Zai Lab's Dual-Track Strategy: License-in and In-house R&D Driving a Unique Biopharma Business Model

When Zai Lab is mentioned, what often comes to mind is its unique VIC business model (VC + IP + CRO). The VIC model secures drug licenses through capital support and introduces innovative product pipelines, thereby significantly shortening the R&D cycle for novel drugs. Subsequently, it leverages the networks, resources, and technical expertise of its scientific team to further advance the product pipeline through R&D collaborations. After product launch, drugs are manufactured via outsourced R&D and production arrangements, thus saving on production costs associated with building laboratories, purchasing equipment, and recruiting personnel.

This “asset-light, intelligence-heavy” business model has also gained recognition from investors. Since its establishment in 2014, Zai Lab has built a portfolio of 15 drug candidates through its “License-in” strategy, with more than 20 clinical trials currently underway or planned. Among these, two products have been commercialized, three have received U.S. regulatory approval, and more than half of the pipeline assets in development have entered Phase III clinical trials.

In addition, Zai Lab completed three rounds of venture financing, totaling $160 million, and successfully listed on the Nasdaq in September 2017, raising $172.5 million through its IPO. Since going public, Zai Lab has completed two strategic financings, with a total amount exceeding $350 million.

What is the underlying logic of this innovative business model, and can it be replicated? Recently, the “1st CSCO-Zai Lab Oncology Summit,” co-hosted by the Chinese Society of Clinical Oncology (CSCO) and Zai Lab, was held in Beijing.

Numerous domestic and international experts and scholars in the field of clinical oncology discussed the current status of cancer diagnosis and treatment in China, as well as cutting-edge innovative achievements, including those related to ovarian cancer and brain tumors. During the event, VCBeat interviewed Dr. Hei Yongjiang, Chief Medical Officer of Zai Lab, and Liang Yi, Chief Commercial Officer and President of Greater China.

Zai Lab is particularly cautious in its selection of products for “license-in” deals. “We prioritize the intrinsic characteristics of the innovative pipeline, specifically whether it demonstrates efficacy against a particular target, what diseases it can treat, whether it enables the development of therapies for high-prevalence diseases in China, and whether the drug can effectively alleviate the disease,” said Dr. Hei Yongjiang.

Meanwhile, Zai Lab also places significant emphasis on assessing whether a product’s indications have the potential for expansion in China. For instance, the American Cancer Society published its annual report titled “Cancer Statistics, 2018” in CA: A Cancer Journal for Clinicians, a premier oncology journal. The report indicated that gastric cancer ranked third in incidence among all cancers in China in 2018, following only lung cancer and breast cancer, thereby establishing it as a highly prevalent malignancy in the country.

Therefore, in terms of indication development for its pipeline, the Zai Lab team also considers developing indications that align with the Chinese market when introducing new products. In addition, the company fully leverages existing overseas data, such as Phase II or Phase III clinical trial results, to conduct bridging studies in China, thereby accelerating product introduction. “In general, there are two key considerations in our product in-licensing strategy: first, how to integrate with global development; and second, how to develop aspects closely aligned with the demands of the Chinese healthcare market based on the product’s characteristics,” said Dr. Hei Wing Keung.

Since “license-in” is not merely the introduction of a simple product but involves paying an upfront fee to the “licensor,” along with agreed-upon milestone payments and future sales royalties, it differs from straightforward pipeline acquisitions. The “licensee” is not required to incur substantial costs when introducing innovative pipelines. Meanwhile, the “licensor,” in order to secure milestone payments and the agreed-upon rights for R&D, manufacturing, and commercialization in specific countries or regions after product launch, will collaborate with the “licensee” to jointly develop the pipeline. Thus, the “licensee” not only introduces new pipelines for its own growth but also leverages the licensor’s R&D resources, combining the strengths of both parties to advance pipeline development.

Zai Lab is a typical example of domestic innovative pharmaceutical companies adopting the License-in model. Zejula (niraparib, a PARP inhibitor for ovarian cancer) was licensed in by Zai Lab from the U.S. oncology pharmaceutical company Tesaro in 2016. Under the collaboration agreement, Zai Lab obtained exclusive rights to develop and market niraparib in China.

Since 2017, Zai Lab has initiated patient recruitment in China for three independent pivotal clinical trials of niraparib targeting ovarian cancer and small cell lung cancer, and plans to conduct multiple clinical trials exploring other indications.

Niraparil had previously been approved in the United States in March 2017, in Europe in November of the same year, and was officially launched in Hong Kong in December 2018.

In January 2019, the Center for Drug Evaluation (CDE) of the National Medical Products Administration (NMPA) included Zejula in the priority review program for its new drug application as maintenance therapy for adult patients with recurrent epithelial ovarian cancer, fallopian tube cancer, or primary peritoneal cancer who had achieved a complete or partial response to platinum-based chemotherapy.

In addition to Zejula, Zai Lab’s innovative drug for ovarian cancer, the company has another product—Optune, a tumor treating fields device—expected to launch in China to support the clinical treatment of patients with glioma. This first-in-class global novel cancer therapy, originating from Israeli technology, has been granted Innovative Medical Device designation by the National Medical Products Administration, which will help accelerate Optune’s market entry in China.

Optune has previously been launched in the Hong Kong region. According to Dr. Hei Wing-Keung, compared with traditional treatment modalities, Tumor Treating Fields (TTFields) not only significantly improve the quality of life for patients with glioma but also markedly extend their overall survival. It is the only therapy validated in the past decade to prolong patient survival, holding promise to reshape clinical oncology practice.

Dr. Hei Yongjiang noted that, in addition to a unique perspective on selecting innovative product pipelines, team strength is also a critical component of the “license-in” model. Since its establishment, Zai Lab has successively appointed several executives from foreign and multinational companies, including Dr. Hei Yongjiang, who was appointed Chief Medical Officer in 2018. Dr. Hei previously held senior executive positions at Amgen, Roche, and Novartis, and possesses extensive experience in advancing the registration and approval of international clinical programs.

Mr. Liang Yi, appointed Chief Commercial Officer and President of Greater China in 2018, previously led product operations for AstraZeneca, Bristol-Myers Squibb, and Roche in China. Mr. Cao Jizhe, appointed Chief Financial Officer in 2018, previously worked at Ernst & Young, served as Managing Director for Asia Pacific and Head of Healthcare Investment Banking at Citigroup, and led Zai Lab’s IPO in the United States. Dr. Valeria Fantin, appointed Chief Scientific Officer in 2019, previously served as Vice President of Oncology Cell Biology at Pfizer, where she contributed to the development of Pfizer’s marketed lung cancer treatment lorlatinib and breast cancer treatment palbociclib (Ibrance).

These executive team members cover areas such as innovative oncology drug R&D, regulatory approval, commercialization, and investment banking, thereby addressing the company’s business gaps and forming a fully integrated team.

Regarding product commercialization, Zai Lab has established a specialized commercial team. On one hand, Zai Lab outsources R&D and manufacturing to reduce production-related costs such as laboratory construction; on the other hand, it has also built its own production facilities for both large-molecule and small-molecule drugs.

“These are two separate matters. If the manufacturing of clinical trial materials is outsourced, we become constrained, as contracted CROs may not be able to align with our R&D requirements and pace. Therefore, we maintain our own production facility for clinical trial materials, while post-approval commercial manufacturing can be directly outsourced to CROs,” explained Dr. Hei Yongjiang.

Market launch does not imply that a product lacks further commercialization or clinical development value. Hei Yongjiang noted that, taking tumor PD-1/PD-L1 therapy as an example, PD-1/PD-L1 therapies have become an integral part of immunotherapy, covering nearly all tumor types. Lymphoma and melanoma are particularly sensitive to this therapy; however, for most tumors, the response rate to PD-1 inhibitors remains limited. Currently, a major focus in oncology is improving the response rates of PD-1/PD-L1 therapies across a broader range of tumors through combination treatments.

“Many people refer to us as the ‘Zai Lab Model.’ In reality, Zai Lab’s approach is an inevitable strategic choice. The core of its success lies in the capabilities of our team: identifying highly valuable products at an early stage, when they are still relatively unknown—akin to ‘recognizing a hero among the common folk.’ This is no easy feat. For instance, when Dr. Hei evaluates clinical data, which primarily consists of Phase I and Phase II results, deciding whether to commit resources to further advance the pipeline is somewhat like purchasing jadeite in Myanmar: it may look promising on the surface, but one cut could reveal it to be worthless. Such comprehensive judgment is crucial and rigorously tests individuals like Dr. Hei, as well as the entire Zai Lab team, in their understanding of products, diseases, and the industry as a whole. This requires years of accumulated knowledge and experience, along with the synergistic efforts of the team, forming our core competitiveness that is difficult to replicate,” stated Liang Yi, Chief Commercial Officer and President of Greater China at Zai Lab.

“To replicate Zai Lab’s model, one needs not only a keen eye for ‘license-in’ products but also a comprehensive team and appropriate product development strategies to drive R&D and commercialization. In the past, there was no standard pricing for license-in deals in China; it was only after Zai Lab established this model that our acquisition prices became the industry benchmark. Now that more players have entered the space, many believe that prices will continue to rise,” said Dr. Hei Yongjiang.

“License-in” is not the entirety of Zai Lab’s model. In fact, through a dual-track R&D strategy combining “license-in” and in-house development, Zai Lab continues to expand its innovative drug pipeline, laying the foundation for independent research and development. On one hand, the company has established partnerships with multiple leading global biopharmaceutical companies, building the strongest late-stage oncology product pipeline among Chinese innovative biotechnology firms based on a series of successful collaborations. On the other hand, Zai Lab is continuously enhancing its internal R&D capabilities to further supplement its product portfolio, with the goal of filing 1–2 global Investigational New Drug (IND) applications annually in the future.

In addition, Zai Lab has established R&D centers and built research teams in Shanghai and San Francisco, continuously strengthening its drug discovery and product development capabilities. The company has also appointed Dr. Valeria Fantin, a seasoned industry expert, as Chief Scientist to support its independent R&D strategy based on comprehensive considerations in China and globally.

As Mr. Liang Yi stated at the conference, “We hope to join hands with the government, clinical experts, and other partners to bridge the gap between cancer treatment in China and international best practices in the shortest time, at the fastest pace, and with minimal investment. We aim to make innovative oncology drugs accessible to patients in China, thereby contributing to the early realization of the ‘Healthy China’ strategic goals.”