ZLAB - Zai Lab: Positioned For Growth In The Oncology Treatment Market

2023-03-06 16:54:50 ET

Summary

• Zai lab's diversified pipeline, strong partnerships, and proven track record of successful drug development make it an attractive investment opportunity in the biotech industry.
• The recent acceptance of the New Drug Application for sulbactam-durlobactam by the NMPA in China demonstrates a path going forward for the drug.
• The company’s focus on oncology treatments, a rapidly growing market, positions the company for significant future growth potential.

Zai Lab ( ZLAB ) is a biopharmaceutical company dedicated to developing and commercializing innovative treatments for cancer and infectious diseases. The company's product portfolio includes Zejula for ovarian cancer, Optune for brain cancer, Qinlock for gastrointestinal stromal tumors, and Nuzyra for bacterial infections. With a pipeline of promising drugs and a strong presence in the Chinese market, Zai Lab is positioned to become a major player in the biotech industry.

The Chinese biotech market is rapidly growing , and Zai Lab is poised to capitalize on this trend. The company's robust pipeline of drugs, history of partnerships with global pharmaceutical companies, and established presence in the Chinese market make it a compelling investment opportunity for those with a long-term view. As the Chinese biotech market continues to grow, Zai Lab is positioned to become a major player in the industry and could deliver significant returns for investors.

FY2022 Results Mark Improvement

The financial results for 2022 revealed a significant increase in total revenues, growing by 49.0% compared to the previous year. This increase was mainly driven by growth in the company's key product offering revenues, such as Zejula, Optune, Qinlock, and Nuzyra. Of noteworthy importance is the 55.2% rise in Zejula revenue—highlighting the success of this product, and increasing demand for innovative oncology treatments.

R&D expenses for 2022 saw a decrease when compared to the prior year. The reasoning behind this is lower upfront payments made for new licenses, indicating that the company is becoming more efficient with R&D spending. The number of personnel involved in research development has increased at the same time, displaying an investment in long-term capabilities. These investments are likely to contribute to the company’s sustainability in creating future innovative therapies for various ailments.

I believe the recent increase in SG&A expenses is a necessary investment for the company's future growth. This will enable the expansion of its commercial operations in China and infrastructure within the United States, taking advantage of the rising demand for its products.

Furthermore, the increased headcount suggests that the firm is investing in commercial capabilities to support sales growth. Furthermore, there has been a decrease in net loss for 2022 compared to the previous year. This was primarily due to payments related to new business ventures, implying that the firm is making wise investments to drive long-term success. As the company pursues the development of more therapies and enlarges its commercial activities, I think it will become profitable soon.

Finally, with a strong cash position, the business has enough flexibility to invest in prospective developments. While some investors might be uneasy about the fall in cash and cash equivalents, I consider the company’s focus on R&D and expanding markets a judicious use of resources. As long as the firm continues showing good financial results, it should attract further investment to finance its expansion.

Products

Zejula, a PARP inhibitor, is one of the company's flagship products, and it has been approved for the maintenance treatment of ovarian cancer in several countries, including the United States, China, and Europe. Zejula's success is due to its ability to induce synthetic lethality in cancer cells, which makes it an effective treatment option for patients with homologous recombination deficiencies.

Optune, a Tumor Treating Fields therapy, is another key product in Zai Lab's portfolio. Optune works by disrupting cancer cell division using electric fields tuned to specific frequencies. Optune has been approved for the treatment of glioblastoma and malignant pleural mesothelioma, and it has the potential to be used for the treatment of other cancers in the future.

Qinlock, a tyrosine kinase inhibitor, broadly inhibits KIT and PDGFR? mutated kinases using a dual mechanism of action. Qinlock has been approved for the treatment of gastrointestinal stromal tumors (GIST) in several countries, including the United States and China.

Nuzyra, a tetracycline-class antibacterial, has the ability to overcome tetracycline resistance and improve activity across a broad spectrum of bacterial infections. Nuzyra has been approved for the treatment of community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections in the United States and China.

NMPA Announces Antibiotic NDA Approval

Recently, Zai Lab made an announcement that the New Drug Application (NDA) for sulbactam-durlobactam (SUL-DUR) has been accepted by the National Medical Products Administration (NMPA) in China. SUL-DUR is an investigational antibiotic that treats infections caused by Acinetobacter baumannii, including multidrug-resistant and carbapenem-resistant (CRAB) strains. It is a combination of sulbactam, a ?-lactam antibiotic, and durlobactam, a novel broad-spectrum ?-lactamase inhibitor. The NDA's acceptance is a significant milestone toward regulatory approval and commercialization in China.

Dr. Harald Reinhart, the President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases at Zai Lab, states that SUL-DUR can address an unmet medical need as patients face limited treatment options with this pathogen, which causes serious infections with high mortality. The World Health Organization considers CRAB a top-priority-resistant bacteria presenting a serious threat to the public. Zai Lab's dedication to advancing this promising antibiotic is also encouraging as approximately two-thirds of Acinetobacter bacterial strains are carbapenem-resistant in China.

The results of the ATTACK trial showed that SUL-DUR-treated patients have lower mortality and less renal toxicity compared to standard-of-care colistin therapy. Furthermore, the additional data presented in October 2022 reinforces the positive safety and efficacy findings from the trial.

Oncology Risks

The oncology treatment market has experienced extraordinary growth over the past decade. Advances in treatments, made possible by research and development, have enabled better results for patients. Nonetheless, this expansion was not risk-free, and there are numerous potential impediments to further progress.

One of the biggest apparent risks is the increasing competition in the market. As more companies enter the oncology treatment space, the competition for market share will become more intense. Zai Lab must continue to differentiate itself from its competitors, especially as the market becomes more crowded. They must find ways to continue to innovate and develop novel therapies that meet the unique needs of patients.

The rapidly evolving regulatory environment is another potential risk. Changes in regulatory requirements, particularly around drug approvals and pricing, could impact Zai Lab's ability to bring its therapies to market. The company must be prepared to navigate these changes and adjust its strategies accordingly to remain competitive in the market.

In addition to traditional oncology treatments, the increasing prevalence of alternative therapies such as immunotherapy and gene therapy poses a potential risk. These therapeutic options are still in their early stages but have yielded promising results that could present a challenge to the traditional market in the future.

Despite these possible risks, Zai Lab is well prepared to maintain its growth trajectory. Their unique approach to drug development through leveraging partnerships with established companies has enabled them to bring innovative therapies to market quickly and effectively. Lastly, their strong balance sheet provides enough resources for research and development purposes in addition to helping expand their presence in the market.

Competitor Comparison

In comparison to two of its competitors, BeiGene ( BGNE ) and Innovent Biologics ( IVBXF ), Zai Lab has some key advantages.

Firstly, Zai Lab has a diverse and growing portfolio of products and pipeline as discussed earlier, with a focus on oncology. In comparison, BeiGene has a focus on oncology and hematology and has several products in this area, including zanubrutinib for lymphoma and tislelizumab for solid tumors. Innovent Biologics also has a focus on oncology and has several products, including sintilimab for solid tumors . However, Zai Lab's broader portfolio and pipeline make it more resilient through greater diversification in the event that one particular therapy does not pan out.

Secondly, Zai Lab has a strong presence in China and a growing global presence. The company has demonstrated the ability to establish partnerships in the past with several international biopharmaceutical companies, including Novocure , Tesaro , and MacroGenics . Zai Lab's global partnerships and licensing agreements help to broaden the company's portfolio and provide additional revenue streams. In comparison, BeiGene has a global presence but has faced regulatory challenges, including delays in the approval of its lead product, tislelizumab. Innovent Biologics has a growing presence in China in particular and partnerships with several international biopharmaceutical companies , but it may face increasing competition in the Chinese market as more companies expand into this area.

Growth Over Value

When considering the company's current valuation metrics, like its price-to-earnings ratio and its price-to-sales ratio, it should be remembered that biotech companies are not usually valued solely on revenue or earnings at present, but rather on potential for future growth. Many biotechs will not see profits until they complete product development and achieve commercialization.

The technology behind Zai Lab products could potentially drive solid growth rates. As such, by taking a twofold approach where the company markets its drugs and funnels profits to fuel sustained R&D, the company may be able to capture a sizeable portion of the market. Moreover, the broader biotechnology field is growing rapidly due to advancements in personalized medical therapies highly sought after by today’s healthcare patients.

Conclusion

In conclusion, Zai Lab presents a promising investment opportunity in the biotech sector. The company has established a strong pipeline of innovative drugs, with a particular focus on the rapidly growing Chinese market. Despite facing some regulatory and competition risks, Zai Lab has demonstrated its ability to successfully bring drugs to market through partnerships and acquisitions. The company's financials are improving, with revenue and net income on an upward trend. Additionally, the biotech sector as a whole is experiencing significant growth due to increasing demand for innovative treatments and advancements in technology. This creates a favorable environment for Zai Lab's continued success and growth potential. Overall, Zai Lab appears to be a compelling investment opportunity for investors seeking exposure to the biotech industry and looking to capitalize on the company's innovative drug pipeline and growth potential.

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