Following the overwhelming negative FDA panel vote against Jazz Pharmaceuticals’ (NASDAQ:JAZZ) fibromyalgia treatment JZP-6, the agency’s complete response letter did not come as a surprise. What may surprise is that Jazz shares have recovered nearly all their value since the advisory committee vote two months ago.
Even as the FDA document asked for additional clinical work to clarify the safety of taking JZP-6, along with risk mitigation questions, Jazz shares were up 8% last week to $10.95 by close on Wednesday. This surprising behavior - just two months after shares fell more than one-fifth to $7.96 on the day following the adcom vote - likely reflects the fact that investors were holding out little real hope of the drug reaching the market, even before the advisory committee review. Investors appear to have moved on; it would not be surprising if the company now does the same by drawing a line under this project.
New trials needed
The complete response letter delivered Monday to the California company specified additional trials to test the safety of JZP-6 when taken with other medications, chairman and chief executive Bruce Cozadd said in an investor conference call.
This issue was raised at a joint meeting of the FDA’s Arthritis and Drug Safety and Risk Management Advisory Committees back in August. JZP-6, generically known as sodium oxybate and with a planned trade name of Rekinla, is a lower-formulation of Jazz's narcolepsy therapy Xyrem (Jazz hears adcom sing from different song sheet, August 23, 2010). Experts said the difference in the brand names held the potential to cause medication errors by prescribers who did not know they were the same molecule.
In addition, there were questions surrounding the safety of the middle-of-the-night dosage, which could be left unprotected by adult bedsides and consumed by children, experts claimed at the adcom meeting. The FDA also requested a clarification on selection of an appropriate patient population.
Jazz had submitted additional data and revisions to its planned risk evaluation and management strategy (REMS) to the FDA following the adcom meeting, Mr Cozadd said. The complete response letter said the FDA did not factor this new information in its regulatory response, so there is the possibility that the company has already taken steps to address regulators’ concerns.
Even though investors appear to have taken this decision in their stride, this news represents a big miss for the company. With analysts from Jefferies forecasting sales of $216.4m in 2015 before the adcom vote, the product would have represented Jazz’s biggest growth driver.
Capstone Investment remained much more skeptical, penciling in $41.4m in sales in 2012, the year Jefferies was forecasting $112.4m.
Jefferies remained bullish following the adcom vote, trimming forecasts to $154.6m in 2015, but still estimating a launch in 2011. With the call for new trials and the real chance of the company abandoning this project, these forecasts are likely to move to zero.
Missing their water
Investors appeared to be completely ignoring the optimism of analysts. With the net present value of Xyrem representing 96% of the company’s market capitalization of $425m, it could be concluded that the stock market was not assigning any value to JZP-6, even before the adcom vote. The fall in August could be put down to a typical instant reaction to a negative event.
The company faces difficult choices if it wants to fund further trials. The company had $9.6m cash on June 30 and $32.7m debt, and only raised money from shareholders in the first half of the year, to help refinance this debt.
Paying for another round of expensive trials will be a hard call; investors may prefer Jazz to start playing another tune.