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business newsInvestors Happy Despite FDA Rejecting Date Rape Drug
By
Brett Chase
Oct 11, 2010 1:10 pm
The FDA thinks the drug is quite popular enough under its other guise as a treatment for sleep disorders.
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A panel of experts advising the FDA decided at an August meeting that the risks of abuse or overdose of the drug were too great. Those risks don’t outweigh the benefit of approving it to treat fibromyalgia, a chronic pain disorder that affects millions of Americans, according to some estimates. (Critics question whether it’s a real disease.) After that August meeting, Jazz shares dropped from just above $10 each to less than $8.
The drug, JZP-6, is already sold by Jazz as a treatment for sleep disorders under the brand name Xyrem. This sleeping pill is Jazz’s biggest seller but expanding its use would put the drug in the hands of many more patients, and that’s where the FDA sees the risk. That’s bad news for Jazz because of the potential for much higher sales with the expanded market.
On the other hand, Xyrem continues to be a big seller for Jazz as a sleeping pill. And those concerns by FDA officials and advisers of expanding use of the medicine may ultimately work in Jazz’s favor, because it may make it difficult for generic competitors to enter the market for the sleep disorder treatment.
Generic competition, of course, is a killer for any branded product. But there may be a barrier to market entry. The active ingredient in Xyrem, known as GHB, is a once-popular club drug that’s been used in date rapes, so US officials and Jazz keep close tabs on who’s getting the medicine.
“Xyrem is subject to a unique and strict (risk) program which puts it outside of step with the normal generic business model,” Jefferies & Co. analyst Corey Davis says in a recent note to clients. He rates the stock a “buy.”
Doctors prescribing Xyrem and their patients are enrolled in what’s called the "Xyrem Success Program" registry, Davis notes. Prescriptions are faxed directly to a Jazz processing site, which verifies the patient information. The drug is then shipped from a single pharmacy to the patient, Davis says.“In our view, there is no mechanism for "automatic substitution" of a generic anywhere in this supply chain,” Davis says.
Xyrem sales surged more than 50% to $62.5 million through the first half of this year. Jazz predicted in August that sales would climb as high as $162 million for the full year. Jazz lost $4.9 million, or 15 cents a share, through the first six months as the company paid down debt.
Now the question is whether the Palo Alto, California-based Jazz spends more money to conduct further tests that may change the minds of FDA officials. At least right now, the company’s executives can’t say whether it will keep pursuing the approval as it’s not clear what the FDA would require of the company to give it the green light.
“It’s a tough question to answer because we just don’t have all the information,” Jazz CEO Bruce Cozadd told investors on a conference call this morning.
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