in Hong Kong. We made significant headway toward potentially getting these products approved in Mainland China by securing priority review status for ZEJULA and innovative medical device designation for Optune.

We further expanded our portfolio with two new partnerships and we continue building out our commercial and R&D infrastructure through the recruitment of top talent. While our press release from this morning provides an update on our programs and we'll be to happy to answer your questions on assets that are not covered in our prepared remarks, I'd like to focus my comments today on a few select programs and related near-term catalysts.

I'll start with Niraparib or ZEJULA, a PARP inhibitor approved globally for the treatment of ovarian cancer and in development of other solid tumors. We believe that it is a highly differentiated PARP inhibitor with excellent efficacy and safety profiles without the need of BRCA testing and superior pharmacological properties, including once daily dosing, low drug-drug interactions, and ability to cross the blood-brain barrier.

I'm pleased to report that our commercial launches in Hong Kong are performing ahead of our initial expectations. Based on [inaudible], formerly IMF data, ZEJULA is now the market-leading PARP inhibitor with market share in Hong Kong of 66% in the second quarter of 2019. This is particularly impressive given that Lynparza has been in the market in Hong Kong for more than two years. The launch curve for ZEJULA during the first six months is significantly ahead of that of Lynparza in Hong Kong at a similar pace.

While it is a small market compared to Mainland China, we believe our initial performance validated the compelling profile of ZEJULA and the capabilities of our commercial team. We're also learning valuable lessons that can be applied to the Mainland to launch to further position ZEJULA for success in our primary market.

Our new drug application for Niraparib for the second line maintenance treatment of platinum-sensitive ovarian cancer patients was accepted by NMPA under priority review, recognizing both the urgency of the medical need and the importance of Niraparib as a normal therapeutic option for patients. We continue to expect an approval decision from NMPA in the coming months and are prepared for our commercial launch immediately following the potential approval.

Through our ongoing clinical studies, which are not required for the initial approval, we are building a robust body of clinical evidence in China that we believe will meaningfully support our planned commercial efforts and help differentiate at Niraparib. We're very encouraged by the positive headline data released by our partner for the PRIMA study and are eagerly awaiting the full data set.

These data will be an important part of our submission for Niraparib as a first line all comers treatment for ovarian cancer. This will be significant for us as Lynparza is the only PARP inhibitor currently approved by NMPA, which was only studied as a monotherapy in a first line setting in patients with the gBRCA mutation, which represent just 15% of the total patient population. We're working closely with our partner, GSK, to identify label expansion opportunities, including small cell and non-small cell lung cancer, gastric cancer, and other tumor types.

Turning to Optune, we recently received innovative medical device designation and are working closely with the NMPA to accelerate the approval of the products in China. In February, we held our formal lunch event for Optune in Hong Kong following regulatory approval late last year. Similar to ZEJULA, Optune is outperforming our expectations in Hong Kong and the initial uptake curve in terms of patient number is among the best in all major launched countries for Optune. We view this as an encouraging sign for the compelling clinical profile for Optune and the unmet medical needs that it is addressing ahead of the anticipated commercial launch in Midland China.

As a reminder, we view the broader tumor treating field technologies as a potential pipeline in a product with GBM as a first indication. In May, our partner, Novocure, announced the US FDA approval of TTF for the treatment of mesothelioma. There are a number of other solid tumor indications for which TTF is currently being evaluated, including non-small-cell lung cancer, brain metastases, pancreatic and ovarian cancers, and we look forward to supporting these trials as well as initiating our Phase 2 study in gastric cancer patients, which remains on track for the second half of this year.

Now, turning to Margetuximab, licensed from our partner MacroGenics for the treatment of HER2-positive breast and cancers for greater China -- as Samantha mentioned, the topline results of the SOPHIA trial were presented at ASCO, showing Margetuximab plus chemotherapy significantly prolonged progression-free survival versus Trastuzumab plus chemotherapy in a head to head comparison.

A preliminary overall survival analysis was also presented and MacroGenics plans to have a second look of the OS data concurrently with their BLA filings by the end of this year. We're actively pursuing the development of the breast cancer indication in China by leveraging the SOPHIA data and will participate in the Phase 3 MAHOGANY trials in gastric cancer.

Looking at recent business development initiatives, we added two very exciting products to our portfolio in the last several months. In June, we announced an agreement with Deciphera Pharmaceuticals giving us exclusive greater China access to their lead product candidate, Ripretinib, a KIT and PDGFR-alpha kinase switch control inhibitor in development for gastrointestinal stromal tumors or GIST.

Several weeks ago, Deciphera reported positive topline results for INVICTUS, their Phase 3 pivotal study of Ripretinib as a fourth line treatment for GIST. The study demonstrated that Ripretinib significantly prolonged improved progression-free survival versus placebo with a median PFS in the Ripretinib arm of 6.3 months versus one month in the placebo arm and significantly reduced the risk of disease progression or death by 85% or has a ratio of 0.15.

In an exploratory analysis, Ripretinib also extended overall survival versus placebo, 15.1 versus 6.6 months or has a ratio of 0.36. These data compare favorably with Avapritinib, which was only studied in a single-arm trial in a fourth line setting. Based on these impressive data, Deciphera plans to submit its NDA to the US FDA in the first quarter of 2020.

Ripretinib is also being evaluated in a Phase 3 INTRIGUE trial as a second line treatment for GIST, which has the potential to be a first line therapy not only in China, but globally. Zai Lab and Deciphera intend to expand the INTRIGUE study to potentially include clinical trial sites in China so that we can concurrently submit market application in China if the data is positive.

More recently, in early July, we announced an agreement with Incyte for the development and commercialization of 0012, an anti-PD1 monoclonal antibody in greater China. As we have outlined previously, we believe that based on its profile, 0012 as the potential to be a highly competitive PD-1 inhibitor. This transaction was important for us on a number of levels, most notably for the combination potential with certain other oncology assets in our portfolio.

Zai's partner, MacroGenics, the original developer of 0012 has already been evaluating the combination of another product candidate for which we hold greater China rights, Margetuximab with 0012 in a global Phase 3 MAHOGANY trial in gastric cancer. Owning 0012 in the greater China market will enable us to harmonize our development work and own both components of the combination. Furthermore, we have multiple compounds in our current clinical stage portfolio that can work synergistically with an anti-PD1 and have the resources necessary to move these programs forward.

With that, I will hand the call over to Billy Cho, our Chief Financial Officer, who will provide an overview of our financial highlights. Of course, we're available to answer questions on these and other Zai Lab programs during the Q&A session of the call. Billy?

Bill Cho -- Chief Financial Officer 

Thanks, Tao. I will now review our financial results for the six months ended June 30th, 2019. Revenues for the period were $3.4 million compared to no revenue in the first half of 2018. Our revenues for the period were comprised of $1.9 million in sales of ZEJULA and $1.5 million of Optune sales in Hong Kong. As we previously highlighted, ZEJULA is already the number one PARP inhibitor in Hong Kong, with the launch curve significantly ahead of Lynparza in Hong Kong at a similar phase.

Optune was officially launched in February of this year and we are showing strong initial revenue. Both ZEJULA and Optune have strong momentum for the second half of 2019 and we look forward to commercial launches in Mainland China.

R&D expenses were $58.9 million for the period ended June 30th, 2019 compared to $34.6 million for the same period of 2018. The increase in R&D expenses were primarily attributable to an increase in licensing fees ongoing in newly initiated late stage clinical trials, payroll and payroll-related expenses, expansion of research efforts to support internal development programs.

Selling, general, and administrative expenses were $29.5 million for the first half of 2019 compared to $6.4 million for the same period in 2018. The increase was mainly due to the increase in payroll and payroll-related expenses, as Zai Lab continued to expand our commercial operations in China.

For the six months ended June 30th, 2019, Zai Lab reported a net loss of $83.3 million or net loss per share attributable to common stockholders of $1.37, compared to a net loss of $41.5 million or net loss per share attributable to common stockholders of $0.83 for the six months ended June 30th, 2018. As of June 30th, 2019, cash and cash equivalents and short-term investments totaled $393.2 million, which includes the net proceeds from our follow on operating [inaudible] this year.

We would now like to turn the call back over to the Operator so we can go ahead and take your questions. Operator?

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the # key. Once again, to ask questions, please press *1 on your telephone keypad.

The first question comes from the line of Yigal Nochomovitz from Citigroup. Please ask the question.

Yigal Nochomovitz -- Citigroup -- Analyst

Thanks for taking the questions. Tao, you mentioned the launch in Hong Kong was going well with ZEJULA with 66% share. I wonder if you could speak in a little bit more detail as to the factors contributing to that very strong launch. You specifically mentioned some of the lessons you're learning in Hong Kong and I assume also in Macau that will apply to your launch in Mainland China. I'd be curious as to more specifically what those lessons are that will position you even better for a successful launch in Mainland China. Thank you.

Samantha Du -- Chairman and Chief Executive Officer

Yeah. To answer your question, our CCO, William Liang, is on the line. I will let him give you the highlights.

William Liang -- Chief Commercial Officer 

Yeah. Mostly, in Hong Kong, we have a very good team. So, we recruited about [inaudible] and formed this Hong Kong team. So, the team execution is very good. On the other hand, ZEJULA is a best-in-class product. It's the only one once-daily use and also, the evidence is very good. So, our medical team also did a great job for medical education. So, we have the best people, the best products, and our education program is so good. So, we're seeing [inaudible] to gain the market share from our competitor.

Samantha Du -- Chairman and Chief Executive Officer

I'd also like to add a little bit on from my observation. I think the team in Hong Kong has many years of experience launching successful oncology products. Overall, our team has launched eight of the top ten oncology products, either launched or lead those programs over the last eight to ten years. So, I think that's number one to me on top of what William said.

Number two is we do have not only -- at least in China, those patients according to not starting from 300 based on small body weight. That gave us a better safety profile as well as everyone knows the efficacy is a superior efficacy. Delivery form is once a day. That reduces the drug-drug interaction. As we know, most oncology patients are taking multiple drugs.

Another thing I want to highlight is, as William said, this is best-in-class, but also, this is the only ovarian cancer drug approved in this part of the world, even globally, that has [inaudible] penetration. Thank you, Yigal.

Yigal Nochomovitz -- Citigroup -- Analyst

Great. Generally, I was wondering if you could speak to how you expect some of these new Scientific Advisory Board members to help shape your early development pipeline. I'm just curious how you expect them to contribute to the strategy in the earlier stage trials.

Samantha Du -- Chairman and Chief Executive Officer

That's a good question, again, Yigal. As we are continuously building our discovery effort globally, as Tao mentioned, we have already four years of operation in Shanghai in discovery, but again, last year, we added sites in San Francisco and Boston. We brought in -- she's an oncologist in San Francisco, bring her to San Francisco and she's leading our discovery effort with Dr. Lieping Chen.

This new SAB on board, they're overall our company strategies, especially on the research front. We do have four meetings a year with them and also ad hoc necessary meetings and I think this will be very helpful. On top of these people, we always have advisors and also consultants in the fields we are involved and we use them on an ad hoc basis as well.

Yigal Nochomovitz -- Citigroup -- Analyst

Great. One for Billy, if you wouldn't mind. Regarding the shareholder base, is it the expectation that you're going to remain an ex-US filer or could we see down the road you shift to a US filer to be held more than 50% by US investors?

Bill Cho -- Chief Financial Officer 

Yeah, thanks for that question and joining his call. That is a function of capital market forces. So, it's really hard to say and predict the future, but right now, we remain an important private issuer, but we of course have a lot of investors in the US.

Samantha Du -- Chairman and Chief Executive Officer

Well, at the last follow-on, we brought in more healthcare reputable investors. For example, Fidelity as the number one public investor, we had Wellington as our number two public investor. We've got [inaudible]. We have all the who's who for the market size we can accommodate. We're not really particularly seeing one or the other. We're really looking for investor base. We want investors that can grow with the company in the long-term, that know the business, understand what we are doing.

Operator

Thank you. The next question comes from the line of Anupam Rama from JP Morgan. Please ask the question.

Anupam Rama -- JP Morgan -- Analyst

Hey, guys. Thanks for taking the question. First question from me -- you've got the potential approvals in China on the horizon for ZEJULA and Optune. Maybe you could walk us through the final steps and negating factors to getting an approval for both. Then the second question is there's been some business unrest in Hong Kong recently. I'm wondering how we should think about any potential second have ZEJULA/Optune impact on Hong Kong, specifically. Thanks so much.

Samantha Du -- Chairman and Chief Executive Officer

Thank you, Anupam. Let me answer your second question first because that's a very easy quick answer. This demonstration has been going on in Hong Kong for a couple of months. It's not just a recent phenomenon. We haven't seen any impact to our revenue. We think that's more political, not on the business side. That's the answer to your second question. The first part of your question is as we talk about in our earlier script, ZEJULA we've launched without an NDA last year in December.

We quickly got the acceptance and also priority review. Of course, we are not working for the agency, so, we cannot disclose lots of these details of how the agency operates. What we can tell you is we think the agency has really put a lot of effort to work closely with us since we are not only one medical need -- I'm talking about ZEJULA -- but also we are talking about category one and this is under lots of endorsement from the KOL networks.

So, so far, we haven't changed our guidance because as you know, we haven't been told otherwise from the agency. Lastly, I do want to say China does not have a future date. So, there's always a risk in any product. The company can only give you the best explanation we can. Thank you.

Anupam Rama -- JP Morgan -- Analyst

Thank you again and congrats on all the progress.

Operator

Thank you. The next question comes from the line of Maury Raycroft from Jefferies. Please ask the question.

Maury Raycroft -- Jefferies -- Analyst

Hi, everyone. Thanks for taking my questions. The first question is on ZEJULA -- you've talked about some of the advantages of the drug on the call. I'm just wondering on AstraZeneca's Phase 3 PAOLA-1 Lynparza plus Bevacizumab with data that came out recently -- I'm wondering how we should think about those data from Lynparza in the context of Phase 3 PRIMA and the eventual commercial opportunity there.

Samantha Du -- Chairman and Chief Executive Officer

Thank you, Maury. That's a very good question. First, we should still wait for the actual data presentation at upcoming medical conferences for the details of this products. But also, the key differences between PRIMA and PAOLA-1 is PRIMA is a monotherapy. It's Niraparib against placebo, while PAOLA-1 is a combo of Lynparza plus Avastin, which is, as you know -- overall, we're very confident. We remain highly confident with competitive advantages, not only is it a monotherapy, but also its overall efficacy, quality of life perspective, and even from Pharmacoeconomics, particularly in China. They feel confident about this product.

Maury Raycroft -- Jefferies -- Analyst

Also, in the press release, you mentioned there's going to be some data from PRIME and NORA at the upcoming ASGO meeting in a few weeks. I was wondering if you could talk more about what you expect at that medical conference.

Samantha Du -- Chairman and Chief Executive Officer

First of all, that particular one we cannot disclose, especially on behalf of the Lynparza combo. It's up to them. They have the data package. From our side, we did see the topline from our GSK topline analysis. We are getting more details and learning more details as we go this week. As I said earlier, we feel very confident about our first line study. We feel it's very competitive n the greater China market.

Operator

Thank you. The next question comes from the line of Jonathan Chang of SVB Leerink. Please ask a question.

David Ruch -- SVB Leerink -- Analyst

Hey, guys. This is David Ruch on for Jonathan. My first question -- in terms of commercial expectations, you've obviously noted the rapid uptake of Niraparib in Hong Kong over the first half of the year. Could you give investors some context of how you're thinking of benchmarking commercial sales of Niraparib in China and comparisons to Lynparza sales reported to date?

Samantha Du -- Chairman and Chief Executive Officer

First of all, thank you, David. I'll defer this question to our Chief Commercial Officer, Dr. William Liang.

William Liang -- Chief Commercial Officer 

We believe after the China launch, we can also [inaudible] what we are doing in Hong Kong. As I said, we have the best team and the best products and also very good promotion. We are very confident for our success in China.

Samantha Du -- Chairman and Chief Executive Officer

I have to say on top of what William just mentioned, I want to also talk about we not only have done PK, but also for market competitiveness, we have also data from additional -- beyond 250 patients down in China market. That's going to be very helpful to get more PIs and also KOLs aware of this product that their strong support and strong endorsement of this product and also, with the publication coming forward, many of the PIs would be very proud to participate. There are more than 30 PIs involved in this trial.

Number two, as I mentioned, I want to compliment William's team. They have launched 8 of the top 10 oncology products in China. The team has lots of experience in the field. They have done the last few months a lot of medical education, a lot of outreach to the KOL/PI networks and so far, it's very well adopted.

David Ruch -- SVB Leerink -- Analyst

Thank you. The second one, in regard to Margetuximab -- you mentioned the SOPHIA results and your plans to participate in the MAHOGANY study in gastric cancer. Could you remind us what your current expectations are for an NMPA submission in breast cancer and how you're thinking about a bridging study for that population?

Samantha Du -- Chairman and Chief Executive Officer

Let me start and I may ask certain questions, details that I will defer to our CMO in oncology, Dr. Yong-Jiang Hei. I do know for the second line, breast cancer, we are still waiting for their interim data. Once we get a whole package, we will file a CTA and that's for the second line. But for gastric cancer, we are ready when they are to provide us a full document, then to file NDA directly.

David Ruch -- SVB Leerink -- Analyst

Thank you. Last one from me -- one program that doesn't get discussed as often is the Bemarituzumab program in partnership with Five Prime. Could you give investors some context on how your assumptions on that patient population have evolved over the last couple of months and reasons for confidence in the program headed in the first half futility analysis? Thank you.

Samantha Du -- Chairman and Chief Executive Officer

First of all, I want to say thank you, David. That's another very good question. First of all, this is a global program led by Five Prime. So, from a partner perspective, we have respect on their news release and we cannot separate making a news release or disclosure on the progress of how many patients are being recruited or why there's a [inaudible] put in place. I think from our understanding, our discussion, all we can say is our partner is making prudent decisions. It's not a small trial.

From our side, we can say we recruited the first and even though this is led by Five Prime, we recruited the first patient from China. From our side, everything goes as planned and we're very proud of our contribution.

David Ruch -- SVB Leerink -- Analyst

Thank you for the context and congratulations on the progress.

Operator

Thank you. The next question comes from the line of Serena Shao from Credit Suisse. Please ask the question.

Serena Shao -- Credit Suisse -- Analyst

Thank you for taking my question. My first question is actually for Billy. With the launch of our product in Hong Kong and China, do we have roughly a guidance for the SG&A in the second half or first half next year and the expenses? My second question is actually for William.

Bill Cho -- Chief Financial Officer 

Do you want to ask your second question or do you want me to answer the first? Hey, Serena, this is Billy. I will answer your first question. We are not yet providing forward-looking guidance in addition to SG&A. You can see that for the first half of 2019. We did say that SG&A was $29.5 million. That is compared to 2018 full year SG&A as you may have remembered of $22 million. We started building some of the commercial infrastructure late last year and continued through the first half of this year. We have made very nice progress in that effort.

Serena Shao -- Credit Suisse -- Analyst

Okay. Got it. And my second question is for William -- could you give us some color on what kind of pre-launch activities you have had for the two drugs in China? Also, I'm quite interested in Optune -- the Hong Kong sales number seems pretty good. How do you see the challenges in the Chinese market from patient size, patient affordability, or physician medication point of view? What do you see the challenges for Optune in the Chinese market?

William Liang -- Chief Commercial Officer 

So, you are right. The Hong Kong Optune program seems very good. After the China launch, to prepare for the potential launch in China, our medical affairs team works very hard. They do many educations in the medical sharing program to introduce this and the disease burden about GBM, also the same for ovarian cancer. So, our launch release in China relies on our medical affairs team. Their program is also progressing very well in China.

For Optune, you are right. Affordability is always an issue for China, not only for [inaudible] but also, for many premium [inaudible] products. So, we will try many things like a PNP or other financial programs to improve the market access for our patients. We will try all means to help our China patients after launch.

Samantha Du -- Chairman and Chief Executive Officer

I will just add a little bit more color, Serena. I think William gave some highlights on what's ongoing. I have to say this one, so far, I've been very impressed by how the team throws out this education and market access, actually province by province and city by city with the support of the Novocure team. We have sponsored so many neuro-oncology conferences, participated in specifically talking about this product.

Number two, this product is a TBM -- this is the one and only product. We don't have any competition. So, there's also the market, but in China, it's a very, very big market for the much, much bigger -- Hong Kong has only 7 million population. If you think about China's population, the patient number, even consider affordability, even from cell pay, China now has -- even 2016, the purchasing power equivalent to the upper middle to the wealthy people is about $70 million in 2016 in the US.

But in China, it's already $110 million. I think three years pass by, the number as you know, especially pharmaceutical markets, innovative ones grow very fast in China. The second quarter, you see the second quarter earnings from [inaudible]. They already reached for the second quarter alone, $1.2 billion US sales. It's with a 44% year to date, year to year increase.

Same with Merck, second quarter this year, they reported $750 million, roughly, in sales with also beyond 45% increase around the second quarter year to year. So, innovative oncology products are now -- I have to say most of their products are not even reimbursed, but still, with high demand, people are willing to pay.

Another thing I want to highlight is this drug, before this one ever actually reached China, maybe 1% patient population, even getting treatment in the US because it's very -- it's an unmet medical need. We recently [inaudible] and scale out, just basically at a scientific meeting, talk about everyday delay of this product reached to patients can really cost not even every day earlier [inaudible] by a day or by month could be by a year. This is a very rapid growth tumor.

Lastly, I want to comment -- we should realize in China -- this is very unique. Before this got approved in China, it was already put in Category 1 recommended risk. As you know, very few drugs get recommended in Category 1, which means when doctors prescribe any other TBM drug or chemotherapy, they are obligated to mention there is a treatment option with a TT field.

With Williams team, we realized how many people understood this already and they are actually calling to say -- they even together wrote many people from the medical community, wrote letters to people's congress to talk about it, their support for these products. That's all I want to add.

Operator

Thank you. The next question comes from the line of Yang Huang from Bank of America. Please ask the question.

Yang Huang -- Bank of America -- Analyst

This is Yang. Thanks for taking my questions. First of all, about commercial sales in Hong Kong for ZEJULA and Optune -- could management give us some viewpoints on, for example, how many patients have been on ZEJULA or Optune and also about insurance coverage in Hong Kong for the two drugs? The third one is about our partnering strategy in Hong Kong compared to our competitors, which might be able to give us some color about your prior strategy. Thanks. That's my first question.

Samantha Du -- Chairman and Chief Executive Officer

William is actually dialing from China from distance and it's very hard for him to be able to -- especially William is fully trained in China, even though he worked in multinational companies. I just want to highlight a few things first. If you need [inaudible], he can go down to the next level. So, in terms of commercial sales, number one, the question you had is in terms of pricing -- the last one is pricing strategy.

Yang Huang -- Bank of America -- Analyst

No, compared to competitors.

Samantha Du -- Chairman and Chief Executive Officer

Yes. Compared to competitors, I have to say Lynparza sells 750,000 per patient in Hong Kong. Our product, I would say, in Hong Kong, we haven't disclosed that number, but it seems we cannot give you the exact number. In Hong Kong, it's very different from the other places. You actually can charge differently based on if it's a hospital or clinic and also, based on the patient need, patient affordability. That's number one, the pricing strategy, but we always stay competitive. Remember, we are best in class and also, with unmet medical needs. So far, we are very competitive, not in terms of dropping the price, but more in terms of the product quality.

The number two question you had was about the number of patients. Again, we are not in the position to comment on those details. I believe typically that's not a number we release, especially the first six-month launch. What is your other question? Oh, reimbursement. I would say Lynparza launched two years ago and is still not in reimbursement in Hong Kong. We also just launched -- six months, we are not in reimbursement ever. So, thank you for all three questions, Yang.

Yang Huang -- Bank of America -- Analyst

My last one is about PD-1. Can you comment on your PD-1 clinical trial progress and the potential timeline for trials and eventually registration in China?

Samantha Du -- Chairman and Chief Executive Officer

Let me go from different highlights. Further details I will defer to our CMO. First of all, PD-1, the interest for us to do PD-1 -- as you know, there are more than 200 PD-1s already in China. The reason we are doing this PD-1 is really because we believe our current portfolio has a lot of symmetries with PD-1, especially, for example, for Margetuximab. We are going to do combos for gastric cancer with PD-1.

It's important we hold both combos in this part of the world not only from effectiveness, effectiveness of the supply, also, clinical development, but even more for the pricing. Instead of negotiating with two companies plus the government, three parties, we now own both products. Based on the competitive landscape of PD-1 in China, we can decide how to allocate to each portion of the combo on the pricing.

So, number two I want to highlight is we brought this product in also based on all the work we have done, all the PD-1s we have reviewed. We do believed based on their pre-clinical and the limited -- not limited, a lot of clinical data, they have the construed-like quality, which we believe is a very high quality PD-1 because not all PD-1s are the same.

So, we're always looking for the best. Our philosophy is always either for best in class or first in class. So, that's still sits in that category, especially in China. So, insight has gone down three pivotal trials and those pivotal trials are likely to be getting approval in the US. With that, we are simultaneously seeking to file CTA to see what studies we are going to do to quickly launch the product in China as well. So, that's number two.

Number three, as I mentioned, we're bringing it in for combos. So, like we talk about, gastric combos with our internal programs -- those timelines I can say we started all the processes, some of them we are already [inaudible]. We don't have to do certain studies in China, but as you know, we do start trials in this part of the world. The key when we do that is number one, we want to make sure we do it most effectively and also, what we're trying to do with the combos -- we've never announced when the CTA got accepted or INT got accepted, as a company policy, we always announce when the first patient begins.

I think you will hear news from us in the not distant future about the patient recruitment process for those combos. In terms of approval time, that really is delivered further down the road. The Chinese government does not have [inaudible] -- sorry for my English. We have to be very careful how to guide our investors. We want to be very responsible. Once we get closer to the timeline, we can give you more color on this. Thank you, Yang.

Operator

Thank you. The next question comes from the line of Xiang Gao from Macquarie. Please ask your question.

Xiang Gao -- Macquarie Group -- Analyst

Thank you very much for taking my questions. I have two small questions. The first one is the SG&A cost -- I just want to know what the breakdown is between ZEJULA and Optune in Hong Kong and how much of the SG&A goes to that and how much is for the preparations to launch in China.

My second question is about the R&D cost. With more and more drugs entering the late stage as opposed to [inaudible] milestone phase, I just wanted to know roughly how much it can go up in the second half and the first half 2020. If you don't mind, I'll just ask another question about the PD-1 competition. It is already very competitive in China. How are we gonna compete with big pharma especially?

Bill Cho -- Chief Financial Officer 

Hey, Xiang Gao. Maybe I can start with the first two.

Samantha Du -- Chairman and Chief Executive Officer

Yeah, Billy, why don't you start with the first two? I'll address the last one.

Bill Cho -- Chief Financial Officer 

Sure. So, your first question on SG&A, we are not breaking that up between products at this juncture. I think based on our previous answer to the question, a lot of this increase of SG&A went into building our commercial infrastructure, not only in Hong Kong but in our main geography of Mainland China.

Samantha Du -- Chairman and Chief Executive Officer

Also, in R&D -- we are also expanding our development team and discovery team. It's not really for these two products. I also want to highlight milestone is a very small portion of all of the costs but it's more expanding our pipeline and more is opening up new indications.

Bill Cho -- Chief Financial Officer 

Yeah. And Xiang Gao, to your second question, Samantha already provided guidance on some commentary on R&D, but we would like to point to not only first half year over year, but also how we track from the full year or second half of last year to this year. What I'm saying is our R&D expenditure for the first half of this year came out to about $58.9 million, right? Last year, the full year R&D was actually $120 million. To your point, we do have many more projects coming up, but I wanted to also highlight those numbers for you.

Samantha Du -- Chairman and Chief Executive Officer

And also, at this stage in China, we believe it's very important to be national champions. So, rather than to make EBITDA even or positive, our goal is to -- this is land grabbing in China and this is building national leaders that 20 years ago in Japan, where in all the competitions, you come out national champions. That's what we want to be, at least one of them. That's why we have very strong supporters from the investment community, from you guys, and that's why we have all the confidence.

But having said so, if you're looking at historical numbers, if you look at how much we spent as a company with the current portfolio -- Billy can give you the number, but we have very effectively in using investors money and deliver the most portfolio and also, in terms of the licensing, you can see we did some controversial licensing, but three times in a row, we have proven to the market we have done good work, we have done market analysis in China. We understand the policies, which are the right products to bring in.

So far, I'm very confident in our BD team, our commercial team, discovery team, and development team. The development team also shows exemplary execution capabilities in China. If we go into details, you can see exactly every program, how we break through the system, how we make it faster approval in China. Jonathan, go ahead.

Jonathan Wang -- Head of Business Development 

I just want to add one other quick point about the R&D cost because you specifically asked about the milestones and future costs. Although we can't give specific guidance for each one of our licensing projects. On an overall level, most of our milestones are regulatory approval related. These are not immediate milestones that get triggered by clinical trials. I think the other thing is that we have a very capital efficient model. So, a lot of our trials are also global trials where we contribute a small percentage of patients to those trials.

So, consequently, they're not stand-alone trials, which may cost a lot of money. We help our planners and together, we're trying to get simultaneous approval. Lastly, I just want to start on the PD-1 competition. In addition, there may be niche opportunities in monotherapy. The rationale, as Tao and Samantha mentioned earlier, is to fully open up the other best in class or first in class assets in our pipeline. A lot of these are de-risked on a global basis. We have a lot of these best in class agents, single agents, which together with this good PD-1 have a lot of commercial opportunities, really expanding the pie for us.

Samantha Du -- Chairman and Chief Executive Officer

On top of that, I also want to add the reason we decided not to do a PD-1 very early on is as you mentioned, we do believe the PD-1 market is very crowded. If we develop a PD-1 internally, even licensed at Phase 1, pre-clinical like most of the company are, but that develops one niche indication, PD-1 for China alone, not leveraging global packages. That requires $80 million US. But by doing so, we are working with partners who have generated pivotal data, we just needed to do a bridging and study, which is very cost-efficient.

I also want to highlight we are not here just for PD-1 monotherapy. It's a combo expanding our portfolio. Still, we believe this is the best PD-1 with a Chinese company promoting it. We believe this is very unique both from the manufacturing cost effectiveness from the safety efficacy data. As Jonathan said, we have a lot of opportunities with our existing portfolio.

Operator

Thank you. We have reached the end of the question and answer session. I would like to hand the conference back to the Zai Lab CEO, Samantha, for closing remarks.

Samantha Du -- Chairman and Chief Executive Officer

Thank you, Operator. I want to thank everyone for taking the time to join us on the call. We appreciate the support and look forward to updating you periodically on our progress throughout the year. Again, Operator, thank you and you may now disconnect this call.

Duration: 72 minutes

Call participants:

Bill Cho -- Chief Financial Officer 

Samantha Du -- Chairman and Chief Executive Officer

Tao Fu -- President and Chief Operating Officer

William Liang -- Chief Commercial Officer 

Jonathan Wang -- Head of Business Development 

Yigal Nochomovitz -- Citigroup -- Analyst

Anupam Rama -- JP Morgan -- Analyst

Maury Raycroft -- Jefferies -- Analyst

David Ruch -- SVB Leerink -- Analyst

Serena Shao -- Credit Suisse -- Analyst

Yang Huang -- Bank of America -- Analyst

Xiang Gao -- Macquarie Group -- Analyst

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