Key Takeaways
BOCI Securities slashed its price target on Zai Lab (09688.HK) by 51% to HKD17 and downgraded the stock to ‘Hold,’ citing weak first-quarter results and a challenging path to profitability.
The brokerage said Zai Lab’s revenue is expected to remain under pressure for the full year, with a return to growth likely only in 2027, according to its report.
The downgrade was prompted by a 6% year-over-year revenue drop to $99.6 million in the first quarter, a figure that missed market expectations by 9%. The company's net loss widened to $51 million, driven by a larger-than-expected drop in sales of its cancer treatment Zejula and autoimmune drug Efgartigimod, combined with increased research and development spending.
Following the results, BOCI cut its revenue forecasts for Zai Lab for 2024 through 2026 and now projects net losses to continue over that period. The firm’s ADR target price for Zai Lab (ZLAB.US) was also cut to $22 from $45.
Despite the weak commercial results, BOCI noted that progress in Zai Lab’s drug pipeline was a key highlight of the quarter. The company's experimental cancer drug, known as Zoci (DLL3 ADC), continued to show promise in clinical trials.
Recent data presented at the American Association for Cancer Research (AACR) annual meeting showed the drug achieved a 62.5% intracranial objective response rate in small cell lung cancer patients whose disease had spread to the brain. Zai Lab's management has positioned Zoci as a potential cornerstone therapy for the difficult-to-treat cancer in the future.
However, the BOCI analyst believes the current valuation "largely reflects optimistic short-term pipeline expectations, while commercialization and execution risks remain relatively high."
The significant price target reduction signals deep concerns about Zai Lab's near-term path to profitability. Investors will be closely watching for further updates on the clinical progress of Zoci to offset the weak performance of currently marketed drugs.
This article is for informational purposes only and does not constitute investment advice.
