Jazz Buying Gentium Boosts Irish Target’s Charm: Real M&A
Jazz Pharmaceuticals Plc (JAZZ) just got more alluring as a takeover target after adding to its suite of medicines for rare diseases.
With drugmakers on the prowl for targets in Ireland because of the country’s lower corporate tax rate, investors have been speculating that Dublin-based Jazz may be among the next companies to draw bids. Jazz’s enviable tax base is only part of the appeal as the $7.3 billion company bolsters its product lineup with the $1 billion purchase of rare-disease drug developer Gentium SpA. (GENT)
Gentium, which won European approval in October to treat a disease that can occur after stem cell transplants, may quadruple its revenue over the next three years, according to analysts’ estimates compiled by Bloomberg. Sales for Jazz’s own treatments, including Xyrem for narcolepsy, are projected to rise 62 percent, and the company is already more profitable than most of its peers, data compiled by Bloomberg show. The two businesses together are likely even more tempting for acquirers, according to Cantor Fitzgerald LP and R.F. Lafferty & Co.
“With the addition of Gentium, Jazz has further diversified the revenue base,” Difei Yang, a New York-based analyst at R.F. Lafferty, said in a phone interview. “It’s a positive addition and a positive step forward for Jazz. This makes them a more attractive target.”
Jazz jumped 8 percent on Dec. 20 after announcing the acquisition of Villa Guardia, Italy-based Gentium. The shares closed at a record $126.79 on Dec. 30 and more than doubled in 2013 as the company won a federal judge’s support in a patent dispute over its best-selling medicine Xyrem and as industry acquirers pursued Irish targets to help lower their tax bills.
Today, Jazz shares rose 0.2 percent to $126.78.
Actavis Inc. of Parsippany, New Jersey, bought Dublin-based Warner Chilcott Plc last year, allowing the company to shift its domicile to Ireland and reduce its tax rate to 17 percent from about 37 percent.
Also last year, Allegan, Michigan-based Perrigo Co. bought Dublin-based Elan Corp. Perrigo said the purchase will help it save more than $150 million a year because of lower taxes and cost cuts. Other U.S. drugmakers Allergan Inc., Mylan Inc. (MYL) and Forest Laboratories Inc. also considered buying Elan, people with knowledge of the matter told Bloomberg News in July.
It’s been a “feeding frenzy,” Timothy Chiang, an analyst at CRT Capital Group LLC, said in August, when investors began speculating that Jazz may be among the next Ireland-based pharmaceutical targets after the takeovers of Elan and Warner Chilcott.
Laurie Hurley, a spokeswoman for Jazz, didn’t respond to a phone call or e-mail asking whether the company has been approached by buyers.
Yang of R.F. Lafferty said generic-drug manufacturers such as Mylan and Teva Pharmaceutical Industries Ltd. (TEVA) are possible suitors for Jazz if they want to make a push into so-called orphan drugs. Medicines for rare diseases can qualify for orphan-drug status, which gives drugmakers exclusive marketing rights as an incentive to develop products that may benefit only a small patient population.
Jazz’s 38 percent operating margin in the most recently reported 12 months and profit margin of 44 percent both top 96 percent of specialty pharmaceutical companies worldwide that have market values exceeding $1 billion, data compiled by Bloomberg show.
Denise Bradley, a spokeswoman for Teva, said the company doesn’t comment on market speculation. Nina Devlin, a spokeswoman for Canonsburg, Pennsylvania-based Mylan, also declined to comment.
Jazz also offers a growing and diversified revenue stream from its treatments for rare diseases, especially following its purchase of Gentium, Yang said. With Gentium, Jazz will get Defitelio, a treatment for a disease that can occur after stem cell transplants. Defitelio won approval in October from European regulators.
Xyrem, Jazz’s narcolepsy drug, accounted for about 65 percent of the company’s sales in 2012, down from 86 percent the prior year.
In 2012, Jazz purchased EUSA Pharma Inc., the maker of leukemia drug Erwinaze. Jazz also sells Prialt, a chronic pain medicine inherited from the takeover of Azur Pharma Ltd. two years ago, the same deal that gave Jazz its Irish domicile.
Jazz is more likely to continue buying undervalued assets than to sell itself, according to Gene Mack, a New York-based analyst at Brean Capital LLC. For acquirers, the tax benefits alone probably wouldn’t offset the price it would take to buy Jazz, he said. Its market value of $7.3 billion as of Dec. 31 is up from just $1.6 billion two years ago.
“It’s not as simple as it seems,” Mack said in a phone interview. “You’ve got to see other synergies, some other fundamental benefit. It can’t just be for the Irish tax rate.”
Beyond the favorable tax rate, Jazz’s product portfolio, growth and margins are appealing for buyers, Irina Rivkind, a New York-based analyst at Cantor Fitzgerald, said in an e-mail.
Gentium’s Defitelio “is a young orphan drug with attractive pricing, label expansion opportunities, and strong growth potential,” she said. “This should increase the attractiveness of Jazz as a takeover candidate.”
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