Street Underappreciates Jazz Pharma's (JAZZ) Xyrem Durability - Leerink

Leerink Partners' Jazz Pharmaceuticals (NASDAQ: JAZZ) analyst, Jason Gerberry, hosted a MEDACorp call with two patent specialists, and we came away more confident in their thesis that the Street underappreciates Xyrem's (sleep disorders) durability. Xyrem has three families of patents: (1) formulation & method of use – expires mid-2020 with pediatric extension; (2) REMSdistribution which expires Dec. 2022-24; & (3) a dosing adjustment patent – expires 2033E. On the CC, the analyst focused on the REMS & dosing patents, which have near-term events and could extend franchise beyond 2020E, when the Street forecasts Xyrem generics.

Two near term catalysts:

1) next week’s IPR institution decision on Xyrem dosing patents – we assign a 50% chance of the IPR getting instituted and expect JAZZ to win the final IPR ruling

2) 7/31 IPR ruling on REMS patents is less relevant given the generics' failure to get full IPR institution for the entire family of REMS patents.

Dosing patents are the biggest potential upside driver for Xyrem exclusivity. JAZZ patented a method of adjusting Xyrem dose when co-administered with valproate and the Xyrem label was augmented to reflect the fact that valproate can potentiate (increase) efficacy of Xyrem leading to serious safety issues. In the IPR, the specialists favor JAZZ given that conflicting animal study publications imply uncertainty in the drug-drug interaction (at time of invention), making it hard for generics to prove obviousness of invention. If correct, the generics will need to win their case at the district court venue where specialists believe the IP would be more vulnerable as generics could raise a broader set of arguments including whether identifying a drugdrug interaction is patentable subject matter, non-infringement and petition FDA that omitting patented dosing language is allowable under Section 8.

The firm reiterated an Outperform rating and price target of $167 on JAZZ.

For an analyst ratings summary and ratings history on Jazz Pharmaceuticals click here. For more ratings news on Jazz Pharmaceuticals click here.

Shares of Jazz Pharmaceuticals closed at $140.01 yesterday.

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