Credit: Shutterstock photoC ataplexy -- sudden temporary muscle weakness -- is one of the most devastating symptoms of narcolepsy, a neurological disorder that disrupts sleep and wake cycles.
Victims are prone to fall asleep suddenly in the middle of the day -- while driving, at work, at the dinner table.
There's no known cure for the rare disorder, but medication helps.
Xyrem, the brand name for the oral solution sodium oxybate, is the only product approved by the Food and Drug Administration to treat cataplexy and excessive daytime sleepiness in patients with narcolepsy.
It's sold byJazz Pharmaceuticals ( JAZZ ), which acquired the drug in 2005 when it bought Orphan Medical. At the time, it was approved to treat only cataplexy.
Jazz itself had been founded only two years earlier.
"We showed it was useful more broadly and we broadened the indication," said Bruce Cozadd, the CEO of Jazz and one of its three co-founders, all former executives of Alza, a drug-delivery company acquired byJohnson & Johnson ( JNJ ) in 2001.
Jazz invested in research and development and expanded the sales force.
Today, Xyrem remains Jazz's largest source of revenue and is still its fastest-growing product.
Xyrem Powerhouse
Xyrem's net sales in the first quarter grew 33% over the prior year to $212.7 million, accounting for 69% of the $309.3 million in total revenue, which was up 25%.
Earnings also rose 25%, to $1.99 per share, though below Wall Street views. And Jazz said it would pause a trial for a narcolepsy drug, JZP-386, which was part of a partnership withConcert Pharmaceuticals ( CNCE ).
On the positive side, it reaffirmed full-year guidance of $1.31 billion-$1.37 billion in revenue -- up from $1.17 billion in 2014 -- and $9.45-$9.75 in adjusted earnings per share, up from $8.43. Q2 results will be released on Aug. 5.
"Xyrem has the potential to grow meaningfully from current levels based on both volume and price increases," noted analyst Douglas Tsao of Barclays in a post-Q1 report on the company, which cited an "overweight" on the stock.
He said Xyrem is the "most effective treatment for narcolepsy."
Jazz expects Xyrem to generate $950 million-$975 million in net revenue this year, still the lion's share of total revenue. UBS analyst Marc Goodman notes that the drug is protected from generic rivals "at least through 2019."
Xyrem is considered an orphan drug because it treats a relatively small patient population. So it is expensive, between $70,000 and $100,000 per year depending on the nightly dose, says Cozadd, who added that Jazz raised the price 9% earlier this year.
"Fewer than 200,000 in the U.S. have narcolepsy and of those, 12,000 take our product," he told IBD. "These are very disabled patients. If you cannot get restorative sleep at night and can't function in the day, you wouldn't have a job. The disability rate for narcolepsy patients is greater than for MS (multiple sclerosis)."
Narcolepsy Diagnosis Rises
The disorder often takes five to 10 years to correctly diagnose, he says. "So while the number of patients suffering from narcolepsy is not growing quickly, the number that are diagnosed is growing more, a little more than 10% last year," he said.
Jazz is looking to further expand indications for Xyrem. Moreover, it is studying another drug as a wake-promoting agent to treat excessive daytime sleepiness in adult patients with narcolepsy or with obstructive sleep apnea, which covers a larger patient population.
Jazz expects to finish late-stage clinical trials for the drug, now called JZP-110, next year.
JZP-110's target market: as many as 275,000 people in the U.S. who use breathing machines to sleep because of obstructive sleep apnea and who aren't sufficiently helped by drug therapy, Cozadd says.
Analysts estimate that JZP-110 could generate up to $500 million or more in peak sales annually.
New Drug 'Well-Positioned'
After surveying 25 physicians who treat excessive daytime sleepiness due to narcolepsy and obstructive sleep apnea, analyst David Amsellem of Piper Jaffray concluded the drug is "well-positioned to gain significant traction," assuming that Phase 3 results are as impressive as earlier trials.
He noted that 88% of physician respondents said they would use JZP-110 in either a majority or a significant majority of their patients who do not respond adequately to available stimulants such as Provigil and its generic versions, or Nuvigil. Both brand-name drugs are sold byTeva Pharmaceutical ( TEVA ) .
A few other drugs in Jazz's current portfolio and development pipeline are expected to provide further growth, including defibrotide, another orphan drug with a small patient population.
Jazz expects defibrotide, which treats a complication associated with stem-cell implants, to enter the U.S. market after the FDA completes a review early next year. The drug is currently sold by Jazz in Europe under the name defitelio.
Some 15% to 20% of patients who undergo stem-cell implants develop the complication, called hepatic veno-occlusive disease, or VOD, Covadd says. VOD is "almost always fatal and this is the only drug that has shown to be effective in improving survival," he said.
In the U.S., about 1,000 to 3,000 of the 20,000 stem-cell implant patients contract VOD, Cozadd says. A course of infusions in a hospital runs $35,000 to $85,000 over 21 days, he says.
Fast-Growth Pharmaceuticals
Defitelio generated $17.4 million in sales in the first quarter, up 15% from the earlier year. That was a faster pace of growth than Jazz's second-biggest drug, Erwinaze (called Erwinase outside the U.S.), which treats a form of leukemia in children. Erwinaze/Erwinase revenue in Q1 grew 7% to $50.4 million.
Most of Jazz's drugs have come through acquisitions, including a few from Jazz's merger with Ireland-based Azur Pharma in early 2012, the same year it bought Easa Pharma, which came with Erwinase.
Jazz acquired the rights to JZP-110 from Aerial BioPharma in 2014.
"We see more deals from management," noted UBS analyst Goodman, adding that the company's low tax rate and strong balance sheet should help its "inorganic growth strategy."
When Jazz merged with Azur, it officially relocated to Ireland, a tax-inversion strategy that lowered corporate taxes.
"We have a very real business in Ireland," Cozadd said, adding that about 10% of company employees are based there, as well as a manufacturing plant.
"The biggest change in the company in the last two years has been the broadening of our business," he said. "Not long ago Jazz was a single product (Xyrem) in a single market (the U.S.) for narcolepsy. Now we have multiple products in multiple markets in multiple therapeutic categories."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
