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Zai Lab Limited's (NASDAQ:ZLAB) Path To Profitability

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Simply Wall St
·3 min read
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Zai Lab Limited (NASDAQ:ZLAB) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Zai Lab Limited, a biopharmaceutical company, engages in discovering or licensing, developing, and commercializing proprietary therapeutics that address medical needs in the fields of oncology, autoimmune, and infectious diseases in China. The company’s loss has recently broadened since it announced a US$195m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$240m, moving it further away from breakeven. The most pressing concern for investors is Zai Lab's path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for Zai Lab

Consensus from 9 of the American Biotechs analysts is that Zai Lab is on the verge of breakeven. They anticipate the company to incur a final loss in 2022, before generating positive profits of US$194m in 2023. The company is therefore projected to breakeven around 3 years from today. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 60%, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for Zai Lab given that this is a high-level summary, however, bear in mind that by and large a biotech has lumpy cash flows which are contingent on the product type and stage of development the company is in. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

Before we wrap up, there’s one aspect worth mentioning. The company has managed its capital prudently, with debt making up 0.9% of equity. This means that it has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Zai Lab, so if you are interested in understanding the company at a deeper level, take a look at Zai Lab's company page on Simply Wall St. We've also compiled a list of pertinent factors you should further research:

  1. Valuation: What is Zai Lab worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Zai Lab is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Zai Lab’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.