Jazz Pharmaceuticals (JAZZ -2.23%) struggled to start the year, but in the last three months, the stock is up 18.56%. The company, founded in 2003, has grown into a company with more than $2.1 billion in annual revenue and is in the process of building a huge pipeline.
Here are three reasons why Jazz is a hot buy now in the pharmaceutical space.
1. The FDA just gave accelerated approval to its small-cell lung cancer drug, Zepelca
Zepelca (lurbinectedin) fared well in a phase 2 monotherapy study of 105 adults who had already had chemotherapy to combat metastatic small-cell lung cancer (SCLC) but had relapsed, prompting the FDA to give accelerated approval to the drug.
Jazz said that it expected to be able to market Zepelca by early July. Though the incidence of SCLC is rare, the drug's peak annual sales could be worth up to $200 million, according to market researcher EvaluatePharma.
Lung cancer is the second-most common form of cancer for men and women. According to cancer.net, 228,820 adults are expected to get lung cancer this year in the United States, with 87% of them getting non-small lung cell cancer (NSCLC). While NSCLC is more common, SCLC is generally more serious, with a five-year survival rate from 3% to 27%, according to the American Cancer Society's publication, Cancer Facts & Figures 2020, so positive news on this front is a huge deal.
2. The company has a big pipeline with several late-stage candidates
Jazz's pipeline includes four candidates in phase 3 clinical trials, four phase 2 trials and three phase 1 trials.
The company, long known for its sleep and neuroscience drugs, has been branching out more heavily into oncology. It knows it needs to diversify beyond its narcolepsy blockbuster, Xyrem, which brought in 76% of the company's revenue in the first quarter. Xyrem will face generic competition beginning in 2023 from Hikma Pharmaceuticals PLC, though it will get royalties from Hikma in a settlement between the companies.
In May, the company launched another sleep disorder drug, Sunosi, in Europe. Sunosi treats patients with excessive daytime sleepiness (EDS) because of narcolepsy or sleep apnea.
But the prime candidate to replace Xyrem is narcolepsy drug JZP-258. The FDA accepted a new drug application for JZP-258 in March. The company said the drug is effective in combating sudden muscle weakness, known as cataplexy, a common symptom of narcolepsy, and EDS in adults. Jazz said the drug's phase 3 trial found similar safety to that enjoyed by Xyrem, with the added benefit of having less sodium, a major factor for narcolepsy patients who also suffer from high blood pressure or heart disease.
Defitelio (defibrotide), derived from the intestines of pigs, was already approved to counteract the effects of hepatic veno-occlusive disease, a condition that affects small veins in the liver, brought on by chemotherapy, bone marrow transplants, and stem cell therapies. The company is now testing the drug in a phase 2 trial as a treatment against graft versus host disease in bone marrow transplants. It is also in a phase 2 trial to prevent neurotoxicity in patients with relapsed or refractory diffuse large B-cell lymphoma who are receiving CAR T-cell therapy.
In addition to these pipeline candidates, also has two leukemia-fighting drugs in late-stage trials: IMGN632 and JZP-458.
3. The company has solid financials
Jazz disappointed in the first quarter when it fell short of top analysts' projections. The company reported revenue of $535 million, up 5% compared to the first quarter of 2019 but delivered a net loss of $157.8 million, compared to net income of $85.2 million in the same quarter in 2019.
In the company's first-quarter earnings call, CEO Bruce Cozadd cited COVID-19 as the primary reason for the loss. He noted that many sleep centers were closed and pulmonologists were more concerned with coronavirus-related respiratory illnesses than they were with sleep apnea or narcolepsy, all of which meant fewer new patients for Jazz's therapies.
But step back from that report and you can see Jazz is in a good place financially.
The drugmaker has increased revenue every year for more than a decade. It has also generated positive net income every year since 2010. Over the past three years, Jazz's revenue has grown by a compound annual growth rate (CAGR) of 13.3% with net income rising by a CAGR of 17.3%.
Why it's a good stock now
The company has three years to diversify its pipeline and find the drugs to replace the revenue brought in by Xyrem. In the meantime, it's doing quite well financially and has the potential to really juice up its bottom line as its pipeline begins to pay off.