BOSTON (TheStreet) -- This week's Biotech Stock Mailbag opens with an email from Samuel E.: "Adam, Jazz Pharmaceuticals (JAZZ) is holding up really well after the negative vote at the advisory panel meeting. Why is that and do you still like the stock?"
I'm a bit surprised, pleasantly, with Jazz's resiliency, too. As I write this column on Thursday, Jazz shares are trading around $9.45, just a buck or so below where the stock was trading before the FDA's advisory panel voted not to recommend approval for the company's fibromyalgia drug on Aug. 20.
Jazz shares dipped into the $7 range immediately following the FDA panel vote, which was a buying opportunity for some investors because Jazz's base business (selling the same drug, Xyrem, for narcolepsy/cataplexy) supports a higher valuation. Jazz's revenue and profits give it an important cushion to deal with regulatory setbacks, unlike many drug companies in similar situations that have little or no safety nets.
Forget about fibromyalgia for a moment; Jazz can earn $1 a share next year easy on $200 million in revenue in the base business. (Current consensus calls for Jazz to earn $1.19 on $196 million in revenue.) That's worth at least $9 a share.To move appreciably higher, Jazz needs to get Xyrem (or JZP-6 or Rekinla, whatever the company chooses to call the drug) approved for fibromyalgia. Obviously, that goal became more muddled after the disappointing FDA advisory panel vote -- a 20-2 lashing against approval. The optics of the vote look bad and were not what I was expecting, but approval is attainable if the FDA has a clear head and looks beyond the hysterics and misstatements made by some of the more vocal experts on the panel. An approval of Xyrem for fibromyalgia is not going to lead to 55-gallon drums of the "date rape" drug GHB flowing through the streets of Middle America, as one of the panel members claimed. Jazz miscalculated by proposing a separate and somewhat more liberal risk management plan and a different brand name for the fibromyalgia indication. That was a mistake and the FDA clearly wants changes, which Jazz should readily agree to. Use a single brand name for both the narcolepsy and fibromyalgia indications. Consolidate the risk management plans and if necessary, limit the number of specialty pharmacies that can distribute the drug.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV