07 September 2010

Jazz Shares Fall after Negative FDA Panel Vote

Bloomberg / BusinessWeek

Shares of Jazz Pharmaceuticals Inc. plunged Monday after a panel of Food and Drug Administration experts recommended the company's proposed chronic pain disorder treatment not be approved.

THE SPARK: On Friday, the panel said sodium oxybate shouldn't be approved as a treatment for the chronic pain condition fibromyalgia because of risks that it could be dangerously abused. The drug is already approved under the name Xyrem to treat excessive sleepiness. It is considered a "controlled substance," by the U.S. drug enforcement authorities because its active ingredient has been used as an illegal stimulant and as a date rape drug.

THE BIG PICTURE: The controlled substance issue was a key reason for the 20-to-2 vote against approving the drug. The FDA normally follows the advice of its expert panels, though it is not required to do so.

Between 6 million and 12 million people in the U.S. have fibromyalgia, according to the American College of Rheumatology. If approved for fibromyalgia, Jazz would market sodium oxybate under the brand name Rekinla.

THE ANALYSIS: Jefferies analyst Corey Davis maintained a positive outlook on the drug, saying he still expects it to be approved as a fibromylagia treatment in 2011. He reaffirmed a "Buy" rating on Jazz shares but lowered his price target to $11 from $13. He said the FDA could issue a "complete response letter", or a request for information on Oct. 11.

"If it contains no requests for additional studies, that should validate our conclusion," he said, in a note to investors.

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