JAZZ - Sector: Healthcare---Industry: Biotechnology

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Jazz Pharmaceuticals: When Is FDA Rejection a Good Thing?
December 20, 2010 

By Alexander Moschina

It wasn't exactly the way that California-based Jazz Pharmaceuticals (Nasdaq: JAZZ) wanted to start the week.

On Monday, October 11, word came through from the Food & Drug Administration that it had rejected the company's fibromyalgia treatment called JZP-6.

The reason? Turns out it contains sodium oxybate – an active ingredient in GHB, also known as "the date rape drug."

But then a funny thing happened. Rather than Jazz shares getting clobbered (as you'd ordinarily expect after such news), the stock began to climb. From a closing price of $10.51 on October 11, the stock now sits at $19.08 (as of December 20) – a remarkable 81% gain, which included a 52-week high of $19.41 on December 17.

In addition, Jazz's third quarter earnings results led the company to raise its full-year profit forecast by 38% to $1.45 – $1.50 per share.

Year-to-date, Jazz shares are up a whopping 142%. And going into 2011, this drug manufacturer shows no sign of slowing down...

Two Drugs... A 79% Combined Sales Jump – And Just a Taste of Things to Come...

Breaking down Jazz's third quarter results, the company notched up total revenue of $44.8 million – a 45% jump over the $30.8 million during Q3 2009. The increase came as it saw a significant sales rise for two of its major drugs...

•Luvox: The anti-depressant, used to treat Obsessive Compulsive Disorder, brought in $6.6 million for the quarter. Year-over-year, sales of the drug have increased more than 30%.
•Xyrem: This drug is taken to prevent cataplexy attacks (episodes of muscle weakness) in patients with narcolepsy. It raked in $37.2 million for the quarter – a 49% increase over 3Q 2009. But this treatment will soon yield even bigger profits...
Jazz Shares Are Flying... With Rising Sales and Prices Set to Fire Shares in 2011

Any day now, Jazz will raise the price of Xyrem by as much as 22%. And considering that the drug makes up more than three-quarters of the company's total revenue, the hike is guaranteed to send 2011 profits soaring.

According to Jazz co-founder and President Robert Myers, "We could more than double that current price and still be below [the price] ceiling."

And as prices go up, research and development costs are plummeting, making way for huge profit margins. During the third quarter of 2009, R&D expenses totaled $7.6 million, but in the same period this year, they fell to $7.3 million. Overall, costs have dropped by more than 40% this year.

So even though the FDA rejected Jazz's fibromyalgia treatment, that's not enough to squash this up-and-coming biotech. Unlike other one-trick companies, Jazz already boasts two major products with sales rising. Plus, it's now cheaper for the company to develop the items in its pipeline.

In a recent conference call, CEO Bruce Cozadd described 2010 as a "pivotal" year for the company. And thanks to the strong momentum Jazz has built, 2011 is shaping up to be even bigger.

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[setravis]

Jazz Pharmaceuticals continues to rebound from it's failure to get its Xyrem approved in fibromyalgia based on better financial outlook based in part on price increases for the drug. HeartWare rose on an analysis presented at the annual meeting of the American Heart Association that showed its device for helping the hearts of transplant patients pump may outperform that of rival Thoratec, which was one of the biggest decliners.

[setravis]

Jazz Hits High Note...

On the upside, Jazz Pharmaceuticals (JAZZ) jumped 4% in fast trade, clearing a 24.07 buy point from a square-box base. The 2007 IPO, featured in a New America article on Jan. 20, gets the lion's share of its revenue from Xyrem, a drug that treats narcolepsy. Jazz posted a string of quarterly losses through early 2009, but turned profitable in the second half of that year. EPS surged 583% in the latest quarter.

Day's Range: 23.15 - 25.23
52wk Range: 6.38 - 25.23
Volume: 1,551,183
Avg Vol (3m): 643,552
Market Cap: 942.59M
P/E (ttm): 62.91
EPS (ttm): 0.39
Div & Yield: N/A (N/A)

Technicals
Record Price High
Percentage Gainer
RS Rating: 95  

Ascending Triangle (continuation) Pattern...

[setravis]

Jazz Pharmaceuticals, Inc. (JAZZ)...
recently spiked to a new multi-year high on the company's third consecutive earnings surprise. With estimates on the rise and a bullish growth projection, stock sings in the key of momentum.

Jazz specializes in developing products for neurology and psychiatry primarily in the United States. The company was founded in 2003 and has a market cap of $1.12 billion.

Although JAZZ has been trending higher since early November, shares got an extra boost on March 7 after the company reported strong Q4 results that came in ahead of expectations.

Fourth-Quarter Results

Revenue for the period was up 39% from last year to $53.4 million. Earnings also looked good, coming in at 56 cents, 4% ahead of the Zacks Consensus Estimate, where the company has an average earnings surprise of 12% over the last three quarters.

The strong performance was led by the company's Xyrem, a narcolepsy and sleeping disorder drug, with sales up 36% from last year to $43 million. Full-year sales for Xyrem were up 47% from last year. Sales for its other leading product, Luvox, increased to $9.4 million from $5.7 million.

Financial Profile

With 2010 marking Jazz's first full year of profitability, the company's financial profile has been on the upswing. Cash and equivalents are up $16 million from last year to $45 million while total debt fell $76 million to $48 million.

Estimates

We saw some very bullish movement in estimates off the good quarter, with the current year adding 52 cents to $2.57 while the next-year estimate jumped $1.04 to $3.35, a bullish 30% growth projection.

Valuation

But in spite of the gains, the valuation picture still looks great, with a PEG ratio )PE/Growth) of .36%, well below the benchmark for value of 1.

12-Month Chart

On the chart, shares got a boost off the good quarter to hit a new multi-year high at $29.73. Take a look at the chart below.

[setravis]

  Jazz Pharmaceuticals  (Nasdaq: JAZZ  ) , maker of narcolepsy drug Xylem and OCD drug Luvox, gained 143% over the past year as its revenue soared. 
Healthy Momentum...Breaking out above 30 today.

Day's Range: 30.00 - 32.34
52wk Range: 6.38 - 32.34
Volume: 988,624
Avg Vol (3m): 765,810
Market Cap: 1.30B
P/E (ttm): 38.80
EPS (ttm): 0.83
Div & Yield: N/A (N/A)

Technicals
Record Price High
Percentage Gainer

Last Price Quote is:
11.25%above 13-day EMA
26.85%above 50-day EMA
RS Rating: 95