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All That JAZZ

Jazz Pharmaceuticals (JAZZ). is the type of stock that should protect you in case of a bear market while still offering upside for as long as the bear holds off, suggests growth stock expert Scott Chan, editor of Investing Daily's The Complete Investor.

Jazz markets the blockbuster drug Xyrem, the only highly effective treatment for narcolepsy and cataplexy (sudden and temporary muscle weakness triggered by intense emotion). The company has been able to raise the drug’s price every year without impacting volume growth.

With 2018 sales expected to be about $1.35 billion, Xyrem accounts for more than 70% of Jazz’s overall revenue. In October, the FDA approved a label expansion for the drug to treat pediatric narcolepsy.

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The market, though, has been lukewarm on the company. The main concern is potential generic challenges to Xyrem, since the drug is such an important revenue generator.

However, Jazz has settled with several generic makers authorizing them to sell generics in return for royalties, and no generic versions are expected on the market until 2023. This means Jazz should be able to count on revenue of $1 billion or more from Xyrem for several more years.

The company has a few other drugs on the market generating more than $100 million in annual sales, but nothing comes close to Xyrem. Recent disappointing sales in two of the drugs have added uncertainty to the company’s growth trajectory.

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The most promising new drug could be solriamfetol, expected to win FDA approval soon. It treats excessive sleepiness from narcolepsy or sleep apnea. Conservatively, peak sales should exceed at least $300 million a year.

Jazz’s P/E and P/B ratios are below not only those of its biotech peers but also the market’s despite projected EPS growth in the mid teens. With Xyrem’s proven pricing power and several other products contributing revenue as well, the company is a value stock that offers upside surprise potential while providing some downside protection.

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