Biotech Stock Mailbag: Jazz Pharma

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.
Mailbag

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.

The existing risk management plan for Xyrem in narcolepsy is highly restrictive (maybe the most restrictive) and it works. I don't see why a similar plan can't also work well for Xyrem in fibromyalgia.

The best outcome for Jazz will be a complete response letter from FDA on Oct. 11 with a request from FDA for more work to be done on the risk management plan -- only. If that happens, the stock should do well because it will indicate that fibromyalgia approval is achievable by mid-2011.

If the FDA sends Jazz a letter on Oct. 11 requesting a new study or more clinical/safety data before approval, then the company is in more serious trouble.

Referring to my column Thursday discussing how FDA advisory panels this year have voted against more drugs than at any time since 2007, Jeff K. comments, "It would have been interesting to know what percentage of the time that the FDA did not follow the panel's recommendation."

Good point. Here's the info:

Of the 17 FDA advisory panels held this year, I found that the subsequent FDA approval decision concurred with the panel vote 82% of the time. Three times this year, the FDA went against the vote of its outside panel; the most notable case was InterMune ( ITMN) and pirfenidone for idiopathic pulmonary fibrosis. The panel voted to recommend pirfenidone's approval but the FDA said no.

FDA approval decisions are still pending on 10 other drugs that have already had advisory panels this year.

On the same subject, "GP" writes, "On the 'coin flip' column, good headline but leaves out the quality of the drug applications, which FDA has little to do with. Cell Therapeutics ( CTIC) was a no-go from the start, ditto Jazz Pharma."

He's right -- the quality of drug applications do matter. No question. When a bunch of low-quality drugs still get filed for approval, FDA advisory panels are more apt to say no. That's the regulatory process working the way it should.

Kevin C. emails, "Hey Adam, you didn't mention Chelsea Therapeutics' ( CHTP) phase III data due in mid- to late September."

He's right. I inadvertently omitted Chelsea from my September biotech catalyst calendar. My apologies for that.

Chelsea Therapeutics is nearing the release of results from a phase III study of its drug droxidopa in patients with the neurological low-blood-pressure disorder known as neurogenic orthostatic hypotension (NOH).

Last September, Chelsea reported disappointing results from the first phase III study of droxidopa. The company met with FDA, which agreed to changes in the second phase III study to increase the odds of success. Results from this rejiggered study are now expected in mid- to late-September, according to Chelsea.

A third confirmatory, droxidopa study in NOH is also underway, with patient enrollment expected to close by year's end.

On a related note, I also failed to mention a couple other drugs in this week's FDA drug approval decision calendar.

Merck Serono, a division of the German drug firm Merck KGaA, expects an FDA approval decision sometime in the fourth quarter on its oral multiple sclerosis drug cladribine.

Salix Pharmaceuticals ( SLXP) has a Dec. 7 date for the FDA's approval decision on Xifaxan in irritable bowel syndrome.

Have a great Labor Day weekend.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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