Bullish Dancing with Jazz Pharmaceuticals (written October 2012) (P.S. I was right.)

With Jazz Pharmaceuticals’ (NASDAQ: JAZZ) remarkable share price increase from a 52-week low of $34.02 to a recent high of $60.00, it makes you wonder how much gas JAZZ has left in the tank.

A biopharmaceutical company based in Ireland, JAZZ produces sixteen different medications pertaining to narcolepsy, pain management, oncology, psychiatry, and women’s health. Its distribution areas include the United States, ten countries in Europe, and eighty other countries worldwide. Since swallowing Azure Pharma in January and EUSA Pharma in June, JAZZ’s price has been trending upwards.

JAZZ’s primary growth engine is its narcolepsy drug, Xyrem: the only Food and Drug (FDA)-approved treatment of both cataplexy and excessive daytime sleepiness in narcolepsy patients. The company got a big boost this September when Xyrem was protected by a federal court largely siding with JAZZ against Roxane Laboratories, which had hoped to get FDA approval for its generic version of Xyrem. It is rumored that Roxane Laboratories will try again to dethrone Xyrem sometime in mid 2013.

JAZZ was also supercharged with the September issuance of ten US patents regarding Xyrem’s formulation, manufacturing, and distribution system. These patents’ expiration dates range from 2019 to 2024, so JAZZ looks to be in good shape for quite some time.

The company is not without its competitors, which include: GlaxoSmithKline (NYSE: GSK), Pfizer (NYSE: PFE), Novartis (NYSE: NVS), and Teva Pharmaceutical (NYSE: TEVA). However, in the narcolepsy market, JAZZ remains largely unchallenged. Narcolepsy has historically been under diagnosed—but that is changing. Therefore, Xyrem will likely increase in demand and in price. This bodes well for JAZZ.

While JAZZ lacks portfolio diversity in comparison to some of its competitors, it does have sixteen medications under its belt. EUSA Pharma, a subsidiary of JAZZ, has had great success with its oncology treatment drug, Erwinaze. Nevertheless, JAZZ will live and die by Xyrem.

For now, JAZZ appears healthy and trending towards growth. Although, there has been no insider trading since November 2011, and the company has no intention of offering a dividend any time soon. The company’s revenue is expected to hit $613 million for 2012, which would more than double its $272 million revenue in 2011. JAZZ’s PE ratio remains one of the highest in the biotechnology and drugs industry, which makes it a speculative growth stock; however, the stock shows bullish trends and strong strength relative to its competitors. JAZZ should continue its growth for at least a year or two if Xyrem does not encounter any class action suits (none are pending) or threats from JAZZ’s competitors.

Works Consulted

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