Jazz Pharma To Evaluate If Generic Xyrem's FDA Waiver Meets Required Legal Conditions

The Move

At time of writing, the company's shares were rallying over 11 percent on roughly 2.6 times the average volume on Wednesday. This represented a reversal in sentiment from the move in after-hours trading Tuesday when the shares shed over 6 percent.

News Behind the Move

The FDA announced late Tuesday that it approved the first generic version of Xyrem, sodium oxybate, oral solution to treat cataplexy and excessive daytime sleepiness in patients with narcolepsy. Cataplexy is a condition where patients suddenly lose muscle tone, including voluntary muscle control, while awake.

A Reuters report stated that the manufacturer of the generic version was identified as Roxane Laboratories by the FDA. This triggered a steep retreat in the shares of Jazz Pharma on Tuesday after hours.

Xyrem is Jazz Pharma's lead narcolepsy medication, and it was acquired following the company's purchase of Orphan Medical in 2005. The latter had received FDA approval for Xyrem to treat cataplexy in patients with narcolepsy.

The company's third-quarter earnings revealed that Xyrem fetched it revenues of $285.91 million (about 76 percent of total) in the third quarter of 2016 and $816.41 million (roughly 75 percent) for the nine months ending September 30, 2016.

Due to the risks associated with Xyrem at recommended doses, the medication is available under Risk Evaluation Mitigation Strategy programs in order to ascertain safety. The safety measures include prescription only by a certified prescriber, dispensed only to an enrolled patient by a certified pharmacy, shipments by a certified pharmacy directly to patients and non-availability in retail pharmacies. The current Xyrem REMS was approved in February 2015.

In approving the generic version, the FDA said it had waived the requirement that Xyrem and the generic version use a single-shares system REMS. The generic version, therefore, was approved with a separate REMS.

What Prompted The About-Face In Shares

Jazz Pharma stock gap-opened Tuesday after it said through a filing it would evaluate the FDA's waiver of the requirement of the same REMS as Xyrem. If the waiver is found not permissible under law, the company said it would consider challenging the FDA decision. The probability of the FDA decision to approve the ANDA for the generic version of Xyrem could be revoked has proved salubrious for the stock. That said, the company did caution it is not certain it would challenge or such challenges would be successful.

At the time of writing, shares of Jazz Pharma were up 11.25 percent at $128.58.