2 Reasons to Consider Jazz Pharmaceuticals plc

Jazz Pharmaceuticals (NASDAQ: JAZZ  )  has lost a quarter of its valuation from 52-week highs, and last week were pushed down further following a disappointing quarter. Yet, while the bulk of its explosive year-over-year organic growth may be reaching an end, the investment outlook remains the same. So now there are two reasons to buy: The first is its valuation, and the second includes Pfizer (NYSE: PFE  ) and AstraZeneca (NYSE: AZN  )

A look at the fundamentals
In the first quarter, Jazz Pharmaceuticals reported year-over-year growth of 25.8%, which was its slowest growth in years. Moreover, if you remove the $12.2 million created from the Gentium acquisition, then year-over-year organic growth was below 20%.

With that said, Jazz expects full-year revenue of $1.13 billion, and its narcolepsy drug Xyrem will account for approximately 67% of total sales, a drug that grew 36.5% in the first quarter. In total, Jazz will grow nearly 30% this year, as Xyrem sales and the benefits from its Gentium acquisition counter fundamental declines from the drug Prialt and its psychiatry segment.

First Reason: Fundamentally cheap with a solid growth driver
In looking at Jazz Pharmaceuticals, its growth is slowing from the 40% plus we've grown accustomed to. However, it's trading 25% off its 52-week highs and it's valued at just 13 times forward earnings, which in biotechnology, is very cheap.

Also, don't discount the acquisition of Gentium in driving future fundamental gains, thus making Jazz even cheaper. Gentium gave Jazz the veno occlusive disease, or VOD, drug Defibrotide, which Jazz expects to bring in full-year sales of $42 to $52 million this year.

Defibrotide could generate peak annual sales as high as $500 million. Moreover, Jazz has already said the drug is highly complementary to its focus on orphan diseases in hematology and oncology, implying there could be long-term synergies. Lastly, Defibrotide is being studied to treat Graft-versus-Host disease, or GvHD, and multiple myeloma, so if clinical data is good there could be some potential upside to the drug.

Second reason: The appeal of Europe
Aside from fundamentals and valuation, Jazz Pharmaceuticals is located in Europe, which as we've seen, is highly valuable. The top corporate tax rate in the U.S. is 35%, but in Europe, the corporate tax rate is significantly lower, and in some countries it's less than half of the U.S. rate.

In 2013, Pfizer finished with a tax rate of 27%. The UK, where AstraZeneca is headquarted, sports a corporate tax rate of 21%. Granted, investors will notice that a 6% differential may not be worth Pfizer's latest $119 billion offer, but it's also possible that Pfizer may have a higher tax rate going forward in the U.S.

Moreover, there likely are pipeline benefits for Pfizer to acquire AstraZeneca. Pfizer already lost patent protection on Lipitor, which created more than $13 billion on its best year, but other best-selling drugs like Viagra, Celebrex, and Lyrica will also lose patent protection in the next four years. AstraZeneca has a very interesting oncology and cardiovascular pipeline with some potential growth drivers. Most certainly, this pipeline also plays a role in Pfizer's interest, but as admitted by the company, the potential tax benefit is a major motivation .

With that said, Pfizer is not the first company to seek European acquisitions in biotechnology, nor will it be the last. This is where Jazz comes into play, because as an Ireland-based company, its corporate tax rate is just 12.5%, nearly one-third of the U.S. Consequently, Jazz, aside from its fundamental and stock value, could also be an intriguing acquisition play.

Final thoughts
For these reasons -- the comparative fundamental cheapness, the tax benefits, and the potential for an acquisition, Jazz looks pretty cheap to me at $128 a share. That said, it's important to be aware of the risks inherent with any biotech stock -- a lot depends on future pipeline development and potential therapy commercialization.

Will Jazz Pharmaceuticals be able to keep up with this top stock?
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Will Jazz Pharmaceuticals be able to keep up with this top stock?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


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