Jazz Pharmaceuticals JAZZ reported second-quarter results highlighted by total revenue of $957 million, representing a 3% increase from the prior-year period. The strong patient uptake of Xywav (the low-sodium version of Xyrem for the treatment of cataplexy and excessive daytime sleepiness) continued to drive growth for the firm. Jazz’s results are tracking our expectations, and we maintain our fair value estimate of $187 per share. We believe shares are trading at an attractive entry point in 4-star territory.

We continue to forecast Xywav, which accounted for 34% of the quarter’s total sales, has the potential to achieve blockbuster status this year by reaching over $1 billion in sales. We anticipate total company revenue of nearly $3.8 billion in 2023.

We do not assign Jazz an economic moat rating due to patent losses impacting several of its key drugs. Hikma Pharmaceuticals launched the generic version of Xyrem in January 2023, which will negatively impact Xyrem’s sales throughout our 10-year explicit forecast period. Xyrem accounted for 28% of 2022 revenue, but Jazz hopes patients will move to Xywav. However, the lower-cost generic version of Xyrem may erode some of this shift.

Further, we expect returns will be diluted due to Jazz’s $7.2 billion acquisition of GW Pharmaceuticals in 2021 and patent losses over the next several years for some of Jazz’s other drugs. Despite the dilution associated with the GW Pharmaceuticals acquisition, we think GW’s drug, Epidiolex, has blockbuster potential by 2025 thanks to its strong efficacy and robust launches in the U.S. and Europe. Epidiolex recorded second-quarter revenue of $202 million, representing year-over-year growth of 15%. We anticipate Epidiolex is on track to achieve sales of nearly $800 million this year.