Tuesday, February 12, 2019

A Current AIM International Equity Holding: Jazz Pharmaceuticals (JAZZ, $128.68): “Jazz Hitting Its High Note?” By: Luke Smrek, AIM Student at Marquette University

Jazz Pharmaceuticals Plc (JAZZ, $128.68): “Jazz Hitting Its High Note?”
By: Luke Smrek, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Jazz Pharmaceuticals (NASDAQ: JAZZ) is a biopharmaceutical company, which focuses on the identification, development and commercialization of pharmaceutical products in the areas of narcolepsy, oncology, pain and psychiatry. The company was founded in 2003 and is headquartered in Dublin, Ireland.

• On June 29, 2018, Jazz Pharmaceuticals sold its rights related to Prialt to TeraSera Therapeutics for $80 million in cash at closing. The transaction allows Jazz to focus on their core therapeutic areas of sleep medicine and hematology/oncology.

• In just the third quarter alone in 2018, Jazz’s total product sales increased by 14% and 20% for the year, compared to the third quarter in 2017. This is due to the increase in revenue sales from Xyrem and Vyxeos. Xyrem is an oral solution for cataplexy and narcolepsy and is the only FDA product of its kind. Vyxeos is a liposome injection and helps in the treatment of leukemia.

• On January 3, 2019, Jazz Pharmaceuticals entered into a strategic collaboration agreement with Codiak BioSciences to focus on the research, development, and commercialization of exosome therapeutics to treat cancer. Jazz is making an upfront payment of $56 million, while Codiak will fund early research for all five of their projects.

• JAZZ is a leader in the pharmaceutical industry and is well positioned to improve on its market share. The hematology and oncology portfolio is being heavily invested in and the FDA approval of new drugs will increase their revenue growth.

Key points:

Xyrem is Jazz’s largest selling product which accounted for 73% of revenue in the third quarter of 2018 alone and 74% of net sales for the year 2017. Financial results are significantly influenced by Xyrem and the company will continue to enhance the products intellectual rights and safety for patients. In 2019, Xyrem can potentially reach peak sales of $1.3 billion.

Key growth drivers remain in place for Jazz Pharmaceuticals as the they continue to develop strategic collaborations to further their research and create FDA products. Heavy research into hematology and oncology is expected to generate high results for Jazz as this is an area that is in need in the U.S, and with Jazz’s products waiting for approval it is only a matter of time.

For the year 2019, expected annual growth in earnings is 17.6% which is just below the industry average for pharmaceuticals of 20.8%. However, it is above the expected earnings for the market which is at 13.7%. Jazz’s revenue growth is expected to be 8.3% for the year which is above the pharmaceutical industry average of 5.1%. These metrics show that Jazz will continue with steady and high earnings growth while exceeding the industry in revenue growth.

Jazz Pharmaceuticals is expected to efficiently use shareholders’ funds in the future as their return on equity is 23.9% and is above the pharmaceutical industry’s 16.4%. This leaves room for Jazz to invest in new products and technologies as the healthcare industry starts expanding into unseen areas.

What has the stock done lately?

From November 30 to December 21, 2018 the stock significantly dropped from $151.20 to $115.94 representing a 23.3% decrease in stock price. Since then, Jazz’s stock price has increased to its current $128.68. Over the last three months the price has decreased by 21.09%. However, the stock price has been steadily increasing since its low in December.

Past Year Performance: 

JAZZ has decreased in stock price the last year by 10.53%. However, recent performance indicates that 2019 will fare better than 2018 as its investments and products start to payoff and earn high revenues. With the collaboration of Codiak BioSciences, and focus on hematology and oncology, investors should view Jazz as undervalued with the forward-looking trend looking profitable.

Source: FactSet

My Takeaway

While Jazz Pharmaceuticals did not perform relatively well the last year, their increasing focus on emerging health issues and technology as well as enhancing their current top products will likely turn the company around in 2019. As the pharmaceutical industry looks to increase earnings and revenue by 20.8% and 5.1% respectively, Jazz is around and above those marks and will look to gain market share in 2019. Jazz is continually looking for strategic collaborations to further their research and development and release new pharmaceutical products. These moves could lead drive the company down if not done strategically, however Jazz Pharmaceuticals is now highly undervalued and leaves room for the company to take big strides in the pharmaceutical industry.

Source: FactSet