Shares of Zai Lab (NASDAQ:ZLAB) didn’t perform well in the last 3 months, as it lost almost 38%, underperforming the overall market heavily.
However, the stock is set to bounce back strong, eventually recovering most of the loss before the end of 2021. Thus, I am bullish on Zai Lab. (See ZLAB stock charts on TipRanks).
Based in Shanghai, People's Republic of China, Zai Lab is a biopharmaceutical company that commercializes therapies for medical conditions that other treatments have failed to cure, or have stopped working to mitigate the conditions. The company also continues to develop new treatments.
The products that Zai Lab is commercializing and developing target oncology, autoimmune and infectious diseases.
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Q2 2021
During the second quarter of 2021, the company witnessed a significant increase in the demand for ZEJULA, a treatment for breast cancer and non-small cell lung cancer, and for Optune, a wearable FDA-approved device that is used for the treatment of glioblastoma. As a result, sales of these two products performed so well that total revenue grew remarkably by almost 340% year-over-year to approximately $37 million, topping analysts' projections by $9.5 million.
However, unfortunately for the bottom line, the increase in the turnover was not enough to generate a net profit, because the expenses for research and development activities rose as well. To be more specific, Zai Lab had to strike up certain collaborations with other companies, as it was important to strengthen the pipeline of products from a strategic standpoint.
Thus, Zai recorded a net loss of $1.76 per share, which was a deterioration compared to the net loss of $1.08 reported the year before, missing the consensus average of -$0.71.
Catalyst
In the upcoming months, Zai Lab should receive approval from the Chinese regulator regarding NUZYRA, an antibiotic that the company would like to commercialize as a treatment for community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections. Both are two of the most common infectious diseases in China and the entire world, with the first being a serious medical condition in terms of mortality and morbidity.
In May 2021, Zai Lab successfully launched QINLOCK in China. The product is a treatment for advanced gastrointestinal stromal tumors in patients who have already received similar treatments in the past. QINLOCK is the only one that has been granted approval in China, among similar treatments.
Following its launch, the product added a significant 15% to the year-over-year increase in total revenue for the second quarter, almost matching the contribution from Optune, when considering the amount of time each drug was on the market.
This gives hope that this treatment will greatly help Zai Lab's total revenues and net profit during the coming years.
Analysts’ Estimates on Total Revenues and Earnings
On a year-over-year basis, analysts estimate that total revenues will increase by 220.40% to $156.85 million in full 2021, and by 140.20% to $376.77 million in full 2022.
Overall, the bottom line is expected to improve starting 2022.
Wall Street’s Take
In the past three months, three Wall Street analysts have issued a 12-month price target for ZLAB. The average Zai Lab price target is $215.67, implying 111.98% upside. The analyst rating consensus is a Strong Buy rating, based on three Buy ratings.
Summary
The stock has not performed well in the past three months, but if growing sales is a crucial share price driver, the stock holds a strong catalyst that could trigger a significant rebound.
Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.
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