Lowering FVE for No-Moat Jazz to $130 Because of Impact of COVID-19 on Sales in 2020

Jazz Pharmaceuticals uncovered a blockbuster drug with its 2005 acquisition of Orphan Medical and sleep drug Xyrem for a stellar price of about $150 million. Xyrem is the only drug approved by the Food and Drug Administration for cataplexy and excessive daytime sleepiness, or EDS, in narcolepsy. Its strong efficacy has propelled its success in the difficult-to-treat sleep indication, but generic entry is on the horizon, leaving a cloud of uncertainty around the undiversified biotech. Jazz has agreements with generic manufacturers that keeps Xyrem protected from generic entry until January 2023, so it has a few years to fill its pipeline. Jazz will retain some economic profit from royalties on generic sales and a shared distribution program, but nonetheless, we expect its returns to decline following generic entry.