1 Way to Jazz Up This Pharma Stock

It was a year of change for Jazz Pharmaceuticals (NASDAQ: JAZZ  ) . The company merged with Azur Pharma and acquired EUSA to lessen its dependence on its lead drug, Xyrem. Jazz shares are trading up more than 30% year-to-date based on Xyrem's strength, but generic competition looms.

Jazz's other drugs face further competition from the likes of Novartis (NYSE: NVS  ) , Teva  (NYSE: TEVA  ) and Mylan (NASDAQ: MYL  ) . Should investors continue to love all that's Jazz?

Restructuring efforts
Near the end of 2011, Jazz had two products: narcolepsy treatment Xyrem and obsessive compulsive disorder treatment Luvox CR. Xyrem accounted for nearly 90% of the company's revenues, bringing in $233 million in 2011. But Jazz made a move that lessened Xyrem dependence while bringing in some additional sales.

Jazz and Azur merged early this year, bringing in a small portfolio of lower earning central nervous system products. Good drugs for diversification, not so much for revenues. Azur's women's health division, on the other hand, proved its worth. Jazz divested it to Meda AB in October for $95 million  in cash.

The summer acquisition of EUSA Pharma proved more useful than Azur at lessening the company's dependence on Xyrem's revenue. That deal garnered Erwinaze, an acute lymphoblastic leukemia treatment facing competition with Novartis' Gleevec and a pipeline project from Ariad. Gleevec brought in $4.7 billion last year, and, although this drug is approved for several indications, it demonstrates that this can be a lucrative market.

But Xyrem remains the company's star drug. In the company's third quarter report, Xyrem reported net sales of $102.6 million and Erwinaze reported $31.6 million. And It's a long drop down to the third highest seller.

Generic competition
Xyrem could become Jazz's Achilles' heel once generic competition arrives. Xyrem has numerous patent protections with expirations ranging from 2019 to 2024. But the drug lost its orphan drug market exclusivity in November. The company continues its legal battle with Roxane Labs over a potential generic Xyrem, which could make it to market next year if the court allows.

The drug also faces competition from a generic version of Teva's Provigil. Mylan brought the cheaper alternative to market this year. Xyrem does have an extra indication for a narcolepsy side effect, but that might not matter when a large price difference is at play.

Foolish bottom line
Jazz has no real standout catalyst coming in the near future for investors to jump in and wait out. The pipeline consists of different spins on existing products, including an intravenous form of Erwinaze. Though Xyrem remains strong for now, Jazz will probably remain in a holding pattern until it's able to demonstrate a stronger second drug.

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