Jazz Earnings: Healthy Start to Year With Focus on Commercial Execution; Shares Undervalued

Jazz Pharmaceuticals JAZZ reported healthy first-quarter results highlighted by total revenue of $893 million, representing a 10% increase from the prior-year period thanks to the company’s commercialization efforts. Strong performances from Xywav (for excessive daytime sleepiness), Epidiolex (for childhood epilepsy), and Rylaze (for leukemia) have continued to be Jazz’s primary growth drivers. We maintain our $187 fair value estimate and believe the shares are currently trading at an attractive entry point, about 28% below our fair value estimate.

Jazz’s lack of economic moat is attributed to its reliance on Xyrem, which accounted for 28% of 2022 revenue. Hikma Pharmaceuticals launched the generic version of Xyrem in January 2023, which will negatively affect Xyrem’s sales throughout our 10-year explicit forecast period. We also expect returns will be diluted in the near term by Jazz’s $7.2 billion acquisition of GW Pharmaceuticals in 2021 and patent losses over the next several years for some of Jazz’s other drugs. We continue to forecast healthy growth from Xywav, Rylaze, Epidiolex, and Zepzelca (for small cell lung cancer), which will somewhat offset the negative impact from the GW acquisition, but we believe the intangible assets in Jazz’s portfolio will weaken over the next five years as patent exclusivities expire, which supports our negative moat trend rating.

We anticipate Xywav—the low-sodium version of Xyrem—has the potential to achieve blockbuster status this year by reaching over $1 billion in sales. We forecast total company revenue of $3.7 billion for 2023. We believe Jazz’s acquisition of GW Pharmaceuticals will prove beneficial, and we forecast Epidiolex has blockbuster potential by 2025 thanks to its strong efficacy and robust launches in the United States and Europe. Epidiolex recorded first-quarter revenue of $189 million, and we anticipate it’s on track to achieve sales of over $800 million this year.