Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
____________________
FORM
10-Q
(Mark One)
☒
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021September 30, 2022
OR
☐
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
______ to ______
to
Commission File Number:
001-38205
____________________
ZAI LAB LIMITED
(Exact Name of Registrant as Specified in its Charter)
____________________
Cayman Islands
98-1144595
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
4560 Jinke Road
Bldg. 1, Fourth Floor,
Pudong
Shanghai
Shanghai, China
201210
314 Main Street
4th Floor, Suite 100
Cambridge, MA, USA
02142
(Address of principal executive offices)
(Zip Code)
+86 21 6163216163 2588
(Registrant’s Telephone Number, Including Area Code)
____________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Trading
Symbol(s)
Name of each exchange
on which registered
American Depositary Shares, each representing 1 Ordinary Share, par value $0.00006 per share
ZLAB
The Nasdaq Global Market
10 Ordinary Shares, par value $0.00006$0.000006 per share*
share
9688
ZLAB
The Nasdaq Global Market
Ordinary Shares, par value $0.000006 per share*9688The Stock Exchange of Hong Kong Limited
*Included in connection with the registration of the American Depositary Shares with the Securities and Exchange Commission. The ordinary shares are not registered or listed for trading in the United States but are listed for trading on The Stock Exchange of Hong Kong Limited.
*
Included in connection with the registration of the American Depositary Shares with the Securities and Exchange Commission. The ordinary shares are not registered or listed for trading in the United States but are listed for trading on The Stock Exchange of Hong Kong Limited.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days
.    
days. Yes
  ☒ x No ☐ 
o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
.
Yes
  ☒ x No ☐ 
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filerx☒Accelerated filer☐o
Non-accelerated filero☐Smaller reporting company☐o
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes ☐o No x
☒
As of April 30, 2021,
94,908,743
November 3, 2022, 979,087,430 ordinary shares of the registrant, par value $0.00006$0.000006 per share, were outstanding, of which
65,326,281
743,576,320 ordinary shares were held in the form of American Depositary Shares.

Table of Contents
Zai Lab Limited
Quarterly Report on Form
10-Q
Page
3
1
3
1
Condensed Consolidated Balance Sheets as of March 31, 2021September 30, 2022 and December 31, 20202021
3
1
Condensed Consolidated Statements of Operations for the Three and NineMonths Ended March 31,September 30, 2022 and 2021 and 2020
4
2
Condensed Consolidated Statements of Comprehensive Loss for the Three and NineMonths Ended March 31,September 30, 2022 and 2021 and 2020
5
3
Condensed Consolidated Statements of Stockholders’ (Deficit)Shareholders’ Equity for the Three and NineMonths Ended March 31,September 30, 2022 and 2021 and 2020
6
4
Condensed Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September 30, 2022 and 2021 and 2020
7
6
Notes to Unaudited Condensed Consolidated Financial Statements
8
7
21
17
30
31
32
33
32
33
32
33
33
33
33
33
Exhibits34
34
35
2

Table

SPECIAL NOTES REGARDING THE COMPANY

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. These forward-looking statements include, without limitation, statements containing words such as “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “possible,” “potentially,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of Contentsthese terms or similar expressions. Such statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information, that are not statements of historical facts, nor are they guarantees or assurances of future performance. These forward-looking statements relate to our future plans, objectives, expectations, intentions, and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that may differ materially from those contemplated by the forward-looking statements because they relate to events and depend on circumstances that may or may not occur in the future. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including but not limited to the following:

•    The effects of the COVID-19 pandemic, including any government actions and lockdown measures taken in response, particularly in mainland China where our operations and product markets are primarily located;
•    Changes in United States and China trade policies and relations, as well as relations with other countries, and/or changes in regulations and/or sanctions that may adversely impact our business, operating results, ability to raise capital, and market price of our ordinary shares and/or our ADSs;
•    Actions the Chinese government may take to intervene in or influence our operations, which could result in a material change in our operations and significantly and adversely impact the value of our ADSs and ordinary shares, including potentially making those ADSs or ordinary shares worthless;
•    Economic, political, and social conditions in mainland China, as well as governmental policies, that could affect the business environment and financial markets in mainland China and our ability to operate our business, liquidity, and access to capital;
•    Uncertainties in the Chinese legal system that could materially and adversely affect us; including the Data Security Law, the Cyber Security Law, the Cybersecurity Review Measures, the Personal Information Protection Law, the Regulation on the Administration of Human Genetic Resources, the Biosecurity Law, the Security Assessment Measures, and any other future laws and regulations, which may entail significant expenses for compliance or otherwise materially affect our business;
•    Any approval, filing, or procedural requirements by the China Securities Regulatory Commission (“CSRC”) or other Chinese regulatory authorities in connection with issuing securities to foreign investors under Chinese law, which could affect our ability to raise capital;
•    Any violation or liability under the U.S. Foreign Corrupt Practices Act or Chinese anti-corruption laws, which could have a material adverse effect on our business or reputation;
•    Restrictions on currency exchange that could limit our ability to receive and use financing in foreign currencies effectively;
•    Any limitation on the ability of our Chinese subsidiaries to make payments to us that could have a material and adverse effect on our ability to conduct our business or fund our cash and financing requirements;
•    Chinese requirements on the ability of residents in mainland China to establish offshore special purpose companies by residents in mainland China, which may subject our China resident beneficial owners or our wholly foreign-owned subsidiaries in mainland China to liability or penalties, limit our ability to inject capital into these subsidiaries, limit these subsidiaries’ ability to increase their registered capital or distribute profits to us, or otherwise adversely affect us;
•    Chinese regulations regarding acquisitions of mainland China based companies by foreign investors which could make it more difficult for us to pursue growth through acquisitions in mainland China;
•    Any issues that our Chinese manufacturing facilities have with operating in conformity with established GMPs and international best practices, and passing FDA, National Medical Products Administration (“NMPA”), and EMA inspections, which could result in a longer and costlier GMP inspection and approval process by the FDA, NMPA, or EMA for our Chinese manufacturing processes and third-party contract manufacturers;
•    Expiration of, or changes to, financial incentives or discretionary policies granted by local governments that could have an adverse effect on our results of operations;


•    Any difficulty for overseas regulators to conduct investigations or collect evidence within mainland China that could adversely affect our business, compliance with regulatory requirements, ability to raise capital, and share price of our ordinary shares and/or ADSs;
•    Any unfavorable tax consequences to us and our non-Chinese shareholders or ADS holders if we were to be classified as a Chinese resident enterprise for Chinese income tax purposes;
•    Any failure to comply with applicable Chinese, U.S., and Hong Kong regulations that could lead to government enforcement actions, subject us to fines and other legal or administrative sanctions, or otherwise adversely affect our business, financial condition, and results of operations;
•    Any review by the Committee on Foreign Investment in the United States in our investments, which may delay or block a transaction from closing;
•    Failure to renew our current leases or locate desirable alternatives for our leased properties which could adversely affect our business;
•    Our ability to generate revenues from our four approved products;
•    Any inability of third parties on whom we rely to conduct our pre-clinical and clinical trials to successfully carry out their contractual duties or meet expected deadlines that could adversely affect our ability to obtain regulatory approval for, or commercialize, our products or product candidates; and
•    Any inability to obtain or maintain sufficient patent protection for our products and product candidates that could adversely affect our business by allowing third parties to compete directly against us.

These factors should not be construed as exhaustive and should be read with the other cautionary statements and information in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2022 (the “2021 Annual Report”), our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 10, 2022 (the “Q1 2022 Form 10-Q”), our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 9, 2022 (the “Q2 2022 Form 10-Q”), and this Quarterly Report on Form 10-Q. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date. We anticipate that subsequent events and developments will cause our expectations and assumptions to change, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Usage of Terms

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Greater China” refer to mainland China, Hong Kong Special Administrative Region (“Hong Kong”), Macau Special Administrative Region (“Macau”), and Taiwan, collectively; references to “Zai Lab,” the “Company,” “we,” “us,” and “our” refer to Zai Lab Limited, a holding company and its subsidiaries, on a consolidated basis; and references to “Zai Lab Limited” refer to Zai Lab Limited, a holding company. Zai Lab Limited is the entity in which investors are purchasing their interest.

Our operating subsidiaries consist of Zai Lab (Hong Kong) Limited, domiciled in Hong Kong; Zai Auto Immune (Hong Kong) Limited, domiciled in Hong Kong; Zai Anti Infectives (Hong Kong) Limited, domiciled in Hong Kong; Zai Lab (Shanghai) Co., Ltd., domiciled in mainland China; Zai Lab International Trading (Shanghai) Co., Ltd., domiciled in mainland China; Zai Lab (Suzhou) Co., Ltd., domiciled in mainland China; Zai Biopharmaceutical (Suzhou) Co., Ltd., domiciled in mainland China; Zai Lab Trading (Suzhou) Co., Ltd., domiciled in mainland China; Zai Lab (Taiwan) Limited, domiciled in Taiwan; Zai Lab (AUST) Pty. Ltd., domiciled in Australia; and Zai Lab (US) LLC, domiciled in the United States. As of the date of this Quarterly Report on Form 10-Q, Zai Anti Infectives (Hong Kong) Limited has non-substantial business operations.

Disclosures Relating to Our Chinese Operations

Zai Lab Limited is not a Chinese operating company, but a holding company incorporated in the Cayman Islands.

Zai Lab Limited is not a Chinese operating company, but a holding company incorporated in the Cayman Islands. As a holding company, we conduct a substantial portion of our operations through wholly owned subsidiaries based in mainland China. Investors will not hold direct investments in our Chinese operating companies. In July 2021, the Chinese government provided new guidance on Chinese companies raising capital outside of mainland China, including through arrangements called variable interest entities (“VIEs”). Currently, our corporate structure contains no VIEs, and the life sciences industry in which we operate is not subject to foreign ownership limitations in mainland China. However, there are uncertainties with respect to the Chinese legal system, and there may be changes in laws, regulations, and policies, including how those laws, regulations, and policies will be interpreted or implemented. If, in the future, the Chinese


government determines that our corporate structure does not comply with Chinese regulations, or if Chinese regulations change or are interpreted differently, the value of our American Depositary Shares (“ADSs”) and/or ordinary shares may decline or become worthless.

There are significant legal and operational risks associated with conducting a substantial portion of our operations in mainland China, including that changes in the legal, political, and economic policies of the Chinese government, the relations between mainland China and the United States, or Chinese or U.S. regulations may materially and adversely affect our business, financial condition, results of operations, and the market price of our ADSs and/or ordinary shares.

There are significant legal and operational risks associated with conducting a substantial portion of our operations in mainland China, including that changes in the legal, political, and economic policies of the Chinese government, the relations between mainland China and the United States, or Chinese or U.S. regulations may materially and adversely affect our business, financial condition, results of operations, and the market price of our ADSs and/or ordinary shares. Any such changes could significantly limit or completely hinder our ability to offer or continue to offer our ADSs and/or ordinary shares to investors and could cause the value of our ADSs or ordinary shares to significantly decline or become worthless. For example, geopolitical events, such as developments with respect to Taiwan, continue to cause heightened tensions between the United States and China, which could have potential adverse effects on our business, results of operations, ability to raise capital or raise capital on favorable terms, or the market price of our ordinary shares and/or ADSs. In addition, our obligations to comply with the Personal Information Protection Law, the Data Security Law, the Cyber Security Law, the Cybersecurity Review Measures (which became effective on February 15, 2022), the Measures on Security Assessment of Cross-Border Data Transfer (which became effective on September 1, 2022) (the “Security Assessment Measures”), regulations and guidelines relating to the multi-level protection scheme, and any other future laws and regulations may require us to incur significant expenses and could materially affect our ability to conduct our business, accept foreign investments, or continue to be listed on a U.S. or foreign stock exchange.

For more information on these risks and other risks relating to our ADSs and ordinary shares, see “Item 1A. Risk Factors” in our 2021 Annual Report and in this Quarterly Report on Form 10-Q.

We are required to obtain certain permissions from Chinese authorities to operate in mainland China, issue securities to foreign investors, and transfer certain scientific data.

We are required to obtain certain permissions from Chinese authorities to operate in mainland China, issue securities to foreign investors, and transfer certain scientific data. The Chinese government has exercised, and may continue to exercise, substantial influence or control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in mainland China may be undermined if our Chinese subsidiaries are not able to obtain or maintain approvals to operate in mainland China. The central or local governments could impose new, stricter regulations or interpretations of existing regulations that could require additional expenditures and efforts on our part to comply with such regulations or interpretations.

As of the date of this Quarterly Report on Form 10-Q, we are not currently required to obtain approval or prior permission from the CSRC or any other Chinese regulatory authority under the Chinese laws and regulations currently in effect to issue securities to foreign investors. However, in January 2022, the CSRC released for public comment draft rules titled Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (together, the “Draft Rules”). If the Draft Rules are adopted in their current form, we would likely be required to submit filings to the CSRC in connection with the future issuance of our equity securities to foreign investors. As there are uncertainties with respect to the Chinese legal system and changes in laws, regulations, and policies, including how those laws, regulations, and policies will be interpreted or implemented, we could be subject to additional requirements, approvals, or permissions in the future. We are required to obtain certain approvals from Chinese authorities in order to operate our Chinese subsidiaries. We are also required to obtain certain approvals from Chinese authorities before transferring certain scientific data abroad or to foreign parties or entities established or actually controlled by them.

We will be required to obtain approval from the Cyberspace Administration of China (“CAC”) when the transfers out of mainland China of certain data that is determined to be important data or personal data falls into any of the scenarios requiring a security assessment by the CAC specified in the Security Assessment Measures. The cross-border transfer out of mainland China of data requiring such a security assessment will not be allowed if the CAC does not approve the security assessment filing. In addition, the disclosure, sharing, or exporting to a foreign entity by a Chinese-owned entity of any data derived from human organs, tissues, or cells of Chinese individuals that contain human genetic materials requires a project-level approval by or a separate notification to the Human Genetic Resources Administration of China (“HGRAC”). The HGRAC also requires submission of a copy of the data to be exported. If our Chinese subsidiaries intend


to receive certain clinical or personal data from Chinese-owned entities or transfer certain clinical or personal data out of mainland China, they will need to first evaluate whether a security assessment by the CAC or a clearance from the HGRAC will be triggered by such data transfer, pass the security assessment, make the necessary notification filings, or obtain the necessary project-level approvals for such data transfer.

If our Chinese subsidiaries do not receive or maintain approvals or inadvertently conclude that approvals needed for their business are not required, or if there are changes in applicable laws (including regulations) or interpretations of laws and our Chinese subsidiaries are required but unable to obtain approvals in the future, then such changes or need for approvals (if not obtained) could adversely affect the operations of our Chinese subsidiaries, including limiting or prohibiting the ability of our Chinese subsidiaries to operate, and the value of our ADSs and/or ordinary shares could significantly decline or become worthless.

For more information on these required permissions, see “Item 1A. Risk Factors” in our 2021 Annual Report.

To operate our general business activities currently conducted in mainland China, each of our Chinese subsidiaries is required to obtain a business license from the local counterpart of the State Administration for Market Regulation (“SAMR”).

To operate our general business activities currently conducted in mainland China, each of our Chinese subsidiaries is required to obtain a business license from the local counterpart of the SAMR. Each of our Chinese subsidiaries has obtained a valid business license from the local counterpart of the SAMR, and no application for any such license has been denied. Our Chinese subsidiaries are also required to obtain certain licenses and permits, including but not limited to the following material licenses and permits: Pharmaceutical Manufacturing Permits, Pharmaceutical Distribution Permits, and Medical Device Distribution Permits to manufacture and/or distribute drugs and/or applicable medical devices. No application for any such material license or permit has been denied.

Because our prior auditor, which filed an audit report with our last annual report, was located in mainland China, a jurisdiction where the U.S. Public Company Accounting Oversight Board (“PCAOB”) is unable to inspect or investigate completely because of restrictions imposed by Chinese authorities, SEC staff conclusively identified us under the Holding Foreign Companies Accountable Act (“HFCAA”) in March 2022. Because the Company subsequently engaged KPMG LLP (“KPMG”), a U.S. auditor that is subject to inspection and review by the PCAOB, to be our independent registered public accounting firm for the fiscal year ending December 31, 2022 and because the Company has a principal executive office, significant operations, and a majority of our Board members and executives in the United States, we believe we have mitigated our risk of delisting pursuant to the HFCAA. However, if we were to fail to meet the audit requirements of the HFCAA for three consecutive years (or two years, if bills passed by the U.S. Senate or House of Representatives are enacted), we may be prohibited from listing our securities on a national securities exchange or over-the-counter market in the United States and delisted from the Nasdaq Global Market (“Nasdaq”). The foregoing could adversely affect the market price of our ordinary shares and/or ADSs and our ability to raise capital effectively.

In recent years, the U.S. Congress and regulatory authorities have expressed concerns about challenges in their oversight of financial statement audits of U.S.-listed companies with significant operations in mainland China, and in December 2020, the United States enacted the HFCAA. The HFCAA requires the SEC to identify issuers that have filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction (a “Commission-Identified Issuer”). The PCAOB has issued a Determination Report, which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong because of positions taken by Chinese authorities in those jurisdictions, and in March 2022, SEC staff conclusively identified the Company as a Commission-Identified Issuer because our prior auditor, which filed an audit report with our 2021 Annual Report, was located in mainland China.

Under the HFCAA, if the SEC conclusively identifies an issuer as a Commission-Identified Issuer for three consecutive years, the SEC is required to prohibit the trading of the issuer’s securities on a national securities exchange or through any other method that is within the jurisdiction of the SEC to regulate, including over-the-counter markets in the United States. If either the Accelerating Holding Foreign Companies Accountable Act passed by the U.S. Senate in June 2021 or the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022 passed by the U.S. House of Representatives in February 2022 are enacted, the number of non-inspection years would be reduced from three years to two years. It is unclear if or when either of these bills will be signed into law.

In May 2022 the Company engaged KPMG, an auditor located in the United States that is inspected by the PCAOB, as our independent registered public accounting firm for the fiscal year ending December 31, 2022. In addition, we have a


principal executive office, significant operations, and a majority of our Board members and executive officers in the United States. As a result, we believe that we have mitigated our risk of delisting pursuant to the HFCAA. However, if we were to fail to meet the audit requirements of the HFCAA for three consecutive years (or two years if the number of non-inspection years is reduced by legislation), our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges, and this ultimately could result in our ADSs being delisted. Delisting of our ADSs would force holders of our ADSs to sell their ADSs or convert them into our ordinary shares. The foregoing could adversely affect the market price of our ordinary shares and/or ADSs and our ability to raise capital effectively. The market price of our ordinary shares and/or ADSs also could be adversely affected as a result of anticipated negative impacts of such legislative or executive actions upon, as well as negative investor sentiment toward, companies with significant operations in mainland China and Hong Kong that are listed in the United States, regardless of whether such actions are implemented and regardless of our actual operating performance.

On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in mainland China and Hong Kong, which marks the first time it has received such detailed and specific commitments from China that China would allow PCAOB inspection and investigations meeting U.S. standards. However, it is uncertain whether the PCAOB will determine that it has sufficient access to inspect and review the work papers of Chinese auditors of U.S. listed companies and whether or how this recent development will affect the SEC’s designation of issuers under the HFCAA.

PART I—I – FINANCIAL INFORMATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form
10-Q
and the audited consolidated financial information and the accompanying notes thereto included in our 2021 Annual Report on Form
10-K
for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission, or SEC, on March 1, 2021.
Report.
This discussion contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially,” “contemplate,” “project,” “seek,” “target,” “would” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information, including all matters that are not historical facts. These forward-looking statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements because they relate to events and depend on circumstances that may or may not occur in the future. Factors that might cause such a difference include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form
10-K
and those “Risk Factors” discussed below in Part II, Item 1A. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this Quarterly Report on Form
10-Q,
speak only as of their date, and except as required by law, we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.


Item 1. Financial Statements
Statements.
Zai Lab Limited
Unaudited condensed consolidated balance sheets
(In thousands of U.S. dollars (“$”) except for number of shares and per share data)
NotesSeptember 30,
2022		December 31,
2021
$$
Assets
Current assets:
Cash and cash equivalents31,119,476 964,100 
Short-term investments— 445,000 
Accounts receivable (net of allowance for credit loss of $8 and $11 as of September 30, 2022 and December 31, 2021, respectively)27,736 47,474 
Notes receivable10,251 7,335 
Inventories, net429,131 18,951 
Value added tax recoverable - current1,080 — 
Prepayments and other current assets22,157 18,021 
Total current assets1,209,831 1,500,881 
Restricted cash, non-current803 803 
Long term investments (including the fair value measured investment of $3,316 and $15,383 as of September 30, 2022 and December 31, 2021, respectively)3,316 15,605 
Prepayments for equipment4,068 989 
Property and equipment, net550,528 43,102 
Operating lease right-of-use assets20,269 14,189 
Land use rights, net6,824 7,811 
Intangible assets, net1,540 1,848 
Long-term deposits1,329 870 
Value added tax recoverable6 23,858 
Total assets1,298,514 1,609,956 
Liabilities and shareholders’ equity  
Current liabilities:  
Accounts payable90,112 126,163 
Current operating lease liabilities6,980 5,927 
Other current liabilities858,456 60,811 
Total current liabilities155,548 192,901 
Deferred income23,205 27,486 
Non-current operating lease liabilities13,892 9,613 
Total liabilities192,645 230,000 
Commitments and contingencies (Note 14)  
Shareholders’ equity  
Ordinary shares (par value of $0.000006 per share; 5,000,000,000 shares authorized; 961,829,720 and 955,363,980 shares issued as of September 30, 2022 and December 31, 2021, respectively; 959,724,940 and 954,981,050 shares outstanding as of September 30, 2022 and December 31, 2021, respectively)6 6 
Additional paid-in capital2,877,361 2,825,948 
Accumulated deficit(1,799,591)(1,418,074)
Accumulated other comprehensive income (loss)39,549 (23,645)
Treasury Stock (at cost, 2,104,780 and 382,930 shares as of September 30, 2022 and December 31, 2021, respectively)(11,456)(4,279)
Total shareholders’ equity1,105,869 1,379,956 
Total liabilities and shareholders’ equity1,298,514 1,609,956 
       
As of
 
       
March 31,

2021
  
December 31,
2020
 
   
Notes
   
$
  
$
 
Assets
              
Current assets:
        
                        
   
                        
 
Cash and cash equivalents
   3    1,013,420   442,116 
Short-term investments
   5    —     744,676 
Accounts receivable (net of allowance of $2 and $1 as of March 31, 2021 and 2020, respectively)
        8,815   5,165 
Inventories
   6    12,629   13,144 
Prepayments and other current assets
        14,321   10,935 
               
Total current assets
        1,049,185   1,216,036 
Restricted cash,
non-current
   4    743   743 
Investments in equity investees
   7    1,473   1,279 
Prepayments for equipment
        244   274 
Property and equipment, net
   8    29,016   29,162 
Operating lease
right-of-use
assets
        16,652   17,701 
Land use rights, net
        7,784   7,908 
Intangible assets, net
        1,585   1,532 
Long term deposits
        910   862 
Value added tax recoverable
        23,698   22,141 
               
Total assets
       
 
1,131,290
 
 
 
1,297,638
 
               
Liabilities and shareholders’ equity
              
Current liabilities:
              
Accounts payable
        41,415   62,641 
Current operating lease liabilities
        5,602   5,206 
Other current liabilities
   11    45,639   30,196 
               
Total current liabilities
        92,656   98,043 
Deferred income
        16,657   16,858 
Non-current
operating lease liabilities
        12,307   13,392 
               
Total liabilities
       
 
121,620
 
 
 
128,293
 
               
Commitments and contingencies (Note 18)
        0    0  
Shareholders’ equity
              
Ordinary shares (par value of $0.00006 per share; 500,000,000 shares authorized, 88,519,172 and 74,666,725 shares issued and outstanding as of March 31, 2021 and 2020, respectively)
        5   5 
Additional
paid-in
capital
        1,967,802   1,897,467 
Accumulated deficit
        (946,513)   (713,603) 
Accumulated other comprehensive loss
   15    (11,624)   (14,524) 
               
Total shareholders’ equity
       
 
1,009,670
 
 
 
1,169,345
 
               
Total liabilities and shareholders’ equity
       
 
1,131,290
 
 
 
1,297,638
 
               
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Zai Lab Limited
Unaudited condensed consolidated statements of operations
(In thousands of U.S. dollars (“$”) except for number of shares and per share data)
Three Months Ended September 30,Nine Months Ended
September 30,
Notes2022202120222021
$$$$
Revenues:
Product revenue, net656,963 43,103 150,633 100,141 
Collaboration revenue6577 — 1,806 — 
Total revenues57,540 43,103 152,439 100,141 
Expenses:  
Cost of sales(20,044)(12,162)(53,094)(30,535)
Research and development(99,524)(55,144)(219,462)(401,220)
Selling, general, and administrative(66,555)(59,002)(186,947)(149,254)
Loss from operations(128,583)(83,205)(307,064)(480,868)
Interest income3,872 713 5,235 1,171 
Other income (expenses), net(36,479)(13,580)(79,467)(12,401)
Loss before income tax and share of loss from equity method investment(161,190)(96,072)(381,296)(492,098)
Income tax expense7— — — — 
Share of loss from equity method investment— (340)(221)(548)
Net loss(161,190)(96,412)(381,517)(492,646)
Net loss attributable to ordinary shareholders(161,190)(96,412)(381,517)(492,646)
Loss per share - basic and diluted9(0.17)(0.10)(0.40)(0.53)
Weighted-average shares used in calculating net loss per ordinary share - basic and diluted 959,085,960 950,354,320 957,439,910 921,748,380 
Loss per American Depositary Shares (“ADS”) - basic and diluted(1.68)(1.01)(3.98)(5.34)
Weighted-average ADSs used in calculating net loss per ADS - basic and diluted 95,908,596 95,035,432 95,743,991 92,174,838 
Note: All the numbers of ordinary shares and per share data in these unaudited condensed consolidated financial statements have been retrospectively adjusted as a result of the Share Subdivision and the ADS Ratio Change that became effective on March 30, 2022. The Share Subdivision and ADS Ratio Change did not result in any change to the number of outstanding ADSs of the Company. Refer to Note 2(a) for a detailed discussion.
       
Three Months Ended March 31,
 
       
2021
  
2020
 
   
Notes
   
$
  
$
 
Revenue
  9    20,103   8,218 
Expenses:
             
Cost of sales
       (7,505)   (2,084) 
Research and development
       (203,852)   (33,742) 
Selling, general and administrative
       (35,838)   (18,714) 
              
Loss from operations
       (227,092)   (46,322) 
Interest income
       214   1,655 
Interest expenses
       —     (59) 
Other
expense
,
 net
       (6,227)   (3,125) 
              
Loss before income tax and share of gain (loss) from equity method investment
       (233,105)   (47,851) 
Income tax expense
  10    0—     —   
Share of gain (loss) from equity method investment
       195   (137) 
              
Net loss
       (232,910)   (47,988) 
              
Net loss attributable to ordinary shareholders
       (232,910)   (47,988) 
              
Loss per share - basic and diluted
  12    (2.64)   (0.66) 
Weighted-average shares used in calculating net loss per ordinary share - basic and diluted
       88,374,928   72,956,538 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Zai Lab Limited
Unaudited condensed consolidated statements of comprehensive loss
(In thousands of U.S. dollars (“$”) except for number of shares and per share data)

Three Months Ended September 30,Nine Months Ended
September 30,
2022202120222021
$$$$
Net loss(161,190)(96,412)(381,517)(492,646)
Other comprehensive income (loss), net of tax of nil:
Foreign currency translation adjustments35,062 1,741 63,194 (600)
Comprehensive loss(126,128)(94,671)(318,323)(493,246)
   
Three Months Ended March 31,
 
   
2021
  
2020
 
 
 
   
$
  
$
 
 
 
Net loss
   (232,910)   (47,988) 
Other comprehensive income, net of tax of NaN:
         
Foreign currency translation adjustments
   2,900   3,539 
          
Comprehensive loss
  
 
(230,010
) 
 
 
(44,449
) 
          
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Zai Lab Limited
Unaudited condensed consolidated statements of shareholders’ (deficit) equity
(In thousands of U.S. dollars (“$”) except for number of shares and per share data)

Ordinary SharesAdditional
paid
in capital		Accumulated
deficit		Accumulated
other
comprehensive
(loss) income		Treasury StockTotal
Number
of
Shares		AmountSharesAmount
$$$$$$
Balance at December 31, 2021955,363,980 6 2,825,948 (1,418,074)(23,645)(382,930)(4,279)1,379,956 
Issuance of ordinary shares upon vesting of restricted shares514,800 00— — — ��� — 
Exercise of shares options1,156,660 0297 — — — — 297 
Receipt of employees’ shares to satisfy tax withholding obligations related to share-based compensation— — — — — (15,150)(68)(68)
Share-based compensation— — 12,410 — — — — 12,410 
Net loss— — — (82,394)— — — (82,394)
Foreign currency translation— — — — (2,193)— — (2,193)
Balance at March 31, 2022957,035,440 6 2,838,655 (1,500,468)(25,838)(398,080)(4,347)1,308,008 
Issuance of ordinary shares upon vesting of restricted shares683,700 00— — — — — 
Exercise of shares options2,801,000 04,322 — — — — 4,322 
Receipt of employees’ shares to satisfy tax withholding obligations related to share-based compensation— — — — — (1,627,230)(6,782)(6,782)
Share-based compensation— — 14,225 — — — — 14,225 
Net loss— — — (137,933)— — — (137,933)
Foreign currency translation— — — — 30,325 — — 30,325 
Balance at June 30, 2022960,520,140 6 2,857,202 (1,638,401)4,487 (2,025,310)(11,129)1,212,165 
Issuance of ordinary shares upon vesting of restricted shares230,250 00— — — — — 
Exercise of shares options1,079,330 01,052 — — — — 1,052 
Receipt of employees’ shares to satisfy tax withholding obligations related to share-based compensation— — — — — (79,470)(327)(327)
Share-based compensation— — 19,107 — — — — 19,107 
Net loss— — — (161,190)— — — (161,190)
Foreign currency translation— — — — 35,062 — — 35,062 
Balance at September 30, 2022961,829,720 6 2,877,361 (1,799,591)39,549 (2,104,780)(11,456)1,105,869 




4

Ordinary SharesAdditional
paid
in capital		Accumulated
deficit		Accumulated
other
comprehensive
(loss) income		Treasury StockTotal
Number
of
Shares		AmountSharesAmount
$$$$$$
Balance at December 31, 2020878,110,260 5 1,897,467 (713,603)(14,524)— — 1,169,345 
Issuance of ordinary shares upon vesting of restricted shares816,000 00— — — — — 
Exercise of shares options583,640 0702 — — — — 702 
Issuance of ordinary shares in connection with collaboration and license arrangement5,681,820 062,250 — — — — 62,250 
Issuance cost adjustment for secondary listing— — 65 — — — — 65 
Share-based compensation— — 7,318 — — — — 7,318 
Net loss— — — (232,910)— — — (232,910)
Foreign currency translation— — — — 2,900 — — 2,900 
Balance at March 31, 2021885,191,720 5 1,967,802 (946,513)(11,624)— — 1,009,670 
Issuance of ordinary shares upon vesting of restricted shares321,000 00— — — — — 
Exercise of shares option4,905,170 03,289 — — — — 3,289 
Issuance of ordinary shares upon follow-on public offering, net of issuance cost of $87957,164,000 1 817,995 — — — — 817,996 
Receipt of employees’ shares to satisfy tax withholding obligations related to share-based compensation— — — — — (60,860)(924)(924)
Share-based compensation— — 10,232 — — — — 10,232 
Net loss— — — (163,324)— — — (163,324)
Foreign currency translation— — — — (5,241)— — (5,241)
Balance at June 30, 2021947,581,890 6 2,799,318 (1,109,837)(16,865)(60,860)(924)1,671,698 
Issuance of ordinary shares upon vesting of restricted shares540,500 00— — — — — 
Exercise of shares option4,613,500 02,916 — — — — 2,916 
Issuance cost adjustment for follow-on public offering— — 40 — — — — 40 
Receipt of employees’ shares to satisfy tax withholding obligations related to share-based compensation— — — — — (216,360)(2,609)(2,609)
Share-based compensation— — 10,556 — — — — 10,556 
Net loss— — — (96,412)— — — (96,412)
Foreign currency translation— — — — 1,741 — — 1,741 
Balance at September 30, 2021952,735,890 6 2,812,830 (1,206,249)(15,124)(277,220)(3,533)1,587,930 
   
Ordinary shares
   
Additional
      
Accumulated
other
    
   
Number of

Shares
   
Amount
   
paid

in capital
   
Accumulated

deficit
  
comprehensive

(loss) income
  
Total
 
       
$
   
$
   
$
  
$
  
$
 
Balance at December 31, 2020
   87,811,026    5    1,897,467    (713,603)   (14,524)   1,169,345 
Issuance of ordinary shares upon vesting of restricted shares
   81,600    0    0    —     —     0 
Exercise of shares option
   58,364    0    702    —     —     702 
Issuance of ordinary shares in connection with collaboration and license arrangement (Note 16)
   568,182    0    62,250    —     —     62,250 
Issuance cost adjustment for secondary listing
   —      —      65    —     —     65 
Share-based compensation
   —      —      7,318    —     —     7,318 
Net loss
   —      —      —      (232,910)   —     (232,910) 
Foreign currency translation
   —      —      —      —     2,900   2,900 
                             
Balance at March 31, 2021
   88,519,172    5    1,967,802    (946,513)   (11,624)   1,009,670 
                             
Balance at December 31, 2019
   68,237,247    4    734,734    (444,698)   4,620   294,660 
Issuance of ordinary shares upon vesting of restricted shares
   80,200    0    0    —     —     0 
Exercise of shares option
   49,278    0    346    —     —     346 
Issuance of ordinary shares upon
follow-on
public offering, net of issuance cost of $740
   6,300,000    0    280,568    —     —     280,568 
Share-based compensation
   —      —      6,463    —     —     6,463 
Net loss
   —      —      —      (47,988)   —     (47,988) 
Foreign currency translation
   —      —      —      —     3,539   3,539 
                             
Balance at March 31, 2020
   74,666,725    4    1,022,111    (492,686)   8,159   537,588 
                             
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
“0” “0” in above table means less than 1,000 dollars.
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Zai Lab Limited
Unaudited condensed consolidated statements of cash flows
(In thousands of U.S. dollars (“$”) except for number of shares and per share data)
Nine Months Ended
September 30,
20222021
$$
Operating activities
Net loss(381,517)(492,646)
Adjustments to reconcile net loss to net cash used in operating activities:  
Allowance for credit (gain) loss(3)5 
Inventory write-down480 402 
Depreciation and amortization expenses6,100 4,612 
Amortization of deferred income(2,041)(234)
Share-based compensation45,742 28,106 
Noncash research and development expenses— 62,250 
Share of loss from equity method investment221 548 
Loss from fair value changes of equity investment with readily determinable fair value12,067 9,930 
(Gain) loss on disposal of property and equipment(11)12 
Noncash lease expenses5,820 4,595 
Foreign currency remeasurement loss73,052 2,838 
Changes in operating assets and liabilities:  
Accounts receivable16,483 (15,858)
Notes receivable(3,861)— 
Inventories(13,235)248 
Prepayments and other current assets(5,860)(6,142)
Long-term deposits(459)(39)
Value added tax recoverable21,432 (1,249)
Accounts payable(28,850)(11,235)
Other current liabilities1,628 20,591 
Operating lease liabilities(6,008)(3,834)
Deferred income470 863 
Net cash used in operating activities(258,350)(396,237)
Cash flows from investing activities:  
Purchases of short-term investments(260,274)(170,000)
Proceeds from maturity of short-term investment705,274 743,902 
Purchase of property and equipment(20,172)(11,917)
Purchase of intangible assets(439)(539)
Payment for investment in equity investee— (30,000)
Net cash provided by investing activities424,389 531,446 
Cash flows from financing activities:  
Proceeds from exercises of stock options5,640 6,907 
Proceeds from issuance of ordinary shares upon public offerings— 818,874 
Payment of public offering costs— (1,836)
Employee taxes paid related to net share settlement of equity awards(7,171)(3,467)
Net cash (used in) provided by financing activities(1,531)820,478 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(9,132)695 
Net increase in cash, cash equivalents and restricted cash155,376 956,382 
Cash, cash equivalents and restricted cash - beginning of period964,903 442,859 
Cash, cash equivalents and restricted cash - end of period1,120,279 1,399,241 
Supplemental disclosure on non-cash investing and financing activities:  
Payables for purchase of property and equipment3,234 1,797 
Payables for intangible assets32 24 
Payables for treasury stock32 — 
Receivables for stock option exercise under equity incentive plans31 — 
Right-of-use asset acquired under operating leases12,861 — 
Supplemental disclosure of cash flow information:  
Cash and cash equivalents1,119,476 1,398,498 
Restricted cash, non-current803 743 
Total cash and cash equivalents and restricted cash1,120,279 1,399,241 
   
Three Months Ended March 31,
 
   
2021
  
2020
 
   
$
  
$
 
Operating activities
   
                        
   
                        
 
Net loss
   (232,910)   (47,988) 
Adjustments to reconcile net loss to net cash used in operating activities:
         
Allowance for doubtful accounts
   1   1 
Inventory write-down
   14   — �� 
Depreciation and amortization expenses
   1,448   1,070 
Amortization of deferred income
   (78)   (78) 
Share-based compensation
   7,318   6,463 
Noncash research and development expenses
 
(Note 16)
   62,250   —   
Share of (gain) loss from equity method investment
   (195)   137 
Loss on disposal of property and equipment
   4   —   
Noncash lease expenses
   1,322   1,062 
Changes in operating assets and liabilities:
         
Accounts receivable
   (3,651)   (296) 
Inventories
   502   (45) 
Prepayments and other current assets
   (3,386)   (1,375) 
Long term deposits
   (47)   (349) 
Value added tax recoverable
   (1,558)   (1,156) 
Accounts payable
   (21,226)   4,495 
Other current liabilities
   21,707   (1,408) 
Operating lease liabilities
   (893)   (663) 
Deferred income
   (122)   289 
          
Net cash used in operating activities
   (169,500)   (39,841) 
          
Cash flows from investing activities:
         
Proceeds from maturity of short-term investments
   743,902   50,000 
Purchase of property and equipment
   (1,683)   (1,043) 
Purchase of intangible assets
   (214)   (5) 
          
Net cash used in investing activities
   742,005   48,952 
          
Cash flows from financing activities:
         
Repayment of short-term borrowings
   —     (1,430) 
Proceeds from exercises of stock options
   702   346 
Proceeds from issuance of ordinary shares upon public offerings
   —     281,295 
Payment of public offering costs
   (973)   (727) 
          
Net cash (used in) provided by financing activities
   (271)   279,484 
          
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
   (930)   (947) 
          
Net increase in cash, cash equivalents and restricted cash
   571,304   287,648 
Cash, cash equivalents and restricted cash - beginning of period
   442,859   76,442 
          
Cash, cash equivalents and restricted cash - end of period
   1,014,163   364,090 
          
Supplemental disclosure on
non-cash
investing and financing activities:
         
Payables for purchase of property and equipment
   439   280 
Payables for intangible assets
   26   11 
Payables for public offering costs
   26   —   
Supplemental disclosure of cash flow information:
         
Cash and cash equivalents
   1,013,420   363,580 
Restricted cash,
non-current
   743   510 
          
Total cash and cash equivalents and restricted cash
   1,014,163   364,090 
          
Interest paid
   —     67 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements

(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
1. Organization and principal activities

Zai Lab Limited (the “Company”) was incorporated on March 28, 2013 in the Cayman Islands as an exempted company with limited liability under the Companies Law of the Cayman Islands. The CompanyIslands (as amended). Zai Lab Limited and its subsidiaries (collectively referred to as the “Group”“Company”) are focused on developing and commercializing therapiesproducts and product candidates that address medical conditions with unmet medical needs, including in particular,the areas of oncology, autoimmune disorders, infectious diseases, and infectious diseases.
neurological disorders.

The Group’sCompany’s principal operations and geographic markets are in mainland China (hereinafter referred to as “China”), Hong Kong, Macau and Taiwan (hereinafter collectively referred to as “Greater China”).Greater China. The GroupCompany has a substantial presence in Greater China and the United States.
2. Basis of presentation and consolidation and significant accounting policies
(a) Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles in the United States (“U.S. GAAP”), and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022 (the “2021 Annual Report”). InThe December 31, 2021 condensed consolidated balance sheet data included in this Quarterly Report on Form 10-Q were derived from the opinion of management, theseaudited financial statements included in the 2021 Annual Report.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments and accrualsthat are necessary to present fairly the results for a fair statement of the Company’s unaudited condensed consolidated financial statements for such periods. Theinterim periods presented. Interim results of operations for any interim period are not necessarily indicative of the results for the full year. Theyear ending December 31, 20202022.
Effective as of March 30, 2022, the Company subdivided each of its issued and unissued ordinary shares into ten ordinary shares (the “Share Subdivision”). Following the Share Subdivision, the Company’s authorized share capital became $30,000 divided into 5,000,000,000 shares with a par value of $0.000006 per share. The numbers of issued and unissued ordinary shares and per share data as disclosed elsewhere in these unaudited condensed consolidated balance sheets data were derived from audited financial statements, but do not include all disclosures required by U.S. GAAP. These financial statements should be read in conjunction with the financial statements and notes thereto containedare presented on a basis after taking into account the effects of the Share Subdivision and have been retrospectively adjusted, where applicable. In connection with the Share Subdivision, the conversion ratio of our ADSs to ordinary shares changed from one ADS to one ordinary share to a new ratio of one ADS to ten ordinary shares (the “ADS Ratio Change”). The Share Subdivision and ADS Ratio Change did not result in any change to the Company’s Annual Report on Formnumber of outstanding ADSs of the Company.
10-K
A reclassification has been made within the condensed consolidated statement of cash flow for the yearnine months ended December 31, 2020.September 30, 2021 to conform to the current period presentation. The Company reclassified $2.8 million from other current liabilities into foreign currency remeasurement loss. The net cash used in operating activities did not change as a result of the reclassification.
(b) Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances among the GroupCompany and its subsidiaries are eliminated upon consolidation.
(c) Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
7

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, estimating the current expected credit losses for financial assets, and assessing the impairment of long-lived assets, discount rate of operating lease liabilities, revenue recognition,accrual of rebates, allocation of the research and development service expenses to the appropriate financial reporting period based on the progress of the research and development projects, share-based compensation expenses, recoverability of deferred tax assets, and a lack of marketability discount of the ordinary shares issued in connection with license and collaboration and license arrangement
(Note 16)arrangements (Note 12). Management bases theits estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
(d) Fair value measurements
As of September 30, 2022 and December 31, 2021, information about inputs into the fair value measurement of the Company’s assets that are measured at a fair value on a recurring basis in periods subsequent to their initial recognition is as follows (in thousands):
DescriptionFair Value as of
September 30, 2022
$
Fair Value Measurement at Reporting
Date Using Quoted Prices in Active
Markets
for Identical
Assets (Level 1)
US$
Equity Investments with Readily Determinable Fair Value3,316 3,316 
DescriptionFair Value as of
December 31, 2021
$
Fair Value Measurement at Reporting
Date Using Quoted Prices in Active
Markets
for Identical
Assets (Level 1)
US$
Equity Investments with Readily Determinable Fair Value15,383 15,383 
The Group applies ASC topic 820 (“ASC 820”),
 Fair Value Measurements and Disclosures
, in measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and requires disclosures to be provided on fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identicalCompany did not have assets or liabilities in active markets.
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or no market activity.
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Table of Contents
Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
ASC 820 describes three main approaches to measuring themeasured at fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts toon a single present value amount. The measurement is based onnonrecurring basis during the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.periods presented.
Financial instruments of the GroupCompany primarily include cash, cash equivalents and restricted cash, short-term investments, accounts receivable, notes receivable, prepayments and other current assets, accounts payable, and other payables.current liabilities. As of March 31, 2021September 30, 2022 and December 31, 2020,2021, the carrying values of cash and cash equivalents, short-term investments, accounts receivable, notes receivable, prepayments and other current assets, accounts payable, and other payablecurrent liabilities approximated their fair values due to the short-term maturity of these instruments, and the carrying value of restricted cash approximatesapproximated its fair value based on the nature of the assessment of the ability to recover these amounts.
(e) Recent accounting pronouncements
Adopted Accounting Standards
accounting standards
In December 2019,November 2021, the FASB issued ASU
2019-12,
Income TaxesASU2021-10, Government Assistance (Topic 740):
Simplifying832) — Disclosures by Business Entities about Government Assistance. The amendments in this ASU require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the Accounting for Income Taxes
. This update simplifiestypes of transactions, (2) the accounting for income taxes as partthe transactions, and (3) the effect of the FASB’s overall initiative to reduce complexity in accounting standards.transactions on an entity’s financial statements. The amendments include removal of certain exceptions to the general principles of ASC 740,
Income taxes
, and simplification in several other areas such as accountingthis ASU are effective for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal yearsall entities within their scope for financial statements issued for annual periods beginning after December 15, 2020, and interim periods therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively.2021. The GroupCompany adopted this standard onas of January 1, 2021.2022. There was no material impact toon the Group’sCompany’s financial position or results of operations upon the adoption.
8

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(f) Significant accounting policies
For a more complete discussion of the Company’s significant accounting policies, and other information, the unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements included in the Company’s2021 Annual Report on Form
10-K
for the year ended December 31, 2020.Report.
3. Cash and cash equivalents
   
As of
 
   
March 31,
2021
   
December 31,
2020
 
   
$
   
$
 
Cash at bank and in hand
   1,012,587    441,283 
Cash equivalents
   833    833 
           
    1,013,420    442,116 
           
Denominated in:
  
 
 
    
 
 
  
US$
   186,078    297,813 
RMB (note (i))
   37,732    23,898 
Hong Kong dollar (“HK$”)
   789,029    119,695 
Australian dollar (“A$”)
   581    710 
           
    1,013,420    442,116 
           
Note:
(i)
Certain cash and bank balances denominated in RMB were deposited with banks in China. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the government of the People’s Republic of China (“PRC”).
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Zai Lab Limited
Notes toThe following table presents the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”)Company’s cash and Renminbi (“RMB”) except for number of shares and per share data)
4. Restricted cash,
non-current
The Group’s restricted cash balance of $743 and $743
equivalents as of March 31, 2021September 30, 2022 and December 31, 2020, respectively, was long-term2021 (in thousands):
September 30, 2022December 31, 2021
$$
Cash at bank and in hand818,407 663,472 
Cash equivalents (i)301,069 300,628 
 1,119,476 964,100 
Denominated in:  
US$1,072,376 932,888 
RMB (ii)41,138 23,791 
Hong Kong dollar (“HK$”)5,035 6,674 
Australian dollar (“A$”)579 475 
Taiwan dollar (“TW$”)348 272 
1,119,476 964,100 
(i)Cash equivalents represent short-term and highly liquid investments in a money market fund.
(ii)Certain cash and bank deposits held as collateral for issuancebalances denominated in RMB were deposited with banks in mainland China. The conversion of lettersthese RMB denominated balances into foreign currencies is subject to the rules and regulations of credit. These deposits will be released when the related letters of credit are settledforeign exchange control promulgated by the Group.
Chinese government.
5. Short-term investments
4. Inventories, net
Short-term investments are primarily comprised of time deposits with original maturities between
three months and
one year.
As of March 31, 2021, the Group held 0 short-term investment. As of December 31, 2020, the Group’s short-term investments consisted entirely of short-term held to maturity debt instruments with high credit ratings, which were determined to have no risk of expected credit loss. Accordingly
, 0
allowance for credit loss was recorded as of December 31, 2020. 
6. Inventories
The Group’sCompany’s net inventory balance of $12,629$29.1 million and $13,144
$19.0 million as of March 31, 2021September 30, 2022 and December 31, 2020,2021, respectively, mainly consisted of finished goods purchased from Tesaro Inc., now
GlaxoSmithKline
(GSK) (“GSK”), andfor distribution in Hong Kong, from NovoCure Limited (“NovoCure”) for distribution in Hong Kong and mainland China, and from Deciphera Pharmaceuticals, LLC (“Deciphera”) for distribution in Hong Kong, mainland China and Taiwan, as well as finished goods work in process and certain raw materials for ZEJULA and NUZYRA commercialization in mainland China.
The following table presents the Company’s inventories, net, as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022December 31, 2021
$$
Finished goods8,703 5,632 
Raw materials20,397 13,231 
Work in Progress31 88 
Inventories, net29,131 18,951 

   
As of
 
   
March 31,

2021
   
December 31,

2020
 
   
            $            
   
            $            
 
Finished goods
   2,703    3,041 
Raw materials
   9,588    10,103 
Work in process
   338    0   
           
Inventories
   12,629    13,144 
           
The Group write-downCompany writes down inventory for any excess or obsolete inventories or when the Group believeCompany believes that the net realizable value of inventories is less than the carrying value. During the three months ended March 31, 2021 and 2020, the GroupThe Company recorded write-downs of $43 and $NaN, respectively, in cost of revenues.
sales of $0.3 million and $0.5 million during the three and nine months ended September 30, 2022, respectively, and of $0.1 million and $0.4 million during the three and nine months ended September 30, 2021, respectively.
7. Investments in equity investees9
In June 2017, the Group entered into an agreement with 3 third-parties to launch JING Medicine Technology (Shanghai) Ltd. (“JING”), an entity which provides services for product discovery and development, consultation and transfer of pharmaceutical technology. The capital contribution by the Group was RMB26,250 in cash, which was paid by the Group in 2017 and 2018, representing 20% and 18% of the equity interest of JING as of December 31, 2020 and March 31, 2021 respectively. The Group accounts for this investment using the equity method of accounting due to the fact that the Group can exercise significant influence on the investee.

The Group recorded its gain on deemed disposal in this investee of 
$463 and share of loss of $268 for the three months ended March 31, 2021, and recorded share of loss in this investee of $137 for the three months ended March 31, 2020.
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements

(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
8.5. Property and equipment, net
PropertyThe following table presents the components of the Company’s property and equipment, consistnet as of the following:
September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022December 31, 2021
$
$
Office equipment818 836 
Electronic equipment6,744 5,036 
Vehicle198 220 
Laboratory equipment18,673 17,069 
Manufacturing equipment14,366 14,600 
Leasehold improvements10,160 10,432 
Construction in progress19,882 11,334 
70,841 59,527 
Less: accumulated depreciation(20,313)(16,425)
Property and equipment, net50,528 43,102 

   
As of
 
   
March 31,

2021
   
December 31,

2020
 
   
            $            
   
            $            
 
Office equipment
   428    430 
Electronic equipment
   2,876    2,646 
Vehicle
   194    143 
Laboratory equipment
   12,357    11,933 
Manufacturing equipment
   12,116    12,198 
Leasehold improvements
   9,642    9,641 
Construction in progress
   2,915    2,423 
           
    40,528    39,414 
Less: accumulated depreciation
   (11,512)    (10,252) 
           
Property and equipment, net
   29,016    29,162 
           
Depreciation expensesexpense was $2.1 million and $5.7 million for the three and nine months ended March 31,September 30, 2022, respectively, and $1.5 million and $4.3 million for the three and nine months ended September 30, 2021, and 2020 were $1,340 and $1,006, respectively.
9.6. Revenue
Product revenue, net
The Group’sCompany’s product revenue is primarily derived from the salesales of ZEJULA, Optune, QINLOCK, and OptuneNUZYRA in mainland China and Hong Kong. The table below presents the Group’sCompany’s net product sales for the three and nine months ended March 31,September 30, 2022 and 2021 and 2020.
(in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
$
$
$
$
Product revenue - gross60,446 47,555 168,095 135,490 
Less: Rebate and sales return(3,483)(4,452)(17,462)(35,349)
Product revenue - net56,963 43,103 150,633 100,141 

   
Three Months Ended March 31,
 
   
2021
   
2020
 
   
            $            
   
            $            
 
Product revenue - gross
   46,555    8,937 
Less: Rebate
   (26,452)    (719) 
           
Product revenue - net
   20,103    8,218 
           
Sales rebates are offered to distributors in mainland China, and the amounts are recorded as a reduction of revenue. Estimated rebates are determined based on contracted rates, sales volumes, and level of distributor inventories.


10

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
The following table disaggregatespresents net revenue by product for the three and nine months ended March 31,September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
$$$$
ZEJULA39,214 28,162 102,863 64,134 
Optune10,662 10,653 35,051 27,318 
QINLOCK5,541 4,288 9,123 8,689 
NUZYRA1,546 — 3,596 — 
Product revenue - net56,963 43,103 150,633 100,141 
Collaboration revenue
The Company’s collaboration revenue was $0.6 million and 2020:
$1.8 million for the three and nine months ended September 30, 2022, respectively, and nil for the three and nine months ended September 30, 2021. This collaboration revenue was from the Company’s collaborative arrangement with Huizheng (Shanghai) Pharmaceutical Technology Co., Ltd.
   
Three Months Ended March 31,
 
   
2021
   
2020
 
   
            $            
   
            $            
 
ZEJULA
   12,606    6,345 
Optune
   7,130    1,873 
Others
   367    —   
           
Total product revenue - net
   20,103    8,218 
           
10.7. Income Taxtax
No provision for income taxes has been required to be accrued because the Company and all of its subsidiaries are in cumulative loss positions for all the periods presented.
The Company recorded a full valuation allowance against deferred tax assets of all its consolidated entities because all entities were in a cumulative loss position as of March 31, 2021September 30, 2022 and December 31, 2020. NaN2021. No unrecognized tax benefits and related interest and penalties were recorded in any of the periods presented.
8. Other current liabilities
The following table presents the Company’s other current liabilities as of September 30, 2022 and December 31, 2021 (in thousands):
September 30,
2022		December 31,
2021
$$
 Payroll25,208 25,685 
 Accrued rebate to distributors8,843 15,001 
 Tax payables10,405 8,817 
 Accrued professional service fee5,927 4,319 
 Other (i)4,839 4,421 
 Payables for purchase of property and equipment3,234 2,568 
Total58,456 60,811 
(i)Other primarily consists of tax withholding related to share-based compensation and accrued travel and business entertainment expenses.
9. Loss per share

The following table presents the computation of the basic and diluted net loss per share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except share and per share data):
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements

(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
$$$$
Numerator:
Net loss attributable to ordinary shareholders(161,190)(96,412)(381,517)(492,646)
Denominator:
Weighted average number of ordinary shares - basic and diluted959,085,960 950,354,320 957,439,910 921,748,380 
Net loss per share - basic and diluted(0.17)(0.10)(0.40)(0.53)
11. Other current liabilities
Other current liabilities consist of the following:
   
As of
 
   
March 31,

2021
   
December 31,

2020
 
   
            $            
   
            $            
 
Payroll
   7,694    13,694 
Professional service fee
   3,274    3,128 
Payables for purchase of property and equipment
   439    788 
Advance from customers
   3,280    —   
Accrued rebate to distributors
   23,166    7,067 
Others (note (i))
   7,786    5,519 
           
Total
   45,639    30,196 
           
Note:
(i)
Others are mainly payables to employees for exercising the share-based compensations, tax payables, payables for purchase of intangible assets, and payables related to travel and business entertainment expenses and conference fee
.
12. Loss per share
Basic and diluted net loss per share for each of the period presented are calculated as follows:
   
Three Months Ended March 31,
 
   
2021
   
2020
 
Numerator:
                                                
Net loss attributable to ordinary shareholders
   (232,910)    (47,988) 
Denominator:
          
Weighted average number of ordinary shares- basic and diluted
   88,374,928    72,956,538 
           
Net loss per share-basic and diluted
   (2.64)    (0.66) 
           
As a result of the Group’sCompany’s net loss for the three and nine months ended March 31,September 30, 2022 and 2021, and 2020, share options and
non-vested
restricted shares outstanding in the respective periods were excluded from the calculation of diluted loss per share as their inclusion would have been anti-dilutive.
September 30,
2022		September 30,
2021
Share options90,511,530 81,801,570 
Non-vested restricted shares34,103,830 6,366,190 
   
As of
 
   
March 31,
2021
   
March 31,

2020
 
Share options
       8,693,274        9,903,396 
Non-vested
restricted shares
   480,010    725,068 
13.10. Related party transactions

The table below sets forth the major related party and the relationship with the Group as of March 31, 2021:
Company Name
Relationship with the Group
MEDx (Suzhou) Translational Medicine Co., Ltd.
(Formerly known as
Qiagen (Suzhou) translational
medicine Co., Ltd)
Significant influence held by Samantha Du’s (Director, Chairwoman and Chief Executive Officer of the Company) immediate family
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
For the three months ended March 31, 2021 and 2020, the Group incurred $103 and $55 research and development expense withexpenses for product research and development services provided by MEDx (Suzhou) Translational Medicine Co., Ltd. for product researchLtd (“MEDx”), over which an immediate family member of our Chief Executive Officer and development services, respectively. AllChairperson of the transactions are carried outBoard held significant influence. The Company incurred development expenses with normal business termsMEDx of an insignificant amount and are on arms’ length basis.
$0.3 million during the three and nine months ended September 30, 2022, respectively, and $0.1 million and $0.3 million, during the three and nine months ended September 30, 2021, respectively.
14.11. Share-based compensation
Share options
OnIn March 5, 2015, the Board of Directors of the Company approved an Equity Incentive Plan (the “2015 Plan”), pursuant to which is administered by the Board of Directors. Under the 2015 Plan, the Board of Directors maycould grant options to purchase ordinary shares to management including officers, directors, employees, and individual advisors who renderrendered services to the Group to purchase an aggregate of no more than 4,140,945 ordinary shares of the Group (“Option Pool”). Subsequently, the Board of Directors approved the increaseCompany. In August 2017, in the Option Pool to 7,369,767 ordinary shares.
In connection with the completion of the initial public offering (the “IPO”), of the Company, the Board of Directors has approved the 2017 Equity Incentive Plan (the “2017 Plan”) and all. All equity-based awards subsequent to the IPO would be granted under the 2017 Plan.
For The 2017 Plan provided for an automatic annual increase to the three months ended March 31, 2020
, the Group granted 842,500 share options to certain management, employees and individual advisorsnumber of the Group at the exercise price ranging from $44.94 to $51.48 per shareordinary shares reserved under the 2017 Plan. These options granted have a contractual termPlan on each January 1st between January 1, 2018 and January 1, 2027 equal to the lesser of
ten years
and generally vest over a five or
three-year
period, with 20% or 33.3% 4% of the awards vesting beginningnumber of ordinary shares outstanding as of the close of business on the anniversaryimmediately prior December 31st or such number as approved by the Board on or prior to such date one year after the grant date.
For the three months ended March 31, 
2021, the Group granted 15,100 share options to certain managementeach year. The aggregate number of shares reserved and employees of the Group at the exercise
price of
$162.02 per shareavailable for issuance under the 2017 Plan. These options granted have a contractual termPlan as of April 1, 2022 was 75,562,170.
ten years
and generally vest over a
five-year
period, with 20%On June 22, 2022, at the 2022 Annual General Meeting of Shareholders of the awards vesting beginningCompany (the “Annual General Meeting”), the Company’s shareholders approved the 2022 Equity Incentive Plan (the “2022 Plan”), which was previously approved by the Company’s Board of Directors on April 20, 2022, conditioned on and subject to (i) the dual primary listing of the Company on the anniversary date one year afterMain Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) and (ii) the grant date.
The weighted-average grant-date fair valuegranting of a waiver on Note 1 to Rule 17.03(9) of the optionsRules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Company’s voluntary conversion of its secondary listing status to primary listing status on the Hong Kong Stock Exchange became effective on June 27, 2022, and the waiver was granted in the
three months ended March 31, 
2021 and 2020 were $162.02 and $48.68 per share, respectively. The Group recorded compensation expense related to the optionsCompany in connection with the primary conversion. As such, the 2022 Plan became effective on June 27, 2022, and the aggregate number of $5,549 and $4,921 forshares that may be delivered in satisfaction of awards under the three months ended March 31, 2021 and 2020, respectively, which were classified in2022 Plan is 97,908,743 ordinary shares as of June 22, 2022. No new grants will be made under the
accompanying unaudited condensed 
consolidated statements 2015 Plan or the 2017 Plan as of operations as follows:
   
Three Months Ended March 31,
 
   
2021
   
2020
 
   
$
   
$
 
Selling, general and administrative
   3,259    2,744 
Research and development
   2,290    2,177 
           
Total
   5,549    4,921 
           
13
Tablethe effective date of Contents
the 2022 Plan.
12

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
As of March 31, 2021, there was $67,009 of total unrecognized compensation expense related to unvestedFor the nine months ended September 30, 2022, the Company granted 19,357,640 share options granted. That cost is expectedand 28,320,790 non-vested restricted shares to be recognizedcertain management and employees of the Company under the 2017 Plan. The share options were granted at an exercise price ranging from $2.95 to $6.29 per share. The share options granted were valued using the Black-Scholes model, and the weighted-average grant-date fair value was $2.84 per share.

The options granted have a contractual term of ten years and generally vest ratably over a weighted-averagefive-year period, with 20% of 1.41
years which is determined basedthe awards vesting on each anniversary of the number of shares and unrecognized years.
Non-vested
grant date. The non-vested restricted shares
For granted vest ratably over a five- or four-year period, with 20% or 25% of the three
months ended March 31, 
2020, 50,000 ordinary shares were authorized forawards vesting on each anniversary of the grant to the independent directors.date. The restricted shares will vest and be released from the restrictions in full on the first anniversary from the date of the agreement.once they vest. Upon termination of the independent directors’award holders’ service with the GroupCompany for any reason, any shares that are outstanding and not yet vested will be immediately forfeited.
forfeited unless otherwise set forth in an agreement between the Company and the award holder.

For the three
months ended March 31, 
2020, 12,000 ordinary shares were authorized for grant to certain management. One fifth of the restricted shares will vest and be released from the restrictions onUpon each yearly anniversary from thesettlement date of the agreement. Upon terminationshare awards, shares were withheld to cover the required withholding tax, which was based on the value of a share on the settlement date as determined by the closing price of the certain management’s service withADSs on the Grouptrading day of the applicable settlement date. The remaining shares after the withholding were delivered to the recipient. The amount remitted to the tax authorities for any reason, anyemployee tax obligations was reflected as a financing activity on the condensed consolidated statements of cash flows. These shares that are outstandingwithheld by the Company as a result of the net settlement were accounted for as treasury stock and not yet vested will be immediately forfeited.
considered issued and outstanding.
For the three
months ended March 31, 
2021, 19,260 ordinary shares were authorized for grant to the independent directors. The restricted shares will vest and be released from the restrictions in full on the first anniversary from the date of the agreement. Upon termination of the independent directors’ service with the Group for any reason, any shares that are outstanding and not yet vested will be immediately forfeited.

For the three
months ended March 31, 
2021, 3,100 ordinary shares were authorized for grant to certain management. One fifth of the restricted shares will vest and be released from the restrictions on each yearly anniversary from the date of the agreement. Upon termination of the certain management’s service
with the Group for any reason, any shares that are outstanding and not yet vested will be immediately forfeited.
The Group measured the fair value of the
non-vested
restricted shares as of respective grant dates and recognized the amount asStock-based compensation expense overhas been reported in the deemed service period using a graded vesting attribution model on a straight-line basis
.
As of March 31, 2021, there was $17,469 of total unrecognized compensation expense related to
non-vested
restricted shares. The Group recorded compensation expense related to the restricted shares
of $
1,769 and $1,542 for the three months ended March 31, 2021 and 2020, respectively, which were classified in the
accompanying unauditedCompany’s condensed
consolidated statements of operations and comprehensive loss as follows:follows (in thousands):
   
Three Months Ended March 31,
 
   
2021
   
2020
 
   
$
   
$
 
Selling, general and administrative
   1,211    1,068 
Research and development
   558    474 
           
Total
   1,769    1,542 
           
15. Accumulated other comprehensive income (loss)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
$$$$
Selling, general and administrative11,298 6,147 27,221 16,579 
Research and development7,809 4,409 18,521 11,527 
Total19,107 10,556 45,742 28,106 

As of September 30, 2022, there was unrecognized share-based compensation expense of $111.9 million related to unvested share options which the Company expects to recognize over a weighted-average period of 3.47 years.

As of September 30, 2022, there was unrecognized share-based compensation expense of $143.0 million related to unvested restricted shares which the Company expects to recognize over a weighted-average period of 3.70 years.
12. License and collaboration arrangements
The movementfollowing is a description of accumulated other comprehensive income (loss) is as follows:
the license and collaboration agreements for which the Company recorded expenses or made payments related to upfront or milestone fees during the three and nine months ended September 30, 2022.
Foreign currency

translation adjustments
$
Balance as of December 31, 2020
(14,524) 
Other comprehensive
income
2,900
Balance as of March 31, 2021
(11,624) 
License and collaboration agreement with GSK
14
In September 2016, the Company entered into a collaboration, development, and license agreement with Tesaro, Inc., a company later acquired by GSK, pursuant to which the Company obtained an exclusive sublicense under certain patents and know-how of GSK to develop, manufacture, and commercialize GSK’s proprietary PARP inhibitor, niraparib, in mainland China, Hong Kong, and Macau for the diagnosis and prevention of any human diseases or conditions (other than prostate cancer).
TableUnder the terms of Contentsthe agreement, in the third quarter of 2022, the Company made a development milestone payment of $3.5 million which was accrued in the fourth quarter of 2019 and a sales-based milestone payment of $8.0 million which was accrued in the fourth quarter of 2021, and accrued another development milestone of $4.0 million.
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousandsThe Company may be required to pay an additional aggregate amount of U.S. dollars (“$”)up to $28.0 million in development, regulatory, and Renminbi (“RMB”) except for number of shares and per share data)
16. Licenses and collaborative arrangement
The following is a descriptionsales-based milestones as well as certain royalties at tiered percentages rates ranging from mid- to high-teens on annual net sales of the Group’s significant ongoing collaboration agreements forlicensed products in the three months ended March 31, 2021.
licensed territory.
License and collaboration agreement with Deciphera Pharmaceuticals, LLCParatek Bermuda Ltd. (“Deciphera”Paratek”)
In June 2019,April 2017, the GroupCompany entered into a license and collaboration agreement with Deciphera,Paratek, pursuant to which itthe Company obtained both an exclusive license under certain patents and know-how of DecipheraParatek and an exclusive sub-license under certain intellectual property that Paratek licensed from Tufts University to develop, manufacture, and commercialize products containing ripretinibomadacycline (ZL-2401) as an active ingredient in Greater China in the field of the prevention, prophylaxis, treatment, cure or amelioration of any disease or medical condition in humans in Greater China.all human therapeutic and preventative uses other than biodefense.
Under the terms of the agreement, in the Group paid Deciphera an upfront license feefirst quarter of $20,000 and 2 milestone payments of $7,000, and accrued for2022, the Company made a milestone paymentspayment of $5,000. $6.0 million which was accrued in the fourth quarter of 2021 related to the regulatory approval of omadacycline for the treatment of adults with Acute Bacterial Skin and Skin Structure Infections and Community-Acquired Bacterial Pneumonia in mainland China in December 2021.
The Group also agreedCompany may be required to pay certainan additional development, regulatory and commercial milestone paymentsaggregate amount of up to an aggregate of $173,000,
and certain tiered royalties (from low-to-high teens on a percentage basis and subject to certain reductions) based on the net sales of the licensed products in the territory. 
The Group has the right to terminate this agreement at any time by providing written notice of termination to Deciphera.
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
License agreement with Turning Point Therapeutics Inc (“Turning Point”)
In July 2020,
the Group entered into an exclusive license agreement with Turning Point pursuant to which Turning Point exclusively licensed to the Group the rights to develop and commercialize products containing repotrectinib as an active ingredient in all human therapeutic indications, in Greater China.
Under the terms of the agreements, the Group paid an upfront 
payment of $25,000
to Turning Point. Turning Point is also eligible to receive up to 
$151,000
$40.5 million in development regulatory and sales milestones. Turning Point will also be eligiblesales-based milestones as well as certain royalties at tiered percentages rates ranging from low- to receive certain tiered royalties (from mid-to-high teens on a percentage basis and subject to certain reductions) basedmid-teens on annual net sales of repotrectinib in Greater China. 
The Group has the right to terminate this agreement at any time by providing written notice of termination to Turning Point.
In January 2021, the Group entered into a license agreement with Turning Point, which expanded their collaboration. Under the terms of the new agreement, the Group obtained exclusive rights to develop and commercialize TPX-0022, Turning Point’s MET, SRC and CSF1R inhibitor, in Greater China.
The Group paid an upfront license fee in the amount of $25,000 to Turning Point. The Group also agreed to pay certain development, regulatory and commercial milestone payments up to an aggregate of $336,000.
 Turning Point will also be eligible to receive certain tiered royalties (from mid-teens to low-twenties on a percentage basis and subject to certain reductions) based on annual net sales of TPX-0022 in Greater China. In addition, Turning Point will have the right of first negotiation to develop and commercialize an oncology product candidate discovered by the Group. 
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
License and collaboration agreement with Five Prime Therapeutics, Inc. (“Five Prime”)
In December 2017,
the Group entered into a license and collaboration agreement with Five Prime (a company later acquired by Amgen Inc.), pursuant to which it obtained an exclusive license under certain patents and know-how of Five Prime to develop and commercialize products containing Five Prime’s proprietary afucosylated FGFR2b antibody known as bemarituzumab (FPA144) as an active ingredient in the treatment or prevention of any disease or condition in humans in Greater China. 
Under the terms of the agreement, the Group made an upfront payment of
 $5,000
and a milestone payment of $
2,000
to Five
Prime. Additionally, the Group also agreed to pay further development and regulatory milestone payments of up to an aggregate
of
$37,000
to Five Prime
and certain tiered royalties (from high-teens to low-twenties on a percentage basis and subject to certain reductions) based on the number of patients the Group enrolls in the bemarituzumab study.
The Group has the right to terminate this agreement at any time by providing written notice of termination to Five Prime.
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
License agreement with Cullinan Pearl Corp. (“Cullinan”)
In December 2020,
the Group entered into a license agreement with Cullinan, a subsidiary of Cullinan Management, Inc., formerly Cullinan Oncology, LLC, pursuant to which it obtained an exclusive license under certain patents and
know-how
of Cullinan to develop, manufacture and commercialize products containing
CLN-081
as an active ingredient in all uses in humans and animals in Greater China
.
Under the terms of the agreement, the Group paid an upfront payment
of $20,000 to
Cullinan. Cullinan is also eligible to receive up
 to $211,000
in development, regulatory and sales-based milestone payments. Cullinan is also eligible to receive certain tiered royalties (from high-single-digit to
low-teen
tiered royalties on a percentage basis and subject to certain reductions) based on annual net sales of
CLN-081
in Greater China.
The Group has the right to terminate this agreement at any time by providing written notice of termination to Cullinan.
License agreement with Takeda Pharmaceutical Company Limited (“Takeda”)
In December 2020, the Group entered into an exclusive license agreement with Takeda. Under the terms of the license agreement, Takeda exclusively licensed to the Group the right to exploit products in the licensed field during the term.territory.
Under the terms of the agreement, the Group paid an upfront payment
of $6,000 t
o
Takeda. Takeda is also eligible to receive up
to $481,500 in development,
 regulatory and sales-based milestone payments. Takeda is also eligible to receive certain tiered royalties (from high-single-digit to
low-teen
tiered royalties on a percentage basis and subject to certain reductions) based on net sales of each product sold by selling party during each year of the applicable royalty term.
The Group has the right to terminate this agreement at any time by providing written notice of termination to Takeda.
Collaboration and license agreement with argenx BV (“argenx”)
In January 2021, the GroupCompany entered into a collaboration and license agreement with argenx. The Groupargenx pursuant to which the Company received an exclusive license to develop and commercialize products containing argenx’s proprietary antibody fragment, known as efgartigimod, in Greater China. The Group is responsible for the development of the licensed compound and licensed product, and will have the right to commercialize such licensed product in the territory.
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8
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
Pursuant to the collaboration and license agreement, a share issuance agreement was entered into between the GroupCompany and argenx. As the upfront payment to argenx, the GroupCompany issued
568,182 5,681,820 ordinary shares of the Company to argenx with a par value $0.00006of $0.000006 per share to argenx on the closing date of January 13, 2021. In determining the fair value of the ordinary shares at closing, the Company considered the closing price of the ordinary shares on the closing date and included a lack of marketability discount because the shares arewere subject to certain restrictions. The fair value of the shares on the closing date was determined to be $62,250$62.3 million in the aggregate. The Group recorded this upfront payment in research and development expenses.
In addition, the GroupCompany made a
non-creditable,
non-refundable
development cost-sharing payment of $75,000$75.0 million to argenx. Argenx is also eligible to receiveargenx during the first quarter of 2021.
Under the terms of the agreement, the Company made a cashmilestone payment of $25,000
upon$25.0 million in the first quarter of 2022 which was accrued in the fourth quarter of 2021 related to the first regulatory approval of afor the licensed product by the U.S. Food and Drug Administration for myasthenia gravis and(“FDA”) in December 2021.
The Company may be required to pay certain royalties at tiered royalties (frompercentages rates ranging from mid-teen to low-twenties on a percentage basis and subject to certain reductions) based on annual net sales of all licensed productproducts in the licensed territory.
Collaboration and license agreement with Mirati Therapeutics, Inc. (“Mirati”)

In May 2021, the Company entered into a collaboration and license agreement with Mirati pursuant to which the Company obtained the right to research, develop, manufacture, and exclusively commercialize adagrasib in Greater China.

Under the terms of the agreement, the Company made an upfront payment of $65.0 million to Mirati in the second quarter of 2021. In the third quarter of 2022, the Company made a development milestone payment of $5.0 million which was accrued in the second quarter of 2022 and accrued a development milestone payment of $5.0 million.

The Company may be required to pay an additional aggregate amount of up to $263.0 million in development, regulatory, and sales-based milestone payments as well as certain royalties at tiered percentage rates ranging from high-teens to low-twenties on annual net sales of adagrasib in Greater China.
14

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
License agreement with Karuna Therapeutics, Inc. (“Karuna”)
In November 2021, the Company entered into a license agreement with Karuna for the development, manufacturing, and commercialization of KarXT (xanomeline-trospium) in Greater China.
Under the terms of the agreement, the Company made an upfront payment of $35.0 million to Karuna in the fourth quarter of 2021. The Company also made a development milestone payment of $5.0 million in the third quarter of 2022 which was accrued in the second quarter of 2022.
The Company may be required to pay an additional aggregate amount of up to $147.0 million in development, regulatory, and sales-based milestone payments as well as certain royalties at tiered percentage rates ranging from low- to high-teens on annual net sales of licensed products in Greater China.
Collaboration and license agreement with Seagen Inc. (“Seagen”)

In September 2022, the Company entered into a collaboration and license agreement with Seagen, pursuant to which the Company and Seagen agreed to collaboratively develop and commercialize TIVDAK® (tisotumab vedotin). Under the agreement, the Company obtained an exclusive license to develop and commercialize TIVDAK in Greater China.
Under the terms of the agreement, the Company accrued an upfront payment of $30.0 million in the third quarter of 2022. The Company may be required to pay an additional aggregate amount of up to $263.0 million in development, regulatory, and sales-based milestone payments as well as certain royalties at tiered percentage rates ranging from mid-teens to low-twenties on annual net sales of licensed products in Greater China, subject to reduction under specified circumstances.
The agreement will remain in effect, unless earlier terminated, until the expiration of the last-to-expire royalty term for the last licensed product. The agreement contains customary provisions for termination by either party, including in the event of a material breach by the other party that remains uncured, by the Company for convenience, for certain bankruptcy events, and by Seagen upon a challenge of the licensed patent rights.
Full details of the licenses and collaborative arrangements, other than the agreement with Seagen which we entered into during the third quarter of 2022, are included in the notes to the financial statements in our 2021 Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 1, 2021.Report. As noted above, the GroupCompany has entered into various license and collaboration agreements with third party licensors to develop and commercialize product candidates. Based on the terms of these agreements, the GroupCompany is contingently obligated to make additional material payments upon the achievement of certain contractually defined milestones. Based on management’s evaluation of the progress of each project noted above, the licensors will be eligible to receive from the GroupCompany up to an aggregate of approximately
 $
2,871,396
$5,830.7 million in future contingent development and sales-based milestone payments upon the achievement of contractually specifiedas well as certain royalties at tiered percentage rates on annual net sales. The development milestones, such as regulatory approval for the product candidates, which may beoccur before the GroupCompany has commercialized the product or received any revenue from sales of such product candidate, whichcandidate. These milestone payments are subject to uncertainties and contingencies and may never occur
.
not occur.
17.13. Restricted net assets
The Group’sCompany’s ability to pay dividends may depend on the GroupCompany receiving distributions of funds from its Chinese subsidiary.subsidiaries. Relevant PRC statutoryChinese laws and regulations permit payments of dividends by the Group’s PRC subsidiaryCompany’s Chinese subsidiaries only out of its retained earnings, if any, as determined in accordance with PRCChinese accounting standards and regulations. The results of operations reflected in the unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Group’s PRC subsidiary.Company’s Chinese subsidiaries.
In accordance with the Company Law of the PRC,People’s Republic of China, a domestic enterprise is required to provide statutory reserves of at least
10% of its annual
after-tax
profit until such reserve has reached 50%
of its respective registered capital based on the enterprise’s PRCChinese statutory accounts. A domestic enterprise is also required tomay provide discretionary surplus reserve, at the discretion of the Board of Directors, from the profits determined in accordance with the enterprise’s PRC
15

Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
Chinese statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. The Group’sCompany’s Chinese subsidiary wassubsidiaries were established as domestic invested enterpriseenterprises and therefore isare subject to the above-mentioned restrictions on distributable profits.
During the three and nine months ended March 31,September 30, 2022 and 2021, and 2020, 0
no appropriation to statutory reserves was made because the Chinese subsidiarysubsidiaries had substantial losses during such periods.
As a result of these PRCChinese laws and regulations, subject to the limitlimits discussed above that require annual appropriations of 10% of
after-tax
income profit to be set aside, prior to payment of dividends, as general reserve fund, the Group’sCompany’s Chinese subsidiary issubsidiaries are restricted in their ability to transfer a portion of their net assets to the Group.Company.
Foreign exchange and other regulation in mainland China may further restrict the Group’sCompany’s Chinese subsidiarysubsidiaries from transferring funds to the GroupCompany in the form of dividends, loans, and advances. As of March 31, 2021September 30, 2022 and December 31, 2020,2021, amounts restricted are the paid-in capital of the Group’sCompany’s Chinese subsidiaries, which both amounted to
 $306,010 and $205,858
,
respectively
.
$406.0 million.
18.14. Commitments and Contingencies
(a) Purchase commitments
As of March 31, 2021,September 30, 2022, the Group’sCompany’s commitments related to purchase of property and equipment contracted but not yet reflected in the unaudited condensed consolidated financial statementstatements were $16,991$13.8 million and $5,507 which arewere expected to be incurred within one year and within one to two years, respectively.year.
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Zai Lab Limited
Notes to the unaudited condensed consolidated financial statements
(In thousands of U.S. dollars (“$”) and Renminbi (“RMB”) except for number of shares and per share data)
(b) Contingencies
The GroupCompany is a party to, or assignee of, license and collaboration agreements that may require it to make future payments relating to milestone fees and royalties on future sales of licensed products (Note 16)12).
15. Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date financial statements were issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

19. Subsequent Event
In April 2021, the Company closed an underwritten public offering of 4,776,000 American depositary shares (“ADSs”) at a price of $150.00 per ADS and 224,000 ordinary shares at a price of HK$1,164.20 per ordinary share. In addition, the underwriters fully exercised their option to purchase an additional 716,400 ADSs at the public offering price. Total proceeds, net of underwriting fees and offering expenses, were approximately $818,052.
In April 2021, the Group granted 479,363 share options to certain management and employees of the Group at the exercise
price of
 $130.96 per share under the 2017 Plan. These options granted have a contractual term of ten years and generally vest over a five-year
period, with 20% of the awards vesting beginning on the anniversary date one year after the grant date.
In April 2021, 188,150 ordinary shares were authorized for grant to certain management and employees of t
he Group.
One-fifth
of the re
stricted shares will vest and be released from the restrictions on each yearly anniversary from the date of the agreement. Upon termination of the certain management’s service with the Group for any reason, any shares that are outstanding and not yet vested will be immediately forfeited.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 2021 Annual Report and our unaudited condensed consolidated financial statements and the accompanying notes included in “Item 1. Financial Statements” in this Quarterly Report on Form 10-Q.
Overview
We are a commercial stage,patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are discovering, developing, and commercializing innovative products that target medical conditions with unmet needs affecting patients in Greater China and worldwide, particularly in the areas of oncology, autoimmune disorders, infectious diseases, and infectious diseases.neurological disorders. As of May 10, 2021,November 3, 2022, we have threefour commercialized products that have received marketing approval in one or more territories in Greater China and eleventhirteen programs in late-stage product development.

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations. Developing high quality product candidates requires a significant investment related to our research and development activities over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. Our ability to generate profits and to generate positive cash flow from operations over the next several years depends upon our ability to successfully market our current threefour commercial products – ZEJULA, Optune, QINLOCK, and QINLOCK
®
,NUZYRA – and to successfully develop and commercialize our other product candidates that we are able to successfully commercialize.candidates. We expect to continue to incur substantial expenses related to our research and development activities. In particular, our licensing and collaboration agreements require us to make upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory, and commercial milestones as well as tiered royalties based on theannual net sales of the licensed products. These upfront payments and milestone payments uponDuring the achievementnine months ended September 30, 2022, we recorded $50.2 million of certain development and regulatory milestones are recorded in research and development expense in our consolidated financial statementsrelated to upfront license fees and totaled $171.3 million for the three months ended March 31, 2021.development milestones payments. In addition, we expect to incur substantial costs related to the commercialization of our product candidates, in particular during the early launch phase.
Furthermore, as we pursue our strategy of growth and development, we anticipate that our financial results will fluctuate from quarter to quarter based upon the balance between the successful marketing of our commercial products and our significant research and development expenses. We cannot predict whether or when new products or new indications for marketed products will receive regulatory approval or, if any such approval is received, whether we will be able to successfully commercialize such product(s) and whether or when they may become profitable.
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Recent Developments

Recent Product Developments

Commercial Products

ZEJULA (Niraparib). Throughout this year, the FDA has been reviewing data on PARP inhibitors, and other companies have issued Dear HCP Letters in the U.S. as a result of ongoing discussions with the FDA. In September 2022, GSK disclosed that it was in discussions with the FDA to discuss overall survival (“OS”) data from GSK’s ENGOT-OV16/NOVA phase III clinical trial for adult patients with recurrent ovarian cancer irrespective of the gBRCA mutation. We do not expect the FDA’s discussions with GSK to impact our approval from the NMPA for ZEJULA in China. The NMPA’s full approval of ZEJULA in the recurrent ovarian cancer setting is based on a separate study, the NORA study, which is a Phase 3 randomized, double-blind, placebo-controlled study of ZEJULA that the Company independently conducted in China. While the NORA study is not fully mature, to date, favorable trends have been observed in OS irrespective of gBRCA mutation status. We expect to present this data at a future scientific congress. As a result, we do not anticipate that our second-line all-comer label in China will be affected by the FDA’s discussions with GSK. We also do not expect a change in our first-line label for ZEJULA; the FDA’s discussions with GSK do not apply to this indication.

Optune (Tumor Treating Fields or TTFields). As of September 30, 2022, Optune has been listed in 72 regional customized commercial health insurance plans guided by provincial or municipal governments (or “supplemental insurance plans”) since its commercial launch in China in the third quarter of 2020, compared to 25 supplemental insurance plans as of September 30, 2021.

QINLOCK. In August 2022, the recommendation level of QINLOCK for second-line treatments for advanced gastrointestinal stromal tumor (“GIST”) patients was advanced from Level III to Level II (1A evidence) in the Chinese
Recent Business Developments17
In January

Society of Clinical Oncology (“CSCO”) Guidelines for Diagnosis and Treatment of GIST 2022. As of September 30, 2022, QINLOCK has been listed in 96 supplemental insurance plans since its commercial launch in mainland China in May 2021, we entered into an exclusive development and commercialization agreement with argenx, a global immunology company, for efgartigimod in Greater China. Pursuantcompared to the terms28 supplemental insurance plans as of the agreement, we have agreed to fund and undertake all clinical development and regulatory submissionsSeptember 30, 2021. We are seeking inclusion of QINLOCK in the territories, participate in certain global studies, and plan to launch and commercialize the licensed product once approved. argenx receivedNRDL for a $75.0 million (before a lackfourth-line gastrointestinal stromal tumor indication.

NUZYRA. We are seeking inclusion of marketability discount) upfront paymentNUZYRA in the formNRDL for community-acquired bacterial pneumonia (“CABP”) and acute bacterial skin and skin structure infections (“ABSSSI”) indications.

Product Candidates – Oncology

Adagrasib. In September 2022, our partner Mirati presented results from KRYSTAL-1, a multicohort Phase 1/2 study evaluating adagrasib with or without cetuximab in patients with advanced colorectal cancer (“CRC”) harboring a KRASG12C mutation at the European Society for Medical Oncology Congress 2022. Of the evaluable patients in the adagrasib monotherapy cohort (n=43), the investigator assessed confirmed objective response rate (“ORR”) was 19% (8/43), and the disease control rate (“DCR”) was 86% (37/43). The median duration of 568,182 newly issued our ordinary shares calculated at a priceresponse (“DOR”) was 4.3 months (95% CI, 2.3–8.3), and median PFS was 5.6 months (95% CI, 4.1–8.3). Of the evaluable patients in the adagrasib plus cetuximab combination cohort (n=28), the investigator assessed confirmed ORR was 46% (13/28), and the DCR was 100% (28/28). The median DOR was 7.6 months (95% CI 5.7–NE), and median PFS was 6.9 months (95% CI, 5.4–8.1). The prognosis for patients with CRC has historically been poor in later lines of $132.00 per share,therapy with response rates of approximately 1-2% and received $75.0 millionmedian PFS of approximately 2 months in patients with late-line CRC; patients with KRASG12C-mutated CRC tend to have even worse outcomes than the broader CRC patient population. In the overall subset of patients with KRASG12C-mutated CRC evaluated in this study, adagrasib was found to be well-tolerated as a guaranteed
non-creditable,monotherapy and in combination with cetuximab. The majority of observed treatment-related adverse events (“TRAEs”) were grade 1-2 (59%); no grade 5 TRAEs were observed.
non-refundable
development cost-sharing payment, and will receive an additional $25.0 million milestone payment upon approval of efgartigimod in the United States. argenx is also eligible to receive tiered
royalties (mid-teen to low-twenties on
a percentage basis) based on annual net sales of efgartigimod in the licensed territories.
In addition, in January 2021,August 2022, we entered into an exclusive developmenttreated the first patient in Greater China for the global Phase 2 KRYSTAL-7 study of adagrasib in combination with pembrolizumab in first-line KRASG12C-mutated non-small cell lung cancer (“NSCLC”) patients.

Bemarituzumab. Our partner Amgen continues to enroll patients in several studies of bemarituzumab, including: FORTITUDE-101, a Phase 3 study of bemarituzumab plus chemotherapy, versus placebo plus chemotherapy in first-line gastric cancer with FGFR2b overexpression, and commercialization agreementFORTITUDE-102, the Phase 3 portion of the 1b/3 study of bemarituzumab plus chemotherapy and nivolumab versus chemotherapy and nivolumab in first-line gastric cancer with FGFR2b overexpression.

Repotrectinib. In October 2022, our partner Turning Point for
TPX-0022,
its MET, SRC and CSF1R inhibitor, in Greater China. Turning Point receivedTherapeutics (a wholly owned subsidiary of Bristol Myers Squibb Company) provided a $25.0 million upfront payment, and will receive up to approximately $336.0 million in potential development, regulatory and sales-based milestone payments. Turning Point will also be eligible to receive tiered royalties
(mid-teen-
to
low-twenties
on a percentage basis) based on annual net sales of
TPX-0022
in the licensed territories.
In March 2021, we received approvalclinical data update from the global, registrational Phase 1/2 TRIDENT-1 study of repotrectinib at the 34th EORTC-NCI-AACR (“ENA”) Symposium 2022. Repotrectinib continued to demonstrate meaningful clinical activity in patients with ROS1+ advanced NSCLC, who were tyrosine kinase inhibitor (“TKI”)-naïve or TKI-pretreated, including with ROS1 G2032R resistance mutation. Durable responses and intracranial efficacy were observed in both TKI-naïve and TKI-pretreated patients. Repotrectinib also continued to show clinical activity in patients with NTRK+ advanced solid tumors who were TKI-naïve or TKI-pretreated, and responses were seen across diverse tumor types. Safety is well characterized, manageable with known protocols, and signals potential compatibility with long-term use. Also in October 2022, we completed enrollment in China National Medical Products Administration (NMPA)in all cohorts of the registrational Phase 1/2 TRIDENT-1 study.

BLU-945. In November 2022, our partner Blueprint Medicines Corporation presented an update on the Phase 1/2 SYMPHONY trial data supporting plans to develop BLU-945 in combination with osimertinib in first-line epidermal growth factor receptor (“EGFR”) L858R mutation-positive NSCLC.

Global R&D Oncology Programs. In November 2022, we presented data from our internal oncology pipeline at the Society for Immunotherapy of Cancer (“SITC”) Annual Meeting in Boston, Mass. These presentations focus on two key global discovery programs: ZL-1211, an anti-CLDN18.2 antibody, and ZL-1218, an anti-CCR8 antibody.

Product Candidates – Autoimmune Disorders

VYVGART (Efgartigimod). In September 2022, our New Drugpartner argenx announced the submission of a Biologics License Application to the FDA for QINLOCKsubcutaneous efgartigimod for the treatment of generalized myasthenia gravis (“gMG”) in adult patients and that the European Commission has granted marketing authorization for VYVGART as an add-on to standard therapy for the treatment of adult patients with advanced gastrointestinal stromal tumorsgMG who have received prior treatment with three or more kinase inhibitors, including imatinib.are anti-acetylcholine receptor antibody positive. As of November 1, 2022, VYGART has been listed in 10 supplemental insurance plans in China.

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ZL-1102. In September 2022, we presented results of the Phase 1 proof-of-concept study for ZL-1102 at the 2022 European Academy of Dermatology and Venereology Congress in Milan, Italy.

Product Candidates – Neuroscience

KarXT. In September 2022, we obtained agreement from the NMPA on the development plan of a bridging study in schizophrenia in China. In October 2022, we started patient enrollment for a pharmacokinetic (“PK”) study of KarXT in China.

In April 2021,the third quarter of 2022, our partner Karuna initiated the Phase 3 ADEPT-1 study evaluating KarXT as a treatment for psychosis in Alzheimer’s disease, and in the fourth quarter of 2022, Karuna completed enrollment in the Phase 3 EMERGENT-3 trial in schizophrenia. In addition, in October 2022, Karuna announced that data from the Phase 3 EMERGENT-2 trial of KarXT in schizophrenia was shared at the 35th European College of Neuropsychopharmacology Congress in Vienna, Austria. A poster presentation and symposium included previously reported efficacy and safety data, as well as new additional safety data from the trial.

Recent Business Developments

In September 2022, we successfully completedentered into a global
follow-on
offeringcollaboration and license agreement with Seagen for the development and commercialization of our American Depositary SharesTIVDAK (tisotumab vedotin) in Greater China. TIVDAK is the first and ordinary shares and raised approximately $857.5 million, not including underwriting discounts and commissions and other offering expenses.
Recent Regulatory Developments
PRC Medical Device Regulations
The sale and marketing of imported medical device productsonly anti-body drug conjugate (“ADC”) approved in China are subject to notifications (for Class I devices) or registrations (for Class II and III devices) with the NMPA. We launched Optune in China in June 2020 after the NMPA approved Optune in May 2020 in combination with temozolomideUnited States for the treatment of patients with newly diagnosed GBM and also as a monotherapy for the treatment ofadult patients with recurrent GBM. Optuneor metastatic cervical cancer with disease progression on or after chemotherapy and is regulatedan important addition to our oncology portfolio.

In the second half of 2022, we have continued to enhance our global leadership team. For example, Dr. Peter Huang joined the Company from Zentalis Pharmaceuticals in November as Chief Scientific Officer. Dr. Huang brings to the Company an extensive scientific background and strong leadership and research and development experience, including over 16 years working within the biopharmaceutical industry. Dr. Huang will be a Class III imported medical devicekey member of the Company’s executive management team and is responsible for leading and overseeing the Company’s discovery efforts and translational medicine. In addition, Alette Verbeek joined the Company from Novartis in October as SVP, Head of Global Strategic Partnering. She is our first employee based in Europe and is responsible, among other things, for leading our European business development efforts.

In November 2022, The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) approved the Company’s transition from a listing under Chapter 18A of the Listing Rules of the Hong Kong Stock Exchange (Biotech Companies) to a general listing under Rule 8.05(3) of the Listing Rules (Qualifications for Listing), as the Company has satisfied applicable revenue and market capitalization requirements for listing outside of Chapter 18A. As a result of this approval, the “B” marker will be removed from the Company’s stock short name on the Hong Kong Stock Exchange, effective November 11, 2022.

Recent Legal and Regulatory Developments

Measures on Security Assessment of Cross-Border Data Transfer

On July 7, 2022, the CAC issued the “Security Assessment Measures”, which sets out a security assessment framework for cross-border data transfers out of mainland China as well as ground rules for a security assessment filing for cross-border data transfers which was stipulated in the Cybersecurity Law and the Personal Information Protection Law.

A security assessment will be triggered if a cross-border data transfer out of mainland China falls into any of the following scenarios: (i) transfer of important data by data processors; (ii) transfer of personal information (“PI”) by critical information infrastructure operators (“CIIOs”) and data processors that process PI of more than one million individuals; (iii) transfer of PI by data processors that have transferred either PI of over 100,000 individuals or sensitive PI of over 10,000 individuals abroad since January 1 of the preceding year; and (iv) other situations as determined by the CAC. According to statements by the CAC, a cross-border data transfer includes (i) an outbound transfer and overseas storage of data collected and generated during a data processor’s operation in mainland China; and (ii) a remote access or use of data collected and generated by a data processor stored within mainland China by overseas institutions, organizations, and individuals.

Prior to applying for a security assessment with the CAC, data processors are required to carry out a self-risk assessment, which needs to be presented to the CAC along with an application filing and other required materials for a security assessment. During a security assessment, the CAC will primarily focus on risks to national security, public interests, and the legitimate rights and interests of individuals or organizations that such cross-border data transfer may
19

cause. A cross-border data transfer of relevant data will not be allowed if the CAC does not approve the security assessment filing. Once the CAC approves the security assessment filing, such approval will remain valid for two years and may be renewed. An application for security assessment needs to be re-submitted if there is a change in the cross-border data transfer that may affect the security of the exported data, such as changes in the purpose, method, scope, and type of the exported data and changes in the purpose and method of the processing of the exported data by overseas recipients.

The Security Assessment Measures have retroactive effect for cross-border data transfers out of mainland China of relevant data conducted prior to their effective date on September 1, 2022. If a Data Processor fails to complete its security assessment for any of its cross-border data transfers of relevant data out of mainland China prior to the effective date of the Security Assessment Measures, it needs to rectify the failure within six months after the effective date of the Security Assessment Measures.

Proposed Amendments to the Cybersecurity Law of the People’s Republic of China

On September 14, 2022, the CAC published a draft amendment to China’s Cybersecurity Law for public comment. According to the CAC, the draft revisions were formulated to align the Cybersecurity Law with several new laws that were released after the Cybersecurity Law came into effect in June 2017. These new laws include the Administrative Punishment Law of the People’s Republic of China, the Data Security Law of the People’s Republic of China, and we actthe Personal Information Protection Law of the People’s Republic of China, all of which were adopted or amended in 2021.

The draft amendment mainly proposes revisions to Chapter VI of the Cybersecurity Law on legal responsibility which adjust the types and ranges of administrative penalties for violating the Cybersecurity Law that endanger network security and strengthens the network security responsibilities of CIIOs. Generally, the fines and penalties available to be imposed by Chinese regulators have been significantly increased and expanded. The proposed revisions also defer to the legal liability provisions under relevant laws or administrative regulations with respect to violations of the Cybersecurity Law provisions relating to the illegal use of networks, overseas transfers of data by critical information infrastructure operations, and personal information protection.

Guide to Applications for Security Assessment of Outbound Data Transfers (First Edition)

On August 31, 2022, the CAC promulgated the first edition of the Guide to Applications for Security Assessment of Outbound Data Transfers (the “Guide”). The Guide provides practical guidance to the implementation of the Security Assessment Measures, which sets out a security assessment framework for cross-border data transfers out of mainland China.

The Guide reiterates the timeline and procedures for applications for security assessment of outbound data transfers under the Security Assessment Measures. The Guide specifies the dossier requirements for applications for security assessment and provides templates for some required documents. Prior to submitting an application for security assessment, the applicant must first conclude an outbound data transfer contract with the overseas recipient of the data transfer and conduct a self-assessment of the risks of the outbound data transfer. Additionally, the Guide clarifies that the application of security assessment shall be submitted to provincial branches of the CAC, who will forward it to the CAC for further review and assessment.

The Guide also clarifies that a cross-border data transfer out of mainland China includes where a data processor stores data collected or generated in its operations in mainland China to an overseas recipient, and where a data processor allows an overseas entity, organization, or individual to access, retrieve, download, or export data the data processor collects or generates and stores in mainland China.

Measures for the Supervision and Administration of Online Drug Sales

On September 1, 2022, the SAMR announced the Measures for the Supervision and Administration of Online Drug Sales (the “Measures”), which will take effect as of 1 December 2022. The Measures set out a comprehensive regulatory framework for the Chineseonline sale of drugs, including the online sale of prescription drugs and the regulation of trading platforms that engage in the online sale of drugs.

The Measures include six chapters and 42 articles. The main sections include: (i) the obligations, qualifications, and responsibilities of online drug sellers; (ii) the responsibilities of trading platforms for online drug sales; (iii) the supervision and management of online sales of prescription drugs; (iv) the division of responsibilities of drug regulators at all levels in the supervision of online drug sales; and (v) the legal agentliability for our collaboration partner, Novocure, who is the foreignillegal online drug sales. Notably, both drug marketing authorization holder (MAH)holders and drug distributors can qualify as online drug sellers. Online sale of prescription drugs is permitted,
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but drug retailers and providers of trading platforms for Optunethe online sale of prescription drugs must abide by the regulatory requirements specified in China. We are preparing to submitthe Measures.

PRC Anti-Monopoly Law

On June 24, 2022, the Standing Committee of the National People’s Congress published amendments to the NMPA a Marketing Authorization ApplicationPRC Anti-Monopoly Law (the “AML”), which came into effect on August 1, 2022. The amended AML formally implements China’s latest anti-monopoly policies by, among other things, improving regulatory rules for Optune Luaanti-competitive agreements, expressly addressing monopoly issues in the platform economy, and substantially increasing the penalties for violating the treatment of unresectable, locally advanced or metastatic malignant pleural mesothelioma.
law.

The Chinese State Council passed new Medical Device Regulations (State Council Order #739), or Order #739, to replaceimprovements of the existing Medical Device Regulations (State Council Order #680), or Order #680. Order #739 was recently publishedregulatory rules for anti-competitive agreements made by the National Medical Products Administration (NMPA)amended AML mainly includes: (i) expressly stipulating that an agreement which fixes or limits resale prices, that is, a vertical anti-competitive agreement, is not prohibited if relevant business operators can prove that such agreement does not have the effect of eliminating or restricting competition; (ii) formally provides the “safe harbor” regime which stipulates that a vertical anti-competitive agreement is not prohibited, if the parties’ market share in the relevant market is lower than the market share percentage set by the anti-monopoly enforcement agency and will become effective on June 1, 2021. Order #739 largely followsother conditions established by the legislative structure of Order #680. We, asanti-monopoly enforcement agency are met; (iii) codifies that business operators shall not organize other business operators to reach a monopoly agreement or provide substantial assistance for other business operators to reach a monopoly agreement.

The amended AML formally extends the Chinese legal agent for Optune in China, are subjectanti-monopoly regulatory regime to the statutory compliance requirements under Order #680platform economy by outlining the general principal that business operators shall not engage in monopolistic activities, such as by taking advantage of data and algorithms, technology, capital advantage, and platform rules. The amended AML also specifically prohibits business operators from abusing market dominance, such as by using data and algorithms, technology, and platform rules.

Penalties for violation of the AML have been substantially increased by the amended AML. For example, according to the amended AML, if a company completes a concentration of business in violation of the AML that will have or is likely to have the effect of eliminating or restricting competition, in addition to other remedial measures, a fine of up to 10% of the last year’s sales revenue may be subject to similar requirements under Order #739. The following updates from Order #739 we believe areimposed. If the most relevant to our compliance obligations and ourconcentration of business operations in China:
Chinese legal agent
. Under Order #739, foreign device MAHs will still need to appoint a Chinese legal entity to submit regulatory applications and correspond with regulatory authorities. Nevertheless,violation of the local appointees may only need to play a secondary role to assistAML completed by the foreign device MAHs in the performance of compliance obligations under Order #739.
Liabilities for non-compliance
. Order #739 significantly increases MAH’s liabilities for non-compliance. Order #739 also introduces personal liability on the legal representatives, main responsible persons, directly responsible supervisors or other personnel of MAHs. While Order #680company does not differentiatehave the liabilityeffect of local legal agents from the foreign device MAHs, Order #739 makes it clear that local appointees will assumeeliminating or restricting competition, a lesser degreefine of liability compared to the foreign device MAHs. If local appointees fail to perform the statutory responsibilities and obligations on behalf of the MAHs, they will be subject to administrative fines up to RMB 0.55 million and their responsible personnel will onlymay be subject to a five-year debarment.imposed. In comparison, foreign MAHs who refuse to fulfill the administrative penalties can result in a ten-year import ban.
MAH system
. The MAH system will be rolled out nationwide. MAHs will be responsible for the safety and effectiveness of their products during the entire product life cycle. They must establish a quality management system and ensure its effectiveness, define and implement a post-approval study and risk control plan, conduct adverse event monitoring and re-evaluation, establish and implement the product tracing and recall system, and fulfill other statutory obligations imposed by the NMPA.
Clinical evidence
. The NMPA will allow versatile clinical evidence to demonstrate product safety and effectiveness. Such evaluation can be based on clinical study data or analysis of clinical literature and clinical data on predicate devices.
Expanded access
. Expanded access to investigational devices will be made available for patients in the study sites upon ethics committee approval and the patients’ giving informed consent, providedcase that the investigational devices are used for critical, life-threatening diseases without an effective treatment methodaforementioned violation has particularly serious circumstances, bad impact, or consequences, the fine imposed may be further increased to between two and can confer clinical benefits on patients based on medical judgment.
five times the aforementioned fine amount.
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PRC Biosecurity Law
On April 15, 2021, the PRC Biosecurity Law took effect.
Factors Affecting ourOur Results of Operations
Research and Development Expenses
We believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Developing high quality product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of product candidates has been steadily advancing and expanding, with eleventhirteen late-stage clinical product candidates being investigated.
investigated as of September 30, 2022.
To date, weWe have financed our activities primarily through private placements, our initial public offering on Nasdaq in September 2017, multiple follow-on offerings, and a secondary listing on the Hong Kong Stock Exchange of Hong Kong and multiple follow-on offerings.in September 2020. Through March 31, 2021,September 30, 2022, we have raised approximately $164.6 million infrom private equity financing and approximately $1,644.6$2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us infrom our initial public offering, ourfollow-on offerings, and secondary listing and our follow-on offerings.listing. Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $169.5$258.4 million and $39.8$396.2 million for the threenine months ended March 31,September 30, 2022 and 2021, and March 31, 2020, respectively. We expect our expenditures to increase significantly in connection with our ongoing activities, particularly as we advance the clinical development of our eleventhirteen late-stage clinical product candidates, and continue research and development ofdevelop our clinicalclinical- and pre-clinical-stage product candidates, and initiate additional clinical trials of, and seek regulatory approval for, these and other future product candidates. We review such expenditures for prioritization and efficiency purposes. These expenditures include:
•expenses incurred for payments to CROs,contract research organizations (“CROs”), contract manufacture organizations (“CMOs”), investigators, and clinical trial sites that conduct our clinical studies;
•employee compensation related expenses, including salaries, benefits, and equity compensation expense;
expenses;
•expenses for licensors;
•the cost of acquiring, developing, and manufacturing clinical study materials;
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•facilities depreciation and other expenses, which include office leases and other overhead expenses;
•costs associated with pre-clinical activities and regulatory operations;
•expenses associated with the construction and maintenance of our manufacturing facilities; and
•costs associated with operating as a public company.
The Company is in the process of evaluating its development programs and is developing a series of recommendations for prioritizing these programs to concentrate our resources on programs that have the greatest potential to beneficially impact patients, strengthen our global competitiveness, and provide long-term sustainability.
Selling, General, and Administrative Expenses
Our selling, general, and administrative expenses consist primarily of personnel compensation and related costs, including share-based compensation for commercial and administrative personnel. Other selling, general, and administrative expenses include product distribution and promotion costs, professional service fees for legal, intellectual property, consulting, auditing, and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies used in selling, general, and administrative activities. We anticipate that our selling, general, and administrative expenses will increase in future periods to support increases in our commercial and research and development activities and as we continue to commercialize, develop, and manufacture our products and assets. These increases will likely include increased headcount, increased shareshare-based compensation charges, increased product distribution and promotion costs, expanded infrastructure, and increased costs for insurance. We also incur increasedanticipate incurring additional legal, compliance, accounting, and investor and public relations expenses associated with being a public company.
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Our Ability to Commercialize Our Product Candidates
As of March 31, 2021, elevenNovember 3, 2022, thirteen of our product candidates are in late-stage clinical development and various others are in clinical and pre-clinical development in Greater China and the United States. Our ability to generate revenue from our product candidates is dependent on theirour receipt of regulatory approvalapprovals for and successful commercialization of such products, which may nevernot occur. Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvalapprovals in multiple jurisdictions, manufacturing supply, substantial investment, and significant marketing efforts before we generate any revenue from product sales.
Our License Arrangements
Our results of operations have been, and we expect them to continue to be, affected by our licensing, collaboration, and development agreements. We are required to make upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory, and commercial milestones for the relevant productproducts under these agreements as well as tiered royalties based on theannual net sales of the licensed products. These upfront payments and milestone payments upon the achievement of certain development and regulatory milestones areWe recorded in research and development expense in our unaudited condensed consolidated financial statementsrelated to upfront license fees and totaled $171.3development milestone payments of $39.8 million and $9.2$50.2 million for the three and nine months ended March 31, 2021September 30, 2022, respectively, and 2020, respectively.
Key Components of Results of Operations
Taxation
Cayman Islands
Zai Lab Limited is incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on profits, income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject to withholding tax in the Cayman Islands. For more information, see “Taxation—Material Cayman Islands Taxation” in our Annual Report on Form 10-K for the year ended December 31, 2020.
People’s Republic of China
Our subsidiaries incorporated in China are governed by the EIT Law$5.1 million and regulations. Under the EIT Law, the standard EIT rate is 25% on taxable profits as reduced by available tax losses. Tax losses may be carried forward to offset any taxable profits for up to following five years. For more information, see “Taxation—Material People’s Republic of China Taxation” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Hong Kong
Our subsidiaries incorporated in Hong Kong are subject to
two-tiered
tax rates$274.3 million for the three and nine months ended March 31,September 30, 2021, respectively.

The COVID-19 Pandemic

Our results of operations have been, and 2020we expect them to continue to be, adversely affected by the effects of the COVID-19 pandemic, including government actions and quarantine measures taken in response, particularly in mainland China where our operations and product markets are primarily located. For example, the COVID-19 pandemic has adversely affected patient access to our products, such as through reduced hospital patient load, fewer newly diagnosed oncology patients, and delayed or interrupted treatments. The COVID-19 pandemic has also adversely affected our manufacturing and supply chain and our research and development, sales, marketing, and clinical trial activities. The operations of our suppliers, CROs, CMOs, and other contractors and third parties on assessable profits earnedwhich we rely also have been, and may continue to be, adversely affected. Although our net product revenues increased in Hong Kong where the profits tax rate for the first HK$2 million of assessable profits is subject to profits tax rate of 8.25% and the assessable profits above HK$2 million is subject to profits tax rate of 16.5%. Our subsidiaries incorporated in Hong Kong did not have assessable profit for the three and nine months ended March 31, 2021September 30, 2022, as compared to the same periods in the prior year, these revenue increases were negatively affected by the effects of the pandemic, and 2020.we expect some additional residual revenue impacts in the fourth quarter of 2022 and perhaps beyond.
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Results of Operations

The following table sets forth a summary ofsummarizes our consolidated results of operations for the periods indicated. This information should be read together with our unaudited condensed consolidated financial statementsthree and related notes included elsewhere in this Quarterly Report. Our operating results in any period are not necessarily indicativenine months ended September 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
Revenues:
Product revenue, net56,963 43,103 13,860 32 %150,633 100,141 50,492 50 %
Collaboration revenue577 — 577 100 %1,806 — 1,806 100 %
Total revenues57,540 43,103 14,437 33 %152,439 100,141 52,298 52 %
Expenses:
Cost of sales(20,044)(12,162)(7,882)65 %(53,094)(30,535)(22,559)74 %
Research and development(99,524)(55,144)(44,380)80 %(219,462)(401,220)181,758 (45)%
Selling, general, and administrative(66,555)(59,002)(7,553)13 %(186,947)(149,254)(37,693)25 %
Loss from operations(128,583)(83,205)(45,378)55 %(307,064)(480,868)173,804 (36)%
Interest income3,872 713 3,159 443 %5,235 1,171 4,064 347 %
Other income (expenses), net(36,479)(13,580)(22,899)169 %(79,467)(12,401)(67,066)541 %
Loss before income tax and share of loss from equity method investment(161,190)(96,072)(65,118)68 %(381,296)(492,098)110,802 (23)%
Income tax expense— — — — %— — — — %
Share of loss from equity method investment— (340)340 (100)%(221)(548)327 (60)%
Net loss(161,190)(96,412)(64,778)67 %(381,517)(492,646)111,129 (23)%
Net loss attributable to ordinary shareholders(161,190)(96,412)(64,778)67 %(381,517)(492,646)111,129 (23)%

Revenues
Product Revenue, Net

The table below presents the components of the results that may be expectedCompany’s product revenue, net for any future period.
the three and nine months ended September 30, 2022 and 2021 (in thousands):
(in thousands, except share and per share data)
  
Three months ended March 31,
 
  
2021
  
2020
 
Comprehensive Loss Data:
         
Revenue
  $20,103  $8,218 
Expenses:
         
Cost of sales
   (7,505)   (2,084) 
Research and development
   (203,852)   (33,742) 
Selling, general and administrative
   (35,838)   (18,714) 
          
Loss from operations
  $(227,092)  $(46,322) 
Interest income
   214   1,655 
Interest expenses
   —     (59) 
Other expense, net
   (6,227)   (3,125) 
          
Loss before income tax and share of loss from equity method investment
  $(233,105)  $(47,851) 
Income tax expense
   —     —   
Share of gain (loss) from equity method investment
   195   (137) 
          
Net loss attributable to ordinary shareholders
  $(232,910)  $(47,988) 
Weighted-average shares used in calculating net loss per ordinary share, basic and diluted
   88,374,928   72,956,538 
Net loss per share, basic and diluted
  $(2.64)  $(0.66) 

Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
Product revenue - gross$60,446 $47,555 $12,891 27 %$168,095 $135,490 32,605 24 %
Less: Rebate and sales return(3,483)(4,452)969 (22)%(17,462)(35,349)17,887 (51)%
Product revenue - net56,963 43,103 13,860 32 %150,633 100,141 50,492 50 %
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Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Revenue
Our product revenue is primarily derived from the salesales of ZEJULA, Optune, QINLOCK, and OptuneNUZYRA in mainland China and Hong Kong. Our net product revenue increased by $13.9 million and $50.5 million in the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, respectively. These net revenue increases were driven by increased sales volumes, although these increased volumes were negatively affected by the effects of the COVID-19 pandemic, including government restrictions or lockdown measures in mainland China, which negatively affected patient access to our products. These net revenue increases were also driven by a decrease in sales rebates related to product price reductions.

Sales rebates are offered to distributors in mainland China and the amounts are recorded as a reduction of revenue. Estimated rebates are determined based on contracted rates, sales volumes, and level of distributor inventories. The amount of revenueCompany lowered the selling price of ZEJULA in December 2020 when it was included in the NRDL and again in December 2021 as a result of an extension in ZEJULA’s indications. Accordingly, the Company accrued nil and $2.8 million for the three months ended March 31, 2021, was adjusted by the normal processsales rebates as compensation to distributors in mainland China to compensate distributors for those products recentlypreviously sold at pricesthe price prior to the NRDL implementation during the three and nine months ended September 30, 2022, respectively, and nil and $22.0 million during the three and nine months ended September 30, 2021, respectively.

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The Company is scheduled to enter into negotiations with the National Reimbursement Drug List (“NRDL”) implementation. Healthcare Security Administration regarding potential inclusion of QINLOCK and NUZYRA in the NRDL, and in June 2022, the Company lowered the selling price for these products. Accordingly, the Company accrued nil and $2.4 million for sales rebates as compensation to distributors previously sold at the price prior to the reduction for QINLOCK during the three and nine months ended September 30, 2022, respectively, and nil and $0.2 million for NUZYRA during the three and nine months ended September 30, 2022, respectively.

The following table disaggregatespresents net revenue by product for the three and nine months ended March 31,September 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
ZEJULA$39,214 $28,162 $11,052 39 %$102,863 $64,134 38,729 60 %
Optune10,662 10,653 9 — %35,051 27,318 7,733 28 %
QINLOCK5,541 4,288 1,253 29 %9,123 8,689 434 5 %
NUZYRA1,546 — 1,546 — %3,596 — 3,596 — %
Total product revenue, net$56,963 $43,103 $13,860 32 %$150,633 $100,141 $50,492 50 %
Collaboration Revenue
Collaboration revenue increased by $0.6 million to $0.6 million for the three months ended September 30, 2022 from nil for the three months ended September 30, 2021. Collaboration revenue increased by $1.8 million for the nine months ended September 30, 2022 from nil for the nine months ended September 30, 2021. These increases were due to our collaborative arrangement with Huizheng (Shanghai) Pharmaceutical Technology Co., Ltd.
Cost of Sales
Cost of sales increased by $7.9 million to $20.0 million for the three months ended September 30, 2022 from $12.2 million for the three months ended September 30, 2021, and 2020:increased by $22.6 million to $53.1 million for the nine months ended September 30, 2022 from $30.5 million for the nine months ended September 30, 2021. These increases were primarily due to increasing sales volume, higher product costs, and higher royalties.
(in thousands)
  
Three months ended March 31,
 
  
      2021      
   
%
   
      2020      
   
%
 
ZEJULA
  $12,606    62.7   $6,345    77.2 
Optune
   7,130    35.5    1,873    22.8 
Others
   367    1.8    —      —   
                     
Total product revenue—Net
  $20,103    100.0   $8,218    100.0 
                     
Research and Development Expenses
The following table sets forth the components of our research and development expenses for the periods indicated.
three and nine months ended September 30, 2022 and 2021 (in thousands, except percentages):
(in thousands)
  
Three months ended March 31,
 
      2021      
   
%
   
      2020      
   
%
 
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
Research and development expenses:
            Research and development expenses:
Personnel compensation and related costs
  $12,697    6.2   $10,004    29.6 Personnel compensation and related costs$28,478 $20,564 $7,914 38 %$80,325 $50,543 $29,782 59 %
Licensing fees
   171,282    84.0    9,240    27.4 Licensing fees39,769 5,051 34,718 687 %50,205 274,299 (224,094)(82)%
Payment to CROs/CMOs/Investigators
   15,526    7.6    9,830    29.1 
CROs/CMOs/Investigators expensesCROs/CMOs/Investigators expenses23,407 17,102 6,305 37 %70,325 52,246 18,079 35 %
Other costs
   4,347    2.2    4,668    13.9 Other costs7,870 12,427 (4,557)(37)%18,607 24,132 (5,525)(23)%
                
Total
  $203,852    100.0   $33,742    100.0 Total$99,524 $55,144 $44,380 80 %$219,462 $401,220 $(181,758)(45)%
                
Research and development expenses increased by $170.2$44.4 million to $203.9$99.5 million for the three months ended March 31, 2021September 30, 2022 from $33.7$55.1 million for the three months ended March 31, 2020. TheSeptember 30, 2021 primarily due to:
•an increase of $34.7 million in researchlicensing fees in connection with the increased upfront and development expenses included the following:
milestone payments for our license and collaboration agreements;
$2.7•an increase of $7.9 million for increasedin personnel compensation and related costs which was primarily attributable to increased employee compensation costs, due to hiring of more personnel during the three months ended March 31, 2021headcount growth and the grants of new share options and restricted shares and the continued vesting of restricted shares to certain employees;
those awards;
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•an increase of $6.3 million in CROs/CMOs/Investigators expenses related to ongoing and newly initiated clinical trials.
Research and development expenses decreased by $162.0181.8 million to $219.5 million for increasedthe nine months ended September 30, 2022 from $401.2 million for the nine months ended September 30, 2021 primarily due to:
•a decrease of $224.1 million in licensing fees in connection with thedecreased upfront payments for new licensinglicense and collaboration agreements as well as certaindecreased milestone fees;
payments; partially offset by
•an increase of $29.8 million in personnel compensation and related costs primarily due to headcount growth and the grants of new share options and restricted shares and the continued vesting of those awards;
$5.7•an increase of $18.1 million for increased paymentin CROs/CMOs/Investigators expenses related to CROs, CMOsongoing and investigators in the three months ended March 31, 2021 as we advanced our drug candidate pipeline; andnewly initiated clinical trials.
The following table summarizes our research and development expenses by program for the three and nine months ended March 31,September 30, 2022 and 2021 (in thousands, except percentages):
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
Research and development expenses:
Clinical programs$63,324 $20,248 $43,076 213 %$119,468 $299,937 $(180,469)(60)%
Pre-clinical programs2,965 9,988 (7,023)(70)%7,487 41,033 (33,546)(82)%
Unallocated research and development expenses33,235 24,908 8,327 33 %92,507 60,250 32,257 54 %
Total$99,524 $55,144 $44,380 80 %$219,462 $401,220 $(181,758)(45)%
Research and 2020, respectively:
(in thousands)
  
Three months ended March 31,
 
  
      2021      
   
%
   
      2020      
   
%
 
Research and development expenses:
                    
Clinical programs
  $186,256    91.4   $20,332    60.3 
Pre-clinical
programs
   2,500    1.2    688    2.0 
Unallocated research and development expenses
   15,096    7.4    12,722    37.7 
                     
Total
  $203,852    100.0   $33,742    100.0 
                     
Duringdevelopment expenses attributable to clinical programs increased by $43.1 million to $63.3 million for the three months ended March 31,September 30, 2022 from $20.2 million during the three months ended September 30, 2021 91.4%related to ongoing and 1.2% of our total researchnewly initiated clinical trials. Research and development expenses wereattributable to pre-clinical programs decreased by $7.0 million for the three months ended September 30, 2022 and by $33.5 million for the nine months ended September 30, 2022, compared to the same periods in 2021, primarily driven by decreased license fees.
Research and development expenses attributable to clinical programs and
pre-clinical
programs, respectively. Duringdecreased by $180.5 million to $119.5 million for the threenine months ended March 31, 2020, 60.3% and 2.0% of our total researchSeptember 30, 2022 from $299.9 million during the nine months ended September 30, 2021. Research and development expenses were attributable to clinicalpre-clinical programs anddecreased by $33.5 million to $7.5 million for the nine months ended September 30, 2022 from $41.0 million during the nine months ended September 30, 2021. Those decreases were driven by decreased license fees.
pre-clinical
programs, respectively. Although we manage our external research and development expenses by program, we do not allocate our internal research and development expenses by program because our employees and internal resources may be engaged in projects for multiple programs at any given time.
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Selling, General, and Administrative Expenses
The following table sets forth the components ofsummarizes our selling, general and administrative expenses by program for the periods indicated.
three and nine months ended September 30, 2022 and 2021 (in thousands, except percentages):
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20222021$%20222021$%
Selling, General and Administrative Expenses:
Personnel compensation and related costs$41,859 $34,088 $7,771 23 %$121,382 $87,560 $33,822 39 %
Professional service fees9,381 6,194 3,187 51 %24,886 14,583 10,303 71 %
Other costs15,315 18,720 (3,405)(18)%40,679 47,111 (6,432)(14)%
Total$66,555 $59,002 $7,553 13 %$186,947 $149,254 $37,693 25 %
(in thousands)
  
Three months ended March 31,
 
  
      2021      
   
%
   
      2020      
   
%
 
Selling, General and Administrative Expenses:
                    
Personnel compensation and related costs
  $23,412    65.3   $13,042    69.7 
Professional service fees
   3,583    10.0    2,027    10.8 
Other costs
   8,843    24.7    3,645    19.5 
                     
Total
  $35,838    100.0   $18,714    100.0 
                     
Selling, general, and administrative expenses increased by $17.1$7.6 million to $35.8$66.6 million for the three months ended March 31, 2021September 30, 2022 from $18.7$59.0 million for the three months ended March 31, 2020. TheSeptember 30, 2021 primarily due to:
•an increase in general and administrative expenses included the following:
$10.4of $7.8 million for increasedin personnel compensation and related costs which was primarily attributabledue to increasedheadcount growth, particularly in commercial and administrative personnel, costs, due to hiring of more personnel during the three months ended March 31, 2021 and the grants of new share options and restricted shares and the continued vesting of restricted shares to certain employees;
those awards;
$1.5•an increase of $3.2 million for increasedin professional service fee,fees mainly attributable to our increased legal, compliance, accounting, and investor and public relations expenses associated with being a public company;company and
in connection with sales of ZEJULA, Optune, QINLOCK, and NUZYRA in mainland China and Hong Kong after our commercial launch of these four commercialized products; those increases were partially offset by
$5.2•a decrease of $3.4 million for increasedin other costs mainly includingrelated to selling, rental, and administrative expenses primaryfor commercial operations in mainland China, Hong Kong, and Taiwan.
Selling, general, and administrative expenses increased by $37.7 million to $186.9 million for the nine months ended September 30, 2022 from $149.3 million for the nine months ended September 30, 2021 primarily due to:
•an increase of $33.8 million in personnel compensation and related costs which was primarily due to headcount growth, particularly in commercial and administrative personnel, and grants of new share options and restricted shares and the continued vesting of those awards;
•an increase of $10.3 million in professional service fees mainly attributable to our increased legal, compliance, accounting, and investor and public relations expenses associated with being a public company and in connection with sales of ZEJULA, Optune, QINLOCK, and NUZYRA in mainland China and Hong Kong after our commercial launch of these four commercialized products; those increases were partially offset by
•a decrease of $6.4 million in other costs mainly related to selling, rental, and administrative expenses primarily for the commercial operation in mainland China, Hong Kong, and China.Taiwan.
Interest Income
Interest income decreasedincreased by $1.5$3.2 million to $0.2$3.9 million from $0.7 million for the three months ended March 31,September 30, 2022 and 2021, and increased by $4.1 million to $5.2 million from $1.7$1.2 million for the nine months ended September 30, 2022 and 2021, due to increased interest rates during the third quarter of 2022.
Other Income (Expenses), Net
Other expenses, net increased by $22.9 million to $36.5 million for the three months ended March 31, 2020 primary due to the decrease of short-term investments balance.
Interest Expenses
Interest expenses is nil for the three months ended March 31, 2021, compared to $0.1September 30, 2022 from $13.6 million for the three months ended March 31, 2020, as all the short-term borrowings were repaid in 2020.
Share of loss from equity method investment
In June 2017, we entered into an agreement with three third-parties to launch JING Medicine Technology (Shanghai) Ltd., or JING, an entity that will provide services for drug discovery and development, consultation and transfer of pharmaceutical technology. We account for our investment using the equity method of accounting because we do not control the investee but have the ability to exercise significant influence over the operating and financial policies of the investee. The c
apital contribution by us was RMB 26.3 million in cash, which was pa
id in 2017 and 2018, representing 20% and 18% of the equity interest of JING as of December 31, 2020 and March 31,September 30, 2021 respectively. We recorded the gain on deemed disposal in this investee of $0.5 million and share of loss of $0.3 million for the three months ended March 31, 2021, and recorded share of loss in this investee of $0.1 million for the three months ended March 31, 2020.
Other Expense, net
Other expense, net increased by $3.1 million for the three months ended March 31, 2021 and 2020 primarily as a result of a decrease in governmental subsidies andan increase in foreign exchange loss.
loss of $36.7 million partially offset by an increase in equity investment gain in MacroGenics, Inc. (“MacroGenics”) of $10.4 million and an increase in subsidy income of $3.4 million.
Net Loss AttributableOther expenses, net increased by $67.1 million to Ordinary Shareholders
As$79.5 million for the nine months ended September 30, 2022 from $12.4 million for the nine months ended September 30, 2021 primarily as a result of the foregoing, we had netan increase in foreign exchange loss attributable to ordinary shareholdersof
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$70.2 and an increase in equity investment loss in MacroGenics of $232.9$2.1 million, for the three months ended March 31, 2021 compared to net loss attributable to ordinary shareholderspartially offset by an increase in subsidy income of $48.0 million for the three months ended March 31, 2020.
$4.9 million.
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates, and assumptions. We continuallyperiodically evaluate these judgments, estimates, and assumptions based on the most recently available information, our own historical experiences, and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.
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The selection of critical accounting policies, the judgments, and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Revenue recognition
Description
In 2018, we adopted of ASC Topic 606 (“ASC 606”),
Revenue from Contracts with Customers,
in recognition of revenue. Under ASC 606, we recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.
Our revenue is all from product sales. We recognize revenue from product sales when we have satisfied the performance obligation by transferring control of the product to the customers. Control of the product generally transfers to the customers when the delivery is made and when title and risk of loss transfers to the customers. Cost of sales mainly consists of the acquisition cost of products and royalty fees.
We have applied the practical expedients under ASC 606 with regard to assessment of financing components and concluded that there is no significant financing component given that the period between delivery of goods and payment is generally one year or less. We have generated product sales revenue since 2018. For the three months ended March 31, 2021 and 2020, our product revenues were primarily generated from the sale of ZEJULA (niraparib) and OPTUNE (Tumor Treating Fields) to customers.
Inmainland China, we sell theour products to distributors, who ultimately sell the products to healthcare providers. Based on the nature of the arrangements, the performance obligations are satisfied upon the product’s delivery to distributors.
Judgments and Uncertainties
Rebates are offered to distributors, consistent with pharmaceutical industry practices. The estimated amount of unpaid or unbilled rebates, if any, is recorded as a reduction of revenue. Estimated rebates are determined based on contracted rates, sales volumes, and level of distributor inventories. We regularly review the information related to these estimates and adjust the amount accordingly.
Sensitivity of Estimate to Change
In Hong Kong,Actual amounts of rebates ultimately paid or billed may differ from our estimates. We will reassess estimates for rebates periodically. If actual results in the future vary from our estimates, we sellwill adjust these estimates, which would affect net product revenue and earnings in the productsperiod such variances become known.
Research and Development Expenses
Description
Research and development expenses are charged to customers, whichexpense as incurred when these expenditures relate to our research and development services and have no alternative future uses.
Pre-clinical and clinical trial costs are typically healthcare providers such as oncology centers.a significant component of our research and development expenses. We utilizehave a history of contracting with third party for warehousing services. Basedparties that perform various pre-clinical and clinical trial activities on our behalf in the natureongoing development of our product candidates. Expenses related to pre-clinical and clinical trials are accrued based on our estimates of the arrangement,actual services performed by the third parties for the respective period.
Judgments and Uncertainties
The process of estimating our research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated costs incurred for the services when we have determinednot yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule, or when contractual milestones are met; however, some require advanced payments. We make estimates of our expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.
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Sensitivity of Estimate to Change
Although we are a principal indo not expect our estimates to be materially different from amounts actually incurred, our understanding of the transaction since we are primarily responsible for fulfilling the promise to provide the productsstatus and timing of services performed relative to the customers, maintain inventory risk until deliveryactual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to the customersour prior estimates of research and have latitude in establishing the price. Revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of the products, which is the sales price agreed with the customers. Consideration paid to the third party is recognized in operatingdevelopment expenses.
We did not recognize any contract assets and contract liabilities as of March 31, 2021 and 2020.
Share-Based Compensation
Description
We grant share options and
non-vested
restricted shares to eligible employees, management and directors and accountShare-based awards for these share-based awards in accordance with ASC 718,
Compensation-Stock Compensation
. Employees’ share-based awardsour employees are measured at the grant date fair value of the awards and recognized as expenses (1) immediately at grant date if no vesting conditions are required; or (2) using graded vesting method over the requisite service period, which is the vesting period.

To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expenseexpenses relating to those awards are reversed.
Judgments and Uncertainties

We determineddetermine the fair value of the stock options granted to employees using the Black-Scholes option valuation model.
We also grant share options to eligible non-employees and account for these share-based awards in accordance with ASC 718,
Compensation-Stock Compensation
. Non-employees’ share-based awards are measured at the grant date Using this model, fair value is calculated based on assumptions with respect to (i) the expected volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected lives), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the expected lives of the awards and recognized as expenses (1) immediately at grant date if no vesting conditions are required; or (2) using graded vesting methodoptions. Expected volatility has been estimated based on actual movements in the stock prices of certain comparable companies over the requisite service period, whichmost recent historical periods equivalent to the options’ expected lives. Expected lives are principally based on our historical exercise experience with previous option grants. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the vesting period. All transactionsforeseeable future.
Sensitivity of Estimate to Change

The assumptions used in which goods or services are received in exchange for equity instruments are accounted for based onthis method to determine the fair value of our ordinary shares consider historical trends, macroeconomic conditions, and projections consistent with the consideration received orCompany’s operating strategy. Changes in these estimates can have a significant impact on the fair valuedetermination of the equity instrument issued, whichever is more reliably measurable. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. We determined the fair value of the stock options granted to non-employees using the Black-Scholes option valuation model.
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Fair Value Measurements
We apply ASC Topic 820,
 Fair Value Measurements and Disclosures
,options. If factors change or ASC 820, in measuring fair value. ASC 820 defines fair value, establishes a frameworkdifferent assumptions are used, our share-based compensation expenses could be materially different for measuring fair value and requires disclosures to be provided on fair value measurement.any period.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches, for example, to measuring the fair value of assets and liabilities: (1) market approach, (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Financial instruments of our company primarily include cash, cash equivalents and restricted cash, short-term investment, accounts receivable, prepayments and other current assets, short-term borrowings, accounts payable and other current liabilities. As of each reporting date, the carrying values of cash and cash equivalents, short-term investment, accounts receivable, prepayments and other current assets, short-term borrowings, accounts payable and other current liabilities approximated their fair values due to the short-term maturity of these instruments, and the carrying value of restricted cash approximates its fair value based on the nature of and the assessment of the ability to recover these amounts.
Income Taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. We follow the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in our consolidated financial statements in the period of change.
Description
In accordance with the provisions of ASC 740,
Income Taxes,
, we recognize in our financial statements the benefit of a tax position if the tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. We estimate our liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.
Judgments and Uncertainties
We consider positive and negative evidence when determining whether some portion or all of our deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our historical results of operations, and our tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of our historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will not realize the deferred tax assets resulted from the tax loss carried forward in the future periods.
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Sensitivity of Estimate to Change
The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are recorded in our financial statements in the period in which the audit is concluded. Additionally, in future periods, changes in facts, circumstances and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. As of March 31,September 30, 2022 and 2021, and December 31, 2020, we did not have any significant unrecognized uncertain tax positions.
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B. Liquidity and Capital Resources
To date, weWe have financed our activities primarily through private placements, our September 2017 initial public offering on the Nasdaq, stock exchange,various follow-on offerings, and our September 2020 secondary listing on the Hong Kong Stock Exchange of Hong Kong and multiple follow-on offerings.our ordinary shares and/or ADSs. Through March 31, 2021,September 30, 2022, we have raised approximately $164.6 million infrom private equity financing and approximately $1,644.6$2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us infrom our initial public offering, subsequent
follow-on
offerings,secondary listing and our secondary listing. subsequent follow-on offerings.
Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $169.5$258.4 million and $39.8$396.2 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively. We have commitments for capital expenditure of $13.8 million as of September 30, 2022, mainly for the purpose of plant construction and 2020, respectively.installation. We currently are not aware of any events that are reasonably likely to cause a material change in the relationship between our costs and revenues.
As of March 31, 2021,September 30, 2022, we had cash, cash equivalents, and restricted cash and short-term investment of $1,014.2$1,120.3 million. Our expenditures as a companyare principally focused on research and development and are largely discretionary and as such our current losses and cash used in operations do not present immediate going concern issues.discretionary. Based on our current operating plan, we expect that our existingcash, cash equivalents, restricted cash and cash equivalents as of May 10, 2021,short-term investments will enable us to fund our operating expenses and capital expenditures requirements for at least the next 12 months after the date that the financial statements included in this Quarterly Report are issued.months. However, in order to bring to fruition our research and development objectives, we will ultimately need additional funding sources, and there can be no assurances that they will be made available.available to us on acceptable terms or at all.
The following table provides information regarding our cash flows for the threenine months ended March 31,September 30, 2022 and 2021 and 2020:
(in thousands):
Nine Months Ended
September 30,		Change
20222021$
Net cash used in operating activities$(258,350)$(396,237)$137,887 
Net cash provided by investing activities424,389 531,446 (107,057)
Net cash (used in) provided by financing activities(1,531)820,478 (822,009)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(9,132)695 (9,827)
Net increase in cash, cash equivalents and restricted cash$155,376 $956,382 $(801,006)
(in thousands)
  
Three months ended March 31,
 
  
        2021        
   
        2020        
 
Net cash used in operating activities
  $(169,500)   $(39,841) 
Net cash provided by investing activities
   742,005    48,952 
Net cash (used in) provided by financing activities
   (271)    279,484 
Effect of foreign exchange rate changes
   (930)    (947) 
           
Net increases in cash, cash equivalents and restricted cash
  $571,304   $287,648 
           
Net cash usedCash Used in operating activities
Operating Activities
During the threenine months ended March 31, 2021,September 30, 2022, our operating activities used $169.5$258.4 million of cash, which resulted principally from our net loss of $232.9 million, adjusted for
non-cash
charges of $72.1$381.5 million and cash providedused in our operating assets and liabilities of $8.7$18.3 million, partially offset by non-cash charges of $141.4 million. Our net
non-cash
charges duringDuring the threenine months ended March 31,September 30, 2021, primarily consistedour operating activities used $396.2 million of $62.3cash, which resulted from our net loss of $492.6 million and cash used in our operating assets and liabilities of $16.7 million, partially offset by non-cash research and development expenses, a $1.4 million depreciation expense, a $7.3 million share-based compensation expense and a $1.3 million non-cash lease expense.charges of $113.1 million.
Net cash providedCash Provided by investing activitiesInvesting Activities
Net cash provided by investing activities was $742.0decreased by $107.1 million to $424.4 million for the threenine months ended March 31, 2021 compared to $49.0September 30, 2022 from $531.4 million for the threenine months ended March 31, 2020.September 30, 2021. The increase in cash provided by investing activitiesdecrease was primaryprimarily due to thean increase of $90.3 million in purchases of short-term investments, a decrease of $38.6 million in proceeds from
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maturity of short-term investments.investment, and an increase of $8.3 million in purchase of property and equipment, offset by a decrease of $30.0 million in payment for investment in equity investee.
Net cash providedCash (Used In) Provided by financing activitiesFinancing Activities

Net cash used in financing activities was $0.3$1.5 million for the threenine months ended March 31, 2021September 30, 2022 compared to the net cash provided by financing activities of $279.5$820.5 million for the threenine months ended March 31, 2020.September 30, 2021. The shift from cash provided by to cash used in financing activities was mainly attributable to the paymentprimarily because we had proceeds of costs of$818.9 million from our secondary listing on Stock Exchange of Hong Kong in September 2020 net off by the proceeds from exercises of stock options. The decrease in cash provided by financing activities was primary due to the issuance of ADSs in our
follow-on
offeringordinary shares upon public offerings during the threenine months ended March 31, 2020.September 30, 2021 while there were no such transactions during the nine months ended September 30, 2022.
C. Research and Development Activities and Expenditures, Including Patents and Licenses etc
Full details of our research and development activities and expenditures are givenprovided in the “Business”“Research and “OperatingDevelopment Expenses” and Financial Review and Prospects”“Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.
above.
D. Trend Information
Other than as described elsewhere in this Quarterly Report on Form
10-Q,
we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity, or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition.
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E.
Off-balance
Sheet Arrangements
We currently do not engage in trading activities involving
non-exchange
traded contracts or interest rate swap transactions or foreign currency forward contracts. In the ordinary course of our business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of March 31, 2021. Amounts we pay in future periods may vary from those reflected in the table.
(in thousands)
  
Total
   
Less than
1 year
   
1 to 3 years
   
3 to 5 years
   
More than
5 years
 
Purchase Obligations
  $22,498   $16,991   $5,507   $—     $—   
Operating Lease Obligations
   18,232    5,573    6,228    4,379    2,052 
We also have obligations to make future payments to third party licensors that become due and payable on the achievement of certain development, regulatory and commercial milestones as well as tiered royalties on net sales. We have not included these commitments on our balance sheet or in the table above because the commitments are cancellable if the milestones are not complete and achievement and timing of these obligations are not fixed or determinable.
Recently Issued Accounting Standards
For more information regarding recently issued accounting standards, please see “Part II—Item 8—“Item 8. Financial Statements and Supplementary Data—RecentData-Recent accounting pronouncements” in our 2021 Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.
Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk including foreign exchange risk, credit risk, cash flow interest rate risk, and liquidity risk.
Foreign Exchange Risk
Renminbi, or RMB, is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the People’s Bank of China (“PBOC”), controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The cash and cash equivalents of our companythe Company included aggregated amounts of RMB247.9RMB292.1 million and RMB155.9RMB151.7 million, which were denominated in RMB, as of March 31, 2021 and December 31, 2020, respectively, representing 4%and 5%2% of the cash and cash equivalents as of March 31, 2021September 30, 2022 and December 31, 2020,2021, respectively.
Our business mainly operates in mainland China with a significant portion of our transactions settled in RMB, and our financial statements are presented in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.
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The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in Greater China’s political and economic conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005, Chinathe Chinese government changed
its decade-old policy
of pegging the value of the RMB to the U.S. dollar. Under the revised policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the RMB against the U.S. dollar in the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the RMB and U.S. dollar remained within a narrow band. In June 2010, the PBOC announced that China’sthe Chinese government would increase the flexibility of the exchange rate, and thereafter allowed the RMB to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. However, in August 2015, the PBOC significantly devalued the RMB.
To
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The value of our ADSs and our ordinary shares will be affected by the foreign exchange rates between U.S. dollars, HK dollars and the RMB. For example, to the extent that we need to convert U.S. dollars or HK dollars into RMB for our operations or if any of our arrangements with other parties are denominated in U.S. dollars or HK dollars and need to be converted into RMB, appreciation of the RMB against the U.S. dollar or the HK dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars or HK dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar or the HK dollar against the RMB would have a negative effect on the U.S. dollarconversion amounts available to us.
Since 1983, the Hong Kong Monetary Authority (“HKMA”) has pegged the HK dollar to the U.S. dollar at the rate of approximately HK$7.80 to US$1.00. However, there is no assurance that the HK dollar will continue to be pegged to the U.S. dollar or that the HK dollar conversion rate will remain at HK$7.80 to US$1.00. If the HK dollar conversion rate against the U.S. dollar changes and the value of the HK dollar depreciates against the U.S. dollar, our assets denominated in HK dollars will be adversely affected. Additionally, if the HKMA were to repeg the HK dollar to, for example, the RMB rather than the U.S. dollar, or otherwise restrict the conversion of HK dollars into other currencies, then our assets denominated in HK dollars will be adversely affected.
Credit Risk
OurFinancial instruments that are potentially subject to significant concentration of credit risk is primarily attributable to the carrying amountsconsist of cash and cash equivalents, short-term investments, accounts receivable, and short-term investment. notes receivable.
The carrying amounts of cash and cash equivalents and short-term investmentinvestments represent the maximum amount of loss due to credit risk. AsWe had cash and cash equivalents of March 31, 2021$1,119.5 million and $964.1 million and short-term investments of nil and $445.0 million as of September 30, 2022 and December 31, 2020,2021, respectively. As of September 30, 2022 and December 31, 2021, all of our cash and cash equivalents and short-term investments were held by major financial institutions located in mainland China and international financial institutions outside of mainland China which we believe are of high credit quality and for which we will continually monitor continued credit worthiness.
Accounts receivable are typically unsecured and are derived from product sales and collaborative arrangement. We manage credit risk of accounts receivable through ongoing monitoring of the outstanding balances and limit the amount of credit extended based upon payment history and the debtor’s current credit worthiness. Historically, we have collected these receivables from customers within the credit worthinessterms with no significant credit losses incurred. As of September 30, 2022, our two largest debtors accounted for approximately 38% of our total accounts receivable collectively.
Certain accounts receivable balances are settled in the form of notes receivable. As of September 30, 2022, such notes receivable included bank acceptance promissory notes that are non-interest bearing and due within six months. These notes receivable were used to collect the receivables based on an administrative convenience, given these financial institutions.notes are readily convertible to known amounts of cash. In accordance with the sales agreements, whether to use cash or bank acceptance promissory notes to settle the receivables is at our discretion, and this selection does not impact the agreed contractual purchase prices.
Inflation
In recent years, mainland China has not experienced significant inflation. Although the global economy, including the U.S. economy, has experienced rising inflation in recent quarters, which can increase the costs of our products and thusproduct candidates purchased from third parties and, as a result, adversely affect our results of operations, inflation has not had a material impact on our results of operations. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.
mainland China or in other countries in which our third-party partners operate.
Item 4. Controls and Procedures
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2)
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accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
As of March 31, 2021,September 30, 2022, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended)Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of March 31, 2021,September 30, 2022, our disclosure controls and procedures were effective at thea reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2021,September 30, 2022, there have not been any changes in our internal controls over financial reporting (as such item is defined in Rules
13a-15(f)
and
15d-15(f)
promulgated under the Securities Exchange Act of 1934, as amended)Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II—II - OTHER INFORMATION
Item 1. Legal ProceedingsProceedings.
We may be, from time to time, subject to claims and suits arising in the ordinary course of business. Although the outcome of these and other claims cannot be predicted with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or on our results of operations. We are not currently a party to, nor is our property the subject of, any actual or threatened material legal or administrative proceedings.
Item 1A. Risk Factors
Factors.
There have been no material changes from the risk factors set forth in our Annual Report on Form
10-K
for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.

The following is a summary of significant risk factors and uncertainties that may affect our business which are discussed in more detail in our AnnualThis Quarterly Report on Form 10-K for the year ended December 31, 2020:
our ability to successfully commercialize ZEJULA, Optune, QINLOCK and any other products and product candidates that we may obtain regulatory approval for;
the anticipated amount, timing and accounting of revenues; contingent, milestone, royalty and other payments under licensing, collaboration, and acquisition agreements; tax positions and contingencies; collectability of receivables; pre-approval inventory; cost of sales; research and development costs; compensation and other selling, general and administrative expenses; amortization of intangible assets; foreign currency exchange risk; estimated fair value of assets and liabilities; and impairment assessments;
expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products;
the potential impact of increased product competition10-Q should be read in the markets in which we compete, including increased competition from new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways, including generic or biosimilar versions of our products;
patent terms, patent term extensions, patent office actions and expected availability and any period of regulatory exclusivity;
the timing, outcome and impact of administrative, regulatory, legal or other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
the drivers for growing our business, including our plans and intention to commit resources relating to discovery, research and development programs and business development opportunities as well as the potential benefits and results of certain business development transactions;
our ability to finance our operations and business initiatives and obtain funding for such activities;
the expectations, development plans and anticipated timelines, including costs and timing of potential clinical trials, filings and approvals of our products, product candidates and pipeline programs, including collaborations with third-parties, as well as the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
reputational or financial harm to our business arising from adverse safety events, including product liability claims or lawsuits affecting our or any of our licensors’ marketed products, generic or biosimilar versions of our or any of our licensors’ marketed products or any other products from the same class as one of our or any of our licensors’ products;
unexpected impacts on our business operations including sales, expenses, supply chain, manufacturing, cyber-attacks or other privacy or data security incidents, research and development costs, clinical trials and employees;
the potential impact of measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products;
our manufacturing capacity, use of third-party contract manufacturing organizations, plans and timing relating to changes in our manufacturing capabilities or activities in new or existing manufacturing facilities;
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
the impact of new laws, regulatory requirements, judicial decisions and accounting standards;
the disruption of our business relationshipsconjunction with our licensors;
the direct2021 Annual Report, Q1 2022 Form 10-Q, and indirect impact of the COVID-19 pandemic on our business and operations, our and our partners’ ability to effectively travel, as needed, during the COVID-19 pandemic, and the duration and impact of COVID-19 or any of its variants that may affect, precipitate or exacerbate one or more of any of theQ2 2022 Form 10-Q, which describe various material risks and uncertainties mentioned in this section;
our ability to effectively manage our growth;
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the disruption in the capitalwhich we are or credit markets which may adversely impact our ability to obtain necessary capitalbecome subject. These risks and uncertainties could, directly or credit market financing;
the geopolitical tensions that exist between China and the United States mayindirectly, adversely affect our business, results of operations, financial condition, liquidity, or cash flows and could cause our abilityactual results to grow,differ materially from our past results or the results contemplated by any forward-looking statements we make. We believe the risks described in this section of our Quarterly Report on Form 10-Q and our access to necessary capital or credit markets;
our ability to retain key executives2021 Annual Report, Q1 2022 Form 10-Q, and to attract, retain and motivate personnel; and
otherQ2 2022 Form 10-Q are the most significant we face; however, these are not the only risks we face. We face additional risks and uncertainties including those listed under “Part I—Item 1A—Risk Factors” in our Annual Report on
Form 10-K
for the year ended December 31, 2020.
not currently known to us or that we currently believe are not material.
These factors should not be construed as exhaustive and should be read with the other cautionary statements and other information in our Annual Report on Form 10-K for the year ended December 31, 2020 and our other filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds.
None.
Item 3. Defaults Upon Senior SecuritiesSecurities.
None.
Item 4. Mine Safety DisclosuresDisclosures.
None.
Item 5. Other InformationInformation.

None.
Effective on May 7, 2021, the Board appointed Tao Fu as the Chief Strategy Officer of the Company. Concurrently with his appointment as Chief Strategy Officer, Mr. Fu voluntarily resigned from his positions as the President and Chief Operating Officer of the Company and from his position as a director of the Company, effective immediately. In his new role as Chief Strategy Officer of the Company, Tao Fu will focus on the Company’s corporate development and other strategic objectives.
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Item 6. Exhibits.
Exhibit Index
Exhibit

Number
Exhibit
Title
10.1*^
3.1
Fifth Amended and Restated Memorandum Association of Zai Lab Limited (incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K (File No. 001-38205) filed with the SEC on March 1, 2021)
3.2
Fourth Amended and Restated Articles of Association of Zai Lab Limited (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to our Registration Statement on Form F-1 (File No. 333-219980) filed with the SEC on September 1, 2017)
4.1
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to our Registration Statement on Form F-1 (File No. 333-219980) filed with the SEC on September 1, 2017)
4.2
Form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to our Registration Statement on Form F-1 (File No. 333-219980) filed with the SEC on September 1, 2017)
4.3
Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to our Registration Statement on Form F-1 (File No. 333-219980) filed with the SEC on September 1, 2017)
4.4
Third Amended and Restated Shareholders Agreement between Zai Lab Limited and other parties named therein dated June 26, 2017 (incorporated by reference to Exhibit 4.4 to our Registration Statement on Form F-1 (File No. 333-219980) filed with the SEC on August 15, 2017)
4.5
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act (incorporated by reference to Exhibit 4.5 to our Annual Report on Form 10-K (File No. 001-38205) filed with the SEC on March 1, 2021)
10.1*^
Collaboration and License Agreement by and between argenx BVSeagen Inc. and Zai Auto ImmuneLab (Hong Kong) Limited dated January 6, 2021as of September 23, 2022
10.2*^
#
10.3*^
#
31.1*
10.4*#
31.1*
31.2*
31.2*
Certification of Chief Financial Officer Required by Exchange Act Rule 13a-14(a)
32.1**
32.1**
Certification of Chief Executive Officer Required by Rule 13a-14(b) and18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code
32.2**
32.2**
Certification of Chief Financial Officer Required by Rule 13a-14(b) and18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code
101.INS*Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.CAL*
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
101.DEF*
Inline XBRL Taxonomy Extension Definitions Linkbase Document
104*
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
# Management contract or compensatory plan
^ Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii)
would be competitively harmful if publicly disclosed.

*
Filed herewith
**
Furnished herewith
^
Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ZAI LAB LIMITED
Dated: May 10, 2021November 9, 2022By:By:
/s/ Billy Cho
Name:Name:
Billy Cho
Title:Title:Chief Financial Officer
(Principal Financial and Accounting Officer)
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