Zai Lab (ZLAB) risk factors, FY2024 10-K

Other

1. 01This summary provides an overview of material risks that could affect our business, financial condition, results of operations, cash flows, and prospects, which should be read in conjunction with the more detailed discussion of risks that follows this summary

Risks Related to Doing Business in China

1. 02Uncertainties in the Chinese legal system could materially and adversely affect us
2. 03Changes in relations between the United States and China, as well as relations between China and other countries, may adversely impact our business, financial condition, and results of operations
3. 04The Chinese government may intervene in or influence our business, which could result in a material change in our operations, strategy, research and development activities, commercial activities, business, financial condition, results of operations, and prospects
4. 05Because the majority of our operations are in mainland China, there have been concerns regarding oversight of audits of our financial statements filed with the SEC
5. 06We may be subject to additional approval, filing, and compliance obligations with Chinese authorities in connection with our engagement of KPMG LLP, a U.S. auditor that is subject to PCAOB inspection
6. 07The economic, political, and social conditions in mainland China, as well as governmental policies, could affect the business environment and financial markets in mainland China and our ability to operate our business, financial condition, results of operations, and prospects
7. 08We are required to obtain certain approvals and licenses from Chinese authorities to operate our Chinese subsidiaries
8. 09Under Chinese laws and regulations, we may be required by the CSRC or other Chinese regulatory authorities to obtain approval or follow certain procedures to issue our securities to foreign investors, and we cannot predict whether or when we will be able to obtain such approval or complete such procedures
9. 10Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies effectively
10. 11We may rely on dividends and other distributions on equity paid by our Chinese subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our Chinese subsidiaries to make payments to us could have a material adverse effect on our business operations
11. 12cannot be distributed to us as dividends. At their discretion, our Chinese subsidiaries may allocate a portion of their after-tax profits based on Chinese accounting standards to a discretionary reserve fund
12. 13Chinese regulations establish complex procedures for certain 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
13. 14Completing the necessary inspection and approval processes for our Chinese manufacturing facilities, such as by the FDA, NMPA, and EMA, may be time consuming and costly
14. 15Our business benefits from certain financial incentives and discretionary policies granted by local governments. Expiration of, or changes to, these incentives or policies would have an adverse effect on our business, financial condition, and results of operations
15. 16It may be difficult for shareholders and regulators outside of mainland China to conduct investigations or collect evidence in mainland China
16. 17Under the EIT Law, an enterprise incorporated outside of mainland China whose “de facto management bodies” are located in mainland China is considered a “resident enterprise” and will be subject to a uniform 25% enterprise income tax, or EIT, rate on its global income
17. 18We and our shareholders may face tax consequences and other requirements in mainland China with respect to indirect transfers of equity interests in Chinese resident enterprises
18. 19Certain of our investments may be subject to review from the Committee on Foreign Investment in the United States, which may delay or block a transaction from closing
19. 20Changes in United States and international trade policies and relations, particularly with regard to China, may adversely impact our business, financial condition, and results of operations
20. 21It may be difficult to enforce against us or our management in mainland China any judgments obtained from foreign courts
21. 22Failure to renew our current leases or locate desirable alternatives for our leased properties could materially and adversely affect our business

Risks Related to Our Financial Position

1. 23We may seek additional funding, such as for our product development programs and commercialization efforts, which may not be available on acceptable terms or at all. If we are unable to raise capital on acceptable terms when needed, we could be forced to delay, reduce, or terminate certain programs or activities
2. 24We and our subsidiaries have entered into debt arrangements with certain financial institutions in China, and we may in the future consider additional debt arrangements, to fund our business or working capital needs. Such debt arrangements may restrict our future operations
3. 25We may enter into certain capital raising, business collaboration, or other arrangements that may cause dilution to our shareholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates
4. 26We may not be able to access the capital and credit markets on terms that are favorable to us
5. 27Our results of operations may be adversely affected by sustained periods of increased inflation

Risks Related to Our Business and Industry

1. 28Our ability to generate revenues is highly dependent on the success of our commercial products and our ability to obtain regulatory approvals for our product candidates
2. 29If we are not successful in gaining broad acceptance of our commercial products, our business would be harmed
3. 30We may not obtain regulatory approval of our product candidates, on the anticipated timeline or at all, which could delay or limit our ability to realize the full potential of our product pipeline
4. 31approval for our product candidates, including new products or additional indications for our current commercial products, on the anticipated timeline or at all, which could delay or limit our ability to realize the full potential of our pipeline
5. 32If our manufacturing facilities are damaged or destroyed, or production at such facilities is otherwise interrupted, or if any new manufacturing facilities are not approved by regulators, our business and prospects would be negatively affected
6. 33We have a limited operating history, which may make it difficult for you to evaluate the success of our business and to assess our future prospects
7. 34We may decide to pursue a particular product, product candidate, or indication and fail to pursue other products, product candidates, or indications that may later prove to be more profitable or for which there is a greater likelihood of success
8. 35The market opportunities for certain of our products and product candidates may be small, such as when those opportunities are limited to patients who are ineligible for other treatment options or who have not responded to prior treatments, and our estimations with respect to these populations may be inaccurate
9. 36The pharmaceutical industry is highly regulated, and such regulations are subject to change, which may affect the approval and commercialization of our products and product candidates, and any failure to comply with such regulations could have adverse legal and financial impact
10. 37without limitation, damages, fines, imprisonment, and exclusion from participation in government healthcare programs or contracting with government authorities and the curtailment or restructuring of our operations, which could significantly harm our business
11. 38Clinical development involves a lengthy and expensive process with an uncertain outcome
12. 39We may incur additional costs or experience delays in completing pre-clinical or clinical trials or ultimately be unable to complete the development and commercialization of our product candidates
13. 40If we experience delays or difficulties in the enrollment of patients in clinical trials, the progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented
14. 41Our products and product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval
15. 42Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel
16. 43As the Company develops globally, we may increase the size and capabilities of our organization, and we may experience difficulties in managing such growth
17. 44We may engage in future partnerships, in-licensing arrangements, joint ventures, or other types of business acquisitions that could disrupt our business, cause dilution to holders of our securities, and harm our financial condition and operating results
18. 45For example, in January 2021, we entered into a strategic collaboration with argenx pursuant to which we obtained an exclusive license for the development and commercialization of efgartigimod in Greater China in exchange for a combination of cash and ordinary shares
19. 46We may need to significantly reduce our prices for our approved products in mainland China and face uncertainty of reimbursement, which could diminish our sales or adversely affect our profitability
20. 47Prior to any potential NRDL listing, revenues for our commercial products will depend on sales that are self-paid by patients or otherwise covered by insurance in the private-pay market. Higher patient prices or lower patient access may reduce demand for, and sales of, our commercial products
21. 48If we are unable to obtain or renew such permits or any other permits or licenses required for our operations, we will not be able to engage in the commercialization, manufacture, and distribution of our products and product candidates and our business may be adversely affected
22. 49Reputational harm to our products, including product liability claims or lawsuits against us or any of our licensors, could cause us to incur substantial liabilities or loss of revenue or harm our reputation
23. 50Potential cybersecurity threats are changing rapidly and advancing in sophistication. We may not be able to protect our systems and networks, or the confidentiality of our confidential or other information (including personal information), from cyberattacks and other unauthorized access, disclosure, and disruption
24. 51sophistication and activities of organized crime, hackers, terrorists, and other external parties, including foreign state-sponsored actors
25. 52We may face further restrictions (or even prohibitions) on our ability to transfer our scientific data abroad if Chinese regulators impose new restrictions (or change their interpretation of existing restrictions) on life sciences companies like us and the scientific data we obtain, generate, and maintain

Risks Related to Our Dependence on Third Parties

1. 53We rely on third parties, including our licensors, CMOs, and other suppliers, to support the commercial and clinical supply of our products and product candidates. Failure of such third parties to supply us with a sufficient quantity of products, in a timely matter or at all, may adversely affect our business
2. 54If we lose our relationships with CROs, our product development efforts could be delayed
3. 55We depend on other parties to manage certain intellectual property rights that are material to our business. Any failure to effectively protect these rights could adversely affect our business and operations
4. 56We rely on third-party distributors to sell our commercial products, and a limited number of customers have generated a substantial portion of our revenue. If we fail to maintain an effective distribution channel for our products, our business and sales of the relevant products could be adversely affected
5. 57The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business
6. 58Our business, results of operations, and financial condition may be adversely affected by deterioration in the credit quality of, or defaults by, our customers, and our deposits and investments may be negatively affected by fluctuations in interest rates
7. 59cash equivalents, restricted cash, and short-term investments, as a decrease in interest rate may impact our investment income and related cash flows

Risks Related to Intellectual Property

1. 60If we are unable to obtain and maintain protection for our products and product candidates through intellectual property rights, or if the scope of such intellectual property rights obtained is not sufficiently broad, third parties may compete directly against us
2. 61enforceable patents. Our competitors or other third parties may be able to circumvent our owned or in-licensed patents by developing similar or alternative technologies or products in a non-infringing manner
3. 62Our owned or in-licensed patents could be found invalid or unenforceable if challenged in court or before the U.S. Patent and Trademark Office or other foreign authority
4. 63The outcome of any such proceeding is generally unpredictable. Furthermore, even if we are successful in defending against such challenges, the cost to us of any patent litigation or similar proceeding could be substantial, and it may consume significant management and other personnel time
5. 64We may not be able to protect our intellectual property
6. 65Developments or uncertainties in patent law could have a negative impact on our business
7. 66If we are unable to maintain the confidentiality of our trade secrets, our business and competitive position may be harmed
8. 67If our products or product candidates infringe, misappropriate, or otherwise violate the intellectual property rights of third parties, we may incur substantial liabilities, and we may be unable to sell or commercialize these products and product candidates
9. 68Intellectual property litigation and proceedings could cause us to spend substantial resources and distract our personnel from their normal responsibilities
10. 69We may not be successful in obtaining intellectual property rights for acquired or in-licensed product candidates
11. 70If we or our licensors or collaboration partners do not obtain patent term extension and data exclusivity for our products or their products or any product candidates we may develop, our business may be materially harmed
12. 71Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements
13. 72Intellectual property rights do not necessarily address all potential threats

Risks Related to Our ADSs and Ordinary Shares

1. 73If we fail to maintain proper internal control over financial reporting, our ability to produce accurate financial statements or comply with applicable regulations could be impaired
2. 74We have incurred losses and have not paid dividends on our securities since our inception, and we do not currently intend to pay dividends on our securities. The success of an investment in our securities will depend on appreciation in the price of our securities
3. 75The market price of our securities may be volatile, which could result in substantial losses for our investors
4. 76Fluctuations in the value of the RMB or Hong Kong dollars may have a material adverse effect on our results of operations and the value of our securities
5. 77Holders of our ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights
6. 78Holders of our ADSs may not receive distributions or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distributions
7. 79Rights of our shareholders in the United States to participate in any future rights offerings may be limited, which may cause dilution to their holdings
8. 80Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our overall tax liability
9. 81Changes in tax law may adversely affect our business and financial results
10. 82Our corporate actions are substantially controlled by our directors, executive officers, and other principal shareholders, who can exert significant influence over important corporate matters, which may reduce the price of our securities
11. 83Investors may be subject to limitations on transfers of their ADSs
12. 84Substantial future sales or perceived potential sales of our ordinary shares, ADSs, or other equity or equity-linked securities could cause the price of our securities to decline
13. 85The different characteristics of the capital markets in Hong Kong and the United States may negatively affect the trading prices of our securities
14. 86The depositary for our ADSs is entitled to charge holders fees for various services, including annual service fees. Dealings in the ordinary shares registered in our Hong Kong register of members will be subject to Hong Kong stamp duty
15. 87Exchange between our ordinary shares and our ADSs may adversely affect the liquidity and/or trading price of our securities
16. 88The time required for the exchange between our ordinary shares and ADSs might be longer than expected and investors might not be able to settle or effect any sale of their securities during this period, and the exchange of ordinary shares into ADSs involves costs
17. 89There is uncertainty as to whether Hong Kong stamp duty will apply to the trading or conversion of our ADSs
18. 90Exchange will be subject to the Hong Kong stamp duty. In addition, to facilitate ADS-ordinary share conversion and trading between Nasdaq and the Hong Kong Stock Exchange, we have moved a portion of our issued ordinary shares from our register of members maintained in the Cayman Islands to our Hong Kong share register
19. 91If we or our CROs or CMOs fail to comply with applicable environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business
20. 92Because of volatility in the price of our securities and the share price of biotechnology and biopharmaceuticals companies more broadly, we may be at increased risk of securities class action litigation
21. 93If analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, the market price and/or trading value of our securities could decline
22. 94The increasing use of social media platforms presents new risks and challenges