Jazz Pharmaceuticals (JAZZ) trades at about 10 times 2013 earnings and is expected to reach earnings CAGR levels of 20% in the next three to five years, driven by the growth of its Xyrem drug for narcolepsy as well as Erwinaze for leukemia, says David Amsellem, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“[Jazz Pharmaceuticals‘] largest selling product is a drug called Xyrem; it is approved for narcolepsy. It is a high-growth product. The company has plenty of room to continue to grow penetration. In this treatment setting, the company has been aggressive in taking price increases. But going forward, they can continue to grow this product in the double digits, just on the back of strong volume growth, so I look at price increases going forward as not just gravy, but icing on the cake, if you will,” Amsellem said.
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Amsellem says that although Xyrem has two generic filers on the product, there is very tight misuse pharmacovigilance around the product that’s under patent by Jazz, making wide generic production difficult. He also says the company has Erwinaze for leukemia, and it is expanding to other indications as well.
“The company is also looking actively at other commercial stage or near-commercial stage assets to further diversify the portfolio. So it has been in the past willing to use its cash to make diversifying acquisitions. We expect that to be the case going forward, so the combination of the current business, the health of the business, the growth, the barriers to generic entry on Xyrem, growth from secondary top line drivers and the potential for additional M&A, I think, makes this a really attractive name with, not just EPS growth, but real potential for p/e expansion,” Amsellem said.
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