Zai Lab A Short Ahead Of Lockup Expiration
March 19, 2018 concludes the 180-day lockup period on Zai Lab Ltd. (ZLAB).
When the lockup period ends for Zai Lab, its pre-IPO shareholders and insiders will be able to sell large blocks of previously-restricted stock for the first time. This group of shareholders includes eight individuals and five corporate entities.
(Click on image to enlarge)
A likely increase of shares traded on the secondary market could negatively impact the stock price of Zai Lab in the short term. Just 16.31% of shares are currently publicly trading.
Currently ZLAB trades in the $21 to $22 range. The company has a return from IPO of 20.2%.
Business Overview: Biopharmaceutical Working Developing Proprietary Therapeutics
Zai Lab Ltd. is a biopharmaceutical company with a focus on developing, licensing, and marketing proprietary therapies for cancer, infectious diseases and autoimmune disorders. (Source: F-1/A) ZLAB's drug candidates include ZL-2306, which is a poly ADP ribose polymerase 1/2 inhibitor for treating lung, breast, and ovarian cancers; ZL-1101, an anti-OX40 antagonistic antibody to treat systemic lupus erythematosus or graft-versus-host disease; ZL-2302 for treating non-small cell lung cancer; ZL-3101, a steroid-sparing topical product in Phase II clinical trials for treating psoriasis and eczema; ZL-2301 which is currently in Phase II clinical trials for treating hepatocellular carcinoma; and ZL-2401, an antibiotic for treating acute bacterial skin infections, UTIs, and community-acquired bacterial pneumonias. (Source: F-1/A see chart below)
Zai Lab was founded in 2014. In the company's SEC filings, the company notes that is has "assembled a management team with global experience and an extensive track record in navigating the regulatory process to develop and commercialize innovative drugs in China." (Source: F-1/A) ZLAB's long term objectives include the development of an integrated drug discovery and development platform in order to provide in-licensed and internally-discovered medicines within China and globally. Zai Lab is currently constructing its own large molecule facility, which is expected to be completed in the first half of 2018 (See Chart Below).
Since 2014, Zai Lab has raised $164.5 million in equity financing. The company is incorporated in the Cayman Islands with principal offices in Shanghai, China.
More than 23% of the IPOs in 2018 have been in the healthcare sector. ZLAB is one of these 46 IPOs.
Financial Highlights
Zai Lab reported the following for the quarter ended June 30, 2017:
- Revenue was $0.00
- Operating expenses equaled $12.2 million
- Net Income (Loss) was ($12.2) million
For the year ended 2016:
- Operating expenses equaled $38,529 million
- Net Income (Loss) was ($37,512) million
Management Team
Co-founder, Director, Chairman, and CEO Ying (Samantha) Du, Ph.D., gained previous experience in the healthcare industry with senior positions at Hutchison Medi-Pharma and Pfizer. She also was a managing director of healthcare investments at Sequoia Capital China. She earned her Ph.D. in biochemistry at the University of Cincinnati.
Chief Medical Officer, Qi Liu, M.D., Ph.D. has held her position since 205. Her previous experience includes positions at AstraZeneca and MD Anderson Cancer Center. Dr. Liu received her medical degree from Shanghai Medical University and a Ph.D. in molecular genetics from the University of Georgia. She has board certifications in internal medicine, medical oncology, and hematology.
(Source for management information: zailabratory.com)
Competition: Merck, Sanofi, Novartis and Others
Zai Lab faces significant competition from both China-based and global biopharmaceutical companies, such as specialty pharmaceutical companies, biologics drug companies, generic drug companies, academic institutions, government agencies, and other R&D institutions. These include commercial companies like Amgen (AMGN), Novo Nordisk (NVO), Gilead Sciences (GILD), Celgene (CELG), Biogen (BIIB), Vertex Pharmaceuticals (VRTX), Johnson & Johnson (JNJ), Pfizer (PFE), Novartis (NVS), Sanofi (SNY) and Merck (MRK).
(Source: Morningstar)
Early Market Performance
Zai Lab's IPO priced at $18 per share, at the high end of its expected price range of $16 to $18. The stock closed its first day at $27.93 for an increase of 55%. The stock quickly reached a high of $34.09 on October 11, but then began a steady decline to a low of $20.05 on February 8, 2018. Currently, the stock trades around $21 to $22. ZLAB has a return from IPO of 20.2%.
Conclusion
When the ZLAB IPO lockup period expires on March 19th, a substantial group of pre-IPO shareholders and insiders will be able to sell large blocks of previously-restricted shares for the first time. We believe that it is likely that they will do so - ZLAB has a return from IPO of more than 20%.
If just some of these eight individuals and five corporate entities cash in on their shares, the marketplace could be flooded - just 16.31% of outstanding shares are currently trading without restriction. A flood of shares into the secondary market will likely case a sharp, short-term downturn in share price.
We encourage risk-tolerant investors to short shares of ZLAB ahead of the March 19th lockup expiration. Interested investors should cover these short positions in ZLAB during the March 20th and March 21st trading sessions.
Disclosure: I am/we are short ZLAB.
Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any ...
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