Jazz Pharmaceuticals PLC (JAZZ), a mid-cap Pharma equity based in Ireland has been a very successful trade on NASDAQ since 2007. The company specializes in narcolepsy, oncology, psychiatry, and Parkinson's treatment. Since 2007, JAZZ share price has increased by $136. The trend has been consistent with minimal insider acquisitions and a tremendous amount of organic growth, primarily from Xyrem, a medication used to treat Catalepsy and Excessive Daytime Sleepiness (EDS) in narcolepsy. Xyrem has brought in over $500 million of revenue TTM. Erwinaze, a compound used for acute lymphoblastic leukemia (ALL) treatment in patients with a hypersensitivity to E. Coli derived chemotherapy medications, has also contributed a large sum towards JAZZ revenue; nearly $200 million. With a forward PEG ratio of 0.3, Jazz is expecting to gain over $1 billion in revenues in 2014. At 2013's JP Morgan's Healthcare conference, JAZZ presented figures of increased EPS of 30-35% on a yearly basis; nothing short of its financial growth during the past four years.
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JAZZ has made deals and management collaborations in TTM, creating a competitive leverage over its peers. Since 2012, JAZZ has been expanding its inventory and will continue to do so in 2014.
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Jazz is currently outperforming the industry on its ROA, P/B, P/E, Revenue Growth, Operating Margin %, and Net Margin %.
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ADX-N05 is a phase III drug used to treat Catalepsy and EDS in narcolepsy. This condition effects 1 in 3,000 North Americans. The drug has shown to be over 60% effective compared to placebo trials. The drug initially designed and tested by Aerial BioPharma, has been acquired by JAZZ. Global development, manufacturing, and commercial rights from Aerial BioPharma have been transferred to JAZZ for $125 million. SK Biopharmaceuticals Co. Ltd. still own rights on ADX-N05 in Korea, Japan, China, Taiwan, Singapore, Indonesia, India, the Philippines, Thailand, Malaysia, and Vietnam. A certain percentage of royalties from JAZZ net sales of ADX-N05 will be given to both Aerial BioPharma and SK.
Aside from the instant 6% increase in share price upon revelation of this deal, JAZZ will benefit tremendously long-term. Acquiring rights on ADX-N05, which has a patent life of 13 more years, adds to JAZZ's current treatment options for EDS and Catalepsy. The drug is going to be in phase III for approval and JAZZ is considering additional labels such as treatment for EDS in Obstructive Sleep Apnea patients, a condition which affects over 15 million individuals in the United States alone.
JAZZ is also expected to close on a major deal with Gentium (GENT) this year. JAZZ will be paying $57/ share resulting in a total expense of $1 billion. This acquisition will allow JAZZ to gain rights over Defitelio, a drug used to treat veno-occlusive disease (VOD) in hematopoietic stem cell transplant patients. Defitelo has shown a 19% reduction in mortality rate when administered to patients with VOD at the appropriate time. VOD effects 60% of patients undergoing stem cell transplant. The FDA has granted the orphan drug a fast-track designation on its regulatory application which will be submitted this year.
Another reason to be a part of JAZZ's 14 billion outstanding shares involves the companies developing relationship with Neuralstem Inc. (CUR). A member of JAZZ's current board of directors, Dr. Catherine Angel Sohn has also joined CUR's board of directors. CUR has recently been approved by the FDA to run phase II trials on NSI-566. This compound was the first neural stem cell trial approved by the FDA to treat the untreatable Amyotrophic Lateral Sclerosis (ALS). NSI-566 is also being used in clinical trials for Ischemic Stroke, Spinal Cord Injury, Multiple Sclerosis, Optic Neuritis, Alzheimer's disease, Traumatic Brain Injury, Peripheral Nerve Injury, Diabetic Neuropathy, Lysosomal Diseases, Parkinson's disease, Huntington's disease, Cerebral Palsy, and Ischemic Plastic Paraplegia. Although many of these trials are in their initial stages, if approved, millions will be benefited. The synergistic relationship between CUR and JAZZ is something to keep a close eye on during the next few years.
Possible Bears & Future Outlook:
JAZZ PSR TTM is 27% higher than the industry. Although this does not take into account the company's debt, it is not a great valuation relative to its peers. With a $1 billion deal taking place this year, the company has resulted in a debt/equity ratio of 31%. However, thanks to Barclays, with an interest coverage ratio of 15 and a Quick Ratio of 4, JAZZ can easily pay off its liabilities.
Insider activity indicates the sale of over 3 million shares during the past two years. This may indicate that now is a time to reap profits rather than invest. With a decrease in R&D expenditure of $10 million since 2010, JAZZ may not embark on many new clinical trials of their own. The company has also increased total executive pay by $26 million since 2008.
With all this being said, multiple analysts have predicted JAZZ will generate over $1 billion in organic growth this year. Erwinaze, Xyrem, ADX-N05, Defitelio, and NSI-566, might be all JAZZ needs to maintain the revenue growth and positive ROE trends the company has seen over the past 7 years.
Additional disclosure: Research Assistant: Nicole Reynolds, BBA, Emory Goizueta Business