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JAZZ PHARMACEUTICALS: WHY INVESTORS EXCITEMENT?

Prohost Biotech - Monday, July 07, 2014

Jazz Pharmaceuticals’ (JAZZ) surged following the announcement that it has signed a definitive agreement with Sigma-Tau Pharmaceuticals to acquire the rights for the Americas to the drug defibrotide. JAZZ gained $10 on Wednesday July 2 and added another $0.80 on Thursday July 3 after a brief profit taking. The stock ended the week of the 4th of July trading at $162.82, rebounding from a selloff resulting from analysts’ downgrades in the name of stock price correction.    

In January 2014, Jazz acquired a company called Gentium S.p.A., which owned a drug called defibrotide. Thirteen years before that date, i.e., in December 2001, Gentium had entered into a license and supply agreement with Sigma-Tau Pharmaceuticals, Inc., offering it exclusive rights to distribute, market and sell defibrotide for hepatic veno-occlusive disease (VOD) in the United States. In 2005, Sigma-Tau expanded the license territory to all of North America, Central America and South America. So, with the acquisition of Gentium, Jazz did not acquire the right to sell the drug in these important territories. By signing the new agreement with Sigma-Tau Pharmaceuticals, Jazz captured the world market for defibrotide.   

Currently, Jazz is already selling defibrotide in Europe by the name Defitelio® for severe VOD in patients over one month of age undergoing hematopoietic stem cell transplantation (HSCT) therapy. In the meantime, Jazz is working with the FDA on the regulatory pathway for submission of a New Drug Application (NDA) for the approval of defibrotide for the treatment of patients with severe VOD.

Why investors’ Ecstasy about this news?

Answering this question, Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals said, "The acquisition of the remaining worldwide rights to defibrotide is a strong strategic fit with our specialty focus and would continue the momentum of our recent launch of Defitelio in the EU, further leveraging our global clinical and commercial expertise in hematology/oncology." Mr. Cozadd added, "This transaction supports our mission to improve care for patients with serious medical conditions, and we remain committed to making targeted investments to develop and bring to market differentiated treatments for patients."

The truth is that the firm’s history convinced investors, especially the long-term JAZZ shareholders that this firm has a precious management with good taste for picking promising and meaningful drugs that exist in other firms’ pipelines and acquire them. The firm's next step has been stretching these therapeutics’ markets by finding and adding more diseases they know the drugs could be more effective in treating than the conventional treatments.

Two years after its inception, in 2005, Jazz acquired the firm Orphan medical, bringing into its  pipeline its best selling drug Xyrem (sodium oxybate) for narcolepsy (falling asleep during daytime) and cataplexy (feeling week or developing sudden muscle paralysis following strong emotions.) Jazz then conducted clinical trial with sodium oxybate for fibromyalgia (FM). However, in spite of the highly positive results from this trial, the FDA has yet to approve the drug for this indication mostly because of concerns about abuse.  

In 2012, Jazz merged with Azur Pharma, bringing in three drugs: Prialt – a non-opioid, no-NSAID chronic pain killer; FasaClo for severe schizophrenia and VersaCloz for severe schizophrenia that does not respond adequately to standard antipsychotics. In the same year, Jazz acquired Eusa pharmaceuticals, adding Erwinaze (asparaginase) for acute lymphoblastic leukemia (ALL) patients who developed allergy to E. coli derived asparaginase and pegaspargase chemotherapy drugs used to treat ALL. In 2014, Jazz acquired the rights to GZP-110 from Aerial Biopharma and acquired Gentium, adding defitelio (defibrotide). It then acquired the rights to defibrotide for America’s markets from Sigma-Tau Pharmaceuticals as we mentioned in the beginning of this article.

So, investors had ample reason to trust Jazz’ new acquisition and get excited about it. As a matter of fact, acquiring the drug for America’s markets is an excellent corporate decision. Defibrotide’s market, although small in the indication it has been approved for in Europe, it could be stretched a lot through possible new indications. There is no doubt that the news is exciting. The drug is the first to prevent and treat VOD, which has no other approved treatment and can also be used to prevent other transplantation complications like, for example, Graft Versus Host Disease (GVHD). Good news also is that Sigma-Tau has already done a great job with the trials and with the FDA. All  Jazz has to do now is to file for approval, which is expected to occur in early 2015.      

Hepatic veno-occlusive disease (VOD) is an early complication of HSCT therapy. When severe, VOD becomes fatal in over 80% of patients and associated with multiple organ failure. One has to imagine patients with hematological malignancies, solid tumors and serious hemoglobinopathies who resort to hematopoietic stem cell transplantation therapy (HSCT) seeking a cure, die instead from the VOD complication of the transplant. That’s how important is defibrotide. It is the only drug that can save patients from death while permitting a cure they wished to reach. Results of studies suggest that 5-15% of patients undergoing HSCT develop VOD.

In addition to its existing approved indication in Europe, defibrotide is on its way to be granted approved in other countries. The FDA has granted defibrotide orphan drug designation to treat and prevent VOD. The Korean Ministry of Food and Drug Safety (MFDS) and the Commonwealth of Australia-Department of Health did the same. The FDA has also granted the drug Fast Track designation to treat severe VOD.   

Jazz expects to fund the transaction with cash on hand. The transaction will close during the third quarter of 2014, subject to customary closing conditions, including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Jazz is trading over $162, Its market cap is 9.67 billion, revenues are $923.16 million, net income is $80.24 million and EPS is 1.32. Jazz quarterly revenue growth (yoy) is 25.80%.

Stock splitting, if happens, would help small investors share the joy of this firm’s ride.

FORWARD-LOOKING: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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