Jazz Pharma Could Be Worth Over $200 If Xyrem Adds Long-Term Value: Here's How

In a report published Friday, Leerink analyst Jason M. Gerberry maintained an Outperform rating on Jazz Pharmaceuticals plc - Ordinary Shares JAZZ, while raising the price target from $201 to $220. The analyst expressed optimism in Xyrem life cycle management (LCM) adding long term value.

The Future of Xyrem

The company does not appear to be making any meaningful changes to Xyrem that could require either clinical or non-clinical data. Rather, Jazz Pharma intends to develop the drug in an abbreviated form. Given that the active pharmaceutical ingredient in Xyrem is rapidly metabolized by the body, the drug’s bioavailability is low, at 25 percent.

This low bioavailability means that very high doses are required, twice nightly. In addition, there have been abuse concerns, due to which Xyrem is a schedule 3 drug.

Solutions

However, the analyst believes that there are various identifiable strategies that could help Jazz Pharma address the low bioavailability issue. In addition, “JAZZ’s deuterated program with CNCE (NR) appears to be a viable approach to achieving once-nightly dosing,” analyst Gerberry stated.

According to the Leerink report, “[A]dding abuse deterrent (AD) technology looks feasible but there is minimal support in the intellectual property (IP) database to substantiate this approach.”

Also, there is a possibility that using a transdermal delivery method could alleviate abuse concerns, although this would require extensive work.

History of Positive Sentiments

The positive sentiment on Jazz Pharma seems to have arisen much earlier, in a report published May 26, where Guggenheim analyst Louise Chen maintained a Buy rating on the stock, while raising the price target from $210 to $220. Following a meeting with the company’s leadership team, the analyst believed that the market was underappreciating the sustainability of Jazz Pharma’s earnings.

Analyst Chen expected Xyrem to be able to maintain brand sales exclusivity beyond 2020, giving the company the required time to diversify into new products. In addition, “JAZZ's low tax rate is a valuable asset and could make it attractive in a consolidating space, in our view,” analyst Chen said.

In another report, published June 28, UBS analyst Marc Goodman maintained a Buy rating on Jazz Pharma, while raising the price target from $190 to $210. The analyst expected Xyrem sales to grow to about $900 million in 2015 and stay protected from generics through 2019, at the very least.

“A low tax rate in the mid-20s and a strong balance sheet should support management’s inorganic growth strategy,” analyst Goodman had stated, while adding that he continued to “believe in the management team's ability to execute and deliver double-digit EPS growth.”