Investing in turnarounds is always a risky play, but sometimes the upside is so large that it's worthwhile. Besides, the market often overreacts to setbacks, and for those who can see the long-term potential where others don't, there's money to be made.
With that in mind, let's vet a pair of biopharma businesses that some people expect to bounce back this year. Even if they're too risky to be appealing for an investment today, you might find that they're worth a purchase down the road.
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1. Zai Lab
With its shares down by 4.2% in the last 12 months, Zai Lab (ZLAB 3.57%) is now poised to surge like wildfire. The company's line of business is biotechnology, and with four therapies already on the market in greater China, it's well on its way to both profitability and having richer shareholders. Thanks to the slew of looming launches of new products, Wall Street analysts have set some aggressive price targets for Zai Lab on average, calling for its price near $40.90 to rise by 98% to reach $81.04 within a year -- and the analysts are probably right.
Before 2026, it plans to commercialize up to 11 new therapies, ranging from biologics like Adagrasib for colorectal cancer and non-small cell lung cancer to more exotic interventions, like tumor treating fields (TTFields), which is a therapy based on electromagnetic energy projected from a specialized device. That's sure to massively juice Zai Lab's 2022 revenue of $215 million in the near term while also driving growth for years to come.
For reference, in the U.S. Novocure is the only company with a commercialized TTField therapy so far. But, Novocure's protocol targets mesothelioma, whereas Zai Lab's mesothelioma TTField program is still in preclinical testing, so its upcoming launches probably won't face direct competition for a while, especially not if they enter the Chinese market first. And that's likely part of the reason why Wall Street is so bullish about the stock.
It also has a slew of other pipeline programs for indications in neurology, infectious disease, and autoimmune disorders, many of which are in the later stages of clinical development and are slated to report results or experience key regulatory catalysts in 2023. And every catalyst is an opportunity for its shares to rise, as are the programs it's slated to launch in the next few years.
So why did its shares fall in the first place? The answer is likely that investors in 2022 were skittish about Chinese companies due to the provenance of the financial audits required by Chinese regulations, which could have led to certain businesses being delisted from U.S. exchanges. But Zai Lab promptly hired a U.S.-based auditor, so it should be in compliance with the relevant regulations, and there have not been any allegations of wrongdoing or impropriety directed at the biotech at any point. In other words, if you're looking for a growth stock to buy soon, Zai Lab could be it.
2. Guardant Health
Guardant Health (GH 4.38%) is a cancer testing company that saw its shares fall by 63.8% in the last three years thanks to the bear market and its ongoing struggles with unprofitability. Analysts see its stock rising by roughly 30% (at the lower end of price targets) in 2023 -- here's why.
Guardant makes a few different tests so that clinicians can use its products to evaluate patients at every stage of the oncology care chain. That means it has solutions on the market for cancer screening, characterizing a patient's disease so that the appropriate treatment can be selected, examining whether the chosen treatment is working to suppress the disease, and finally, remission monitoring.
Sales of its portfolio generated $126.9 million in Q4 of 2022, a 17% rise compared to a year prior, and it just got approval from the Food and Drug Administration to sell another one of its tests, Guardant360 CDx. Management anticipates that the company will see its 2023 revenue rise by 20% to reach up to $540 million as a result of the approval in addition to ongoing market penetration efforts with its older set of products.
But the real catalyst for its shares to rise will be getting its tests to be reimbursable by insurance schemes in the U.S. and Japan, which could happen in 2023. With insurance reimbursement, the number of treatable patients will increase significantly, which management claims will help it to realize efficiencies in its reimbursement operations, not to mention increase the beneficial impact of economies of scale in its commercial infrastructure and laboratory operations. And those improvements will help to shore up its margins, potentially by quite a bit over the years that follow.
The company probably won't be profitable anytime before the end of 2025, but it expects to slash its expenses every year after 2022. Given that it plans to spend $350 million of its $1 billion in cash in 2023, there's a significant risk that it'll run out of money before it can get to breakeven. Nonetheless, if it can accomplish its turnaround, investors who took a chance on its shares today are likely to benefit, and there's reason to believe that getting its tests to be reimbursable will indeed be the piece that ties the whole plan together.
