UBS Likes The Tune Of Jazz Pharma's Settlement With Hikma

Jazz Pharmaceuticals plc - Ordinary Shares JAZZ announced on Wednesday it has reached a settlement agreement with Hikma Pharmaceuticals Plc (ADR) HKMPY to resolve a patent litigation related to Xyrem oral solution that has been pending in the U.S. District Court for the District of New Jersey since 2010.

The Settlement

The litigation was submitted by Roxane Labs, which was since then acquired by Hikma, and pertained to an FDA ANDA filing seeking marketing approval for a generic version of Xyrem. The settlement agreement provided Hikma the right to market an authorized generic version, or AG, of Xyrem in the United States, commencing January 1, 2023, or earlier under certain circumstances.

Very Good Outcome

Following the announcement, UBS said it views the January 2023 date as a very good outcome. It allows Jazz to earn substantial royalties from Hikma. This could also prevent a launch from the late filers any earlier than their December 2025 settlement, while also allowing ample time for bringing a next-gen to market.

UBS analyst Marc Goodman noted that the AD will be marketed through Xyrem's REMS program, with Hikma possessing the option to extend the initial six-month term up to five years. The firm expects Jazz to get a meaningful tiered royalty based on the AG sales during the initial six months.

"The rate would increase further substantially if the AG term is extended beyond a year," the firm noted.

"If Jazz switches a substantial portion of Xyrem sales to the next gen prior to the AG entry, we believe the deal probably allows Hikma to launch earlier (before 2023) and lowers royalties to Jazz."

UBS also noted that Jazz has retained the right to assign additional AGs and/or launch its own AG as well. In another development, the firm noted Jazz has adopted a Rights Agreement, effective for one year, to ward off any takeover attempt at an inadequate price.

Overhang Removed

Concluding, UBS said, "This increases visibility around the cash flows for this product and removes a significant overhang on the stock." Under any scenario, the firm views this as a good deal.

UBS maintains its Buy rating and $168 price target on the shares of Jazz Pharma.

At the time of writing, Jazz shares were soaring 7.79 percent to $151.60, while Hikma shares were down 1.29 percent at $1,907.

Related Links:

Carl Icahn's Track Record In Big Pharma

Adam Feuerstein Sees Major Price Manipulation In Small-Cap Pharma Stocks