GF Securities: Gives ZAI LAB (09688) a "buy" rating as research and development enters a new stage of globalization.

GF SEC recently released a research report, covering ZAI LAB (09688) for the first time, giving it a "buy" rating. GF SEC is optimistic about the company's commercialization and innovation research and development, believing that the gradual approval and listing of the company's core varieties will help boost product sales rapidly, and the global equity pipeline showing therapeutic potential in the clinical stage will promote the company's development into a new stage. GF SEC points out that since 2018, several core varieties of ZAI LAB have been gradually approved and listed domestically. ZAI LAB has rapidly built a innovative product pipeline with competitive advantages, and since 2019, 7 products (with the same generic name) have been approved for listing, with core heavyweights Agamod, KarXT, tumor electric field therapy, and Bevacizumab single agent gradually entering the harvest stage. The company has gradually built a mature commercialization system around fields such as female tumors, gastrointestinal tumors, lung cancer, immunology, and neuroscience. According to the report, with the rapid increase in sales after product commercialization and the continuous improvement of the company's research and commercialization efficiency, ZAI LAB's profit margins have been continuously reduced and expenses have been continuously improved in recent years. In terms of expenses, in the first three quarters of 2024, the company's research and development expenses were $182 million (yoy-1%), with an expense ratio of 63% (yoy-29%); sales, general, and administrative expenses were $216 million (yoy+9%), with an expense ratio of 75% (yoy-25%). In terms of profit, the company's net loss in the first three quarters of 2024 was $175 million, a year-on-year loss reduction of $64 million, and the company has continuously reduced losses significantly since 2021. According to the company's mid-year report for 2024, the company aims to achieve cash profitability by the end of 2025, marking an important turning point in the company's development. In the first three quarters of 2024, ZAI LAB's product sales revenue reached $289 million (yoy+44%). With Agamod continuing to grow rapidly and core heavyweights such as KarXT, Bevacizumab, and tumor electric field therapy (for new indications) expected to contribute growth after listing, GF SEC predicts a compound annual growth rate of about 50% from 2023 to 2028, with revenue exceeding $2 billion by 2028 according to the company's demonstration materials in November 2024. Furthermore, the report believes that ZAI LAB's research and development has entered a new phase of globalization. According to the company's presentation materials, 3 global equity pipeline products are in the clinical stage, with several other products set to enter the clinical stage. The report specifically mentions the new DLL3 ADC ZL-1310, with preliminary data from its global Phase I trial showing the best potential in its class worldwide. The company is accelerating the progress of its global equity pipeline research and development, with ZL1102 (IL-17A) currently in Phase II globally, ZL-1218 (CCR8) in Phase I, and ROR1ADC and IL-13/IL-31 bispecific antibodies set to enter clinical trials soon. GF SEC states that with Agamod rapidly growing, and with KarXT, Bevacizumab, and tumor electric field therapy (for pancreatic cancer and NSCLC indications) expected to contribute growth after listing, the company is projected to achieve revenues of $387 million, $561 million, and $856 million respectively in 2024, 2025, and 2026, with year-on-year growth rates of 45%, 45%, and 53%. With sales volume increasing and core varieties gradually being localized, the company's gross profit margin is expected to steadily improve.