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.
Summary
• 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
