Although he has a billion dollar drug in his wallet, the potential for stealth entry into the marijuana market, and being consistently profitable for years, Pharmaceutical Jazz (NASDAQ: JAZZ) was hit in the head by the stock market last year with a 22.8% drop in its shares, according to data provided by S&P Global Market Intelligence.
The decline began in the summer when Jazz reported second-quarter earnings that showed sales of its leading sleep disorder drug, Xylem, fell 25% from a year earlier. Although this was due to the fact that patients were in the process of switching to its next-generation drug, Xywav, combined sales were only 3% higher.
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The market seems to have misjudged the potential of biotechnology by dropping its stock by nearly 25% in August. While the sleep disorder drug sales chart was not exactly robust, Xywav is the future of Jazz and will provide many years of extraordinary returns as it is a big improvement over Xyrem. With virtually no sodium, it may offer a safer treatment option for patients with co-morbidities such as hypertension and cardiovascular disease.
The market also ignored that Xywav was granted orphan drug status for the treatment of adult patients with cataplexy or excessive daytime sleepiness in patients seven years of age or older. This gives Jazz a seven year window of exclusivity.
The potential was bolstered by the company’s third-quarter results, which showed combined sales of the two drugs to total more than $ 1.3 billion for the first three quarters of 2021.
The acquisition of GW Pharmaceuticals by Jazz Pharmaceuticals also gave it access to Epidiolex, for tuberous sclerosis of Bourneville and two forms of childhood epilepsy. Based on cannabidiol, or CBD, the non-psychotropic compound found in marijuana, it’s a way for investors to get cannabis exposure without having to buy a pure-play pot stock. It also has the potential to become another billion dollar opportunity if it can increase the number of indications it’s approved for.
The stock market seemed to finally realize its mistake and started to raise Jazz Pharmaceuticals shares in December, a trend that continued into the new year. Shares are up 25% from their November lows and hit 15% in 2022 alone.
This rally was sparked by Xywav obtaining another orphan drug designation, this time for idiopathic hypersomnia, another chronic neurological disorder for excessive daytime sleepiness, this time only for adults.
Jazz also has a robust oncology platform which has generated over half a billion dollars since the start of the year.
At just eight times the earnings estimates and 11 times the free cash flow it produces, Jazz Pharmaceuticals is a heavily discounted company. biotechnology with many paths to blockbuster status.
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