EUR 850.00 For Business Accounts Only

Morningstar | No-Moat Jazz Pharmaceuticals Remains Reliant on Xyrem Sales in Narcolepsy

Jazz Pharmaceuticals found large success with narcolepsy treatment Xyrem and is now transforming into a diversified orphan-focused pharmaceutical firm for life after Xyrem. While the firm still has a way to go, its Exemplary stewardship and successful execution of Xyrem's tricky pricing situation give us confidence in its ability to execute. However, given the uncertainty around the entry of Xyrem generics and Jazz’s lack of diversification in its current portfolio, we believe there is a risk that late-stage opportunities will be acquired too late to meaningfully offset Xyrem's decline.Following Xyrem, we expect the majority of the firm's growth will come from business development activities. After the discontinuation of several drug candidates, Jazz's pipeline looks sparse, although next-generation narcolepsy treatment solriamfetol (formerly JZP-110) and the potential for label expansion in its current products are promising. We believe Jazz is one of the better acquirers in the specialty pharma industry. In addition to its early adoption of the inversion strategy, Jazz has shown patience in waiting for the right deals--orphan products with favorable prospects--and has even bought back its own shares, showing that it is not engaged in a reckless growth-at-all-costs strategy. Jazz paid just $150 million in 2005 to acquire Xyrem, which now contributes multiples of that amount in profit each year. Future acquisitions and licensing deals are unlikely to be quite as lucrative, but we still believe they will create value for shareholders.The big question surrounding Jazz is its ability to retain Xyrem revenue post patent expiration. The inconvenient dosing of Xyrem, which requires one dose before going to sleep and a second dose four hours later in the middle of the night, creates opportunity for lifecycle management. However, given Xyrem's expensive price, pharmacy benefit managers have downplayed their willingness to pay a premium for convenience of dosing. Due to this dynamic, follow-on sleep treatments for Jazz may need to sell for a lower price point than Xyrem’s current levels.