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JAZZ - Yesterday's Dilution Presents A Great Opportunity For Run-Up Positions

|Includes: Jazz Pharmaceuticals, Inc. (JAZZ)


I have recently opened up a small preliminary position on JAZZ (8.2 ↓9.49%) for its upcoming FDA PDUFA catalyst date of  October 11th, 2010 for the fibromyalgia drug “JZP-6″.

From Jazz Pharmaceutical’s press release on February 18th, 2010:

Jazz Pharmaceuticals, Inc. (Nasdaq: JAZZ) announced today that the U.S. Food and Drug Administration (FDA) has accepted for filing the New Drug Application (NDA) for JZP-6 (sodium oxybate) for the treatment of fibromyalgia. Based on a standard 10-month review, the target date for the FDA to complete its review of the NDA under the Prescription Drug User Fee Act (PDUFA) is October 11, 2010. The submission is based on a comprehensive clinical development program including results from two Phase III clinical trials. In both trials, sodium oxybate significantly decreased pain and fatigue as well as improved daily function, patient global impression of change, and sleep quality. Sodium oxybate was generally well tolerated, with the majority of adverse events reported being mild to moderate in nature and similar to those seen in previous trials with narcolepsy. Sodium oxybate has not been evaluated by regulators for the treatment of fibromyalgia and is not approved for this use.

Fibromyalgia is a complex musculoskeletal disorder clinically characterized by widespread pain usually accompanied by fatigue, insomnia, and dyscognition. According to the American College of Rheumatology (ACR), an estimated 6 million Americans suffer from fibromyalgia.

Fibromyalgia is a condition which only recently has had drugs approved by the FDA for treatment. In 2007, the FDA approved Pregabalin (Lyrica) as the first drug for the treatment of fibromyalgia. In June 2008, a second drug, Cymbalta, which was previously approved for treating depression, was FDA approved for treating fibromyalgia as well. In 2009 the FDA approved milnacipran (Savella) for the treatment of fibromyalgia.

Clinical trials of JAZZ’s JZP-6 (the active ingredient in Xyrem) showed that it significantly improved sleep quality and reduced pain in fibromyalgia patients. JZP-6 is a central nervous system depressant and is thought to help the patient attain the deeper stage 3 and stage 4 levels of sleep.

Take a look at the chart for JAZZ’s recent performance:

JAZZ peaked at $13.95 just seven weeks ago, making the  current $8-$9 range a bargain, especially with an FDA PDUFA date five months away.  This is a stock that I definitely will be adding more of as we get closer to October.  I will move much of the funds I have in ASCO trades to JAZZ and other October Run-Upplays.

JAZZ has just announced a direct offering, or what we call dilution.  From their press release on May 10th:

Jazz Pharmaceuticals, Inc. announced that it is offering to sell 7 million shares of its common stock pursuant to an effective shelf registration statement in an underwritten public offering. All of the shares in the offering are to be sold by Jazz Pharmaceuticals. Barclays Capital Inc. is the sole book-running manager of the offering. Jazz Pharmaceuticals intends to use all of the net proceeds from the offering to repay a portion of its outstanding senior secured notes.

It seems like the current dip is a great opportunity to get in before JAZZ heads back to the $13+ range.

My target price for JAZZ before its FDA date is $18.

See my website at for more trading information and daily updates to the free, no registration, FDA calendar.  Make sure to sign up for the spam-free email updates through Google's FeedBurner. Enjoy.

Disclosure: Long JAZZ