Jazz: Your FDA Panel Primer

| About: Jazz Pharmaceuticals, (JAZZ)

Jazz Pharmaceuticals (NASDAQ:JAZZ) is a small biotech firm specializing in treatments for neurology and psychiatry patients. Jazz has two products currently being marketed in the U.S.: Xyrem for the treatment of narcolepsy, and Luvox CR for the treatment of social anxiety disorder and obsessive compulsive disorder. Currently, a new drug application is under review for Jazz's fibromyalgia therapy currently referred to as JZP-6.

As part of the evaluation process, the FDA has scheduled a panel, in which it consults experts for potential concerns, for August 20. FDA panels usually cause significant price swings in the stock in the company under evaluation -- so much so that trading is halted for the entire day that the panel takes place. Due to the potentially huge price swing in Jazz's stock, I wanted to address what I thought was especially important for investors (and speculators!) to know heading into this event.

What is JZP-6?

JZP-6 is an oral solution of sodium oxybate. It is usually administered in two doses of 2.25g (4.5g total) or 3g (6g total) -- one dose at bedtime and the other taken 2.5 to 4 hours later. It has been shown to significantly reduce pain, reduce fatigue, improve physical function, and improve sleep in patients with fibromyalgia. Side effects appear to be generally mild and statistically higher incidence of headache, nausea, dizziness, and vomitting were reported in phase III trials. An NDA was submitted to the FDA in December 2009, has an FDA panel on August 20, 2010, and expects a Prescription Drug User Fee Act date of October 11, 2010. JZP-6 is identical in active ingredient, dose amount, and dose administration to Xyrem, a drug already approved by the FDA and marketed by Jazz for the treatment of narcolepsy.

Likely concerns by the FDA

What will probably be the biggest issue facing JZP-6 is the fact that sodium oxybate is actually just a fancy name for gamma-hydroxybutyric acid, or GHB. Technically it is the sodium salt of GHB, but upon treatment with acid, say in the stomach, the sodium salt is protonated to furnish the acid. GHB is a schedule 1 controlled substance in the U.S., meaning it has a high potential for abuse. However, when marketed as Xyrem, it is considered a schedule 3 controlled substance. GHB is used recreationally as a general intoxicant and more infamously and maliciously as a date rape drug.

Because of the potential for abuse, great lengths have been taken to control the distribution of Xyrem -- the drug identical to JZP-6. Instead of being distributed through a retail pharmacy, the company has in place a direct shipping program to lessen the potential of clandestine use. Xyrem was given the status of 'orphan drug', meaning it has an especially small potential market size. With an estimated 2-4% of the population with fibromylagia, the potential market for JZP-6 is significantly larger. Additionally, the symptoms of fibromyalgia, usually muscle and connective tissue pain, are not easily observed by a physician and could make it especially easy for those seeking the drug for illicit purposes to obtain by faking those symptoms. The FDA panel will be especially concerned about whether the benefit to fibromyalgia patients will be outweighed by the harm of tremendously increased distribution of legitimate GHB.

I don't expect issues to arise based on the efficacy or side effect profile of the therapy. First, JZP-6 is identical to Xyrem, which has already been approved for sale in the U.S. by the FDA. Sodium oxybate/GHB is a generally well tolerated therapy with side effects being especially mild. GHB is even found naturally in low concentrations within the body, so it is even unlikely that allergic reactions or other serious complications will be an issue. Secondly, the efficacy seems very good and this will only be the fourth approved therapy for fibromyalgia.


Jazz Pharmaceuitcal's JZP-6 will have much to worry about with the upcoming FDA panel, but it won't be for patient efficacy or safety reasons. This panel will primarily focus on the societal harm of increased sodium oxybate/GHB distribution versus individual patient benefit. The unconventional cost-benefit analysis makes this a highly unpredictable panel decision and speculation on the event may be more of a gamble than most. However, the high potential payoff of a favorable decision should generate significant interest; expect to hear much more about Jazz and JZP-6 as August 20th approaches.
Disclosure: Long JAZZ