Janney Initiates Jazz Pharma At Neutral, Cites Potential Competition For 'Blockbuster Narcolepsy Franchise'

Janney started coverage of Jazz Pharmaceuticals plc - Ordinary Shares JAZZ with a Neutral rating, citing potential competition to its blockbuster narcolepsy franchise.

Jazz's history was based on the growth of narcolepsy drug Xyrem, but its future is dependent upon the success of Vyxeos, an NDA-ready treatment for acute myeloid leukemia that Jazz picked up in its July 2016 acquisition of Celator.

"Xyrem faces challenges from both branded competition and generics that are likely to limit Jazz's ability to sustain its blockbuster narcolepsy franchise beyond 2022. We expect muted growth until Vyxeos is FDA-approved and launched in 2H17. For this reason, we are initiating with a Neutral," analyst Ken Trbovich wrote in a note.

Jazz currently derives about $1 billion in annual sales, or 85 percent of its revenues from Xyrem. Growth of the franchise has come primarily from price, which now exceeds $100,000/patient/year.

Jazz began the transition away from its dependence on Xyrem for future growth with its acquisition of EUSA Pharma for $680 million in 2012 and furthered its move toward hematology-oncology (hemonc) with the $1 billion acquisition Gentium in 2014.

In addition, Jazz's $1.5 billion acquisition of Celator Pharmaceuticals gives Jazz's hemonc business Vyxeos, a treatment in development that showed an improvement versus the standard of care in overall survival for patients with acute myeloid leukemia (AML).

Trbovich noted that Vyxeos is likely to be the first major advancement in the treatment of Acute Myeloid Leukemia (AML) in decades to gain FDA approval after showing a benefit in overall survival, and it may also work in other forms of hematologic cancer.

"Though we see much potential in Jazz's pipeline, primarily Vyxeos and to a lesser extend JZP-110, these products are not likely to begin contributing to revenues until 2018 and 2019, respectively. Absent meaningful growth until 2018 and meaningful catalysts for the stock until mid-to-late 2017," Trbovich added.

Janney expects 2016 non-GAAP EPS of $9.81 on revenue of $1.478 billion, while its 2017 estimates is at $9.23/$1.558 billion.

At the time of writing, shares of Jazz Pharma were down 0.45 percent to $129.38.