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    DCF / Valuation Case Study: Jazz Pharmaceuticals (JAZZ) - Stock Pitch Outline

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    Sumalya Bhattaacharyaa
    The document outlines a recommendation to short Jazz Pharmaceuticals stock because it is currently overvalued. The investment thesis is that the market has incorrectly assumed later generic entry for Xyrem, greater pricing power, and higher peak sales for new drugs than is reasonable. Even optimistic assumptions only value the stock appropriately currently. Catalysts for the stock price to decrease include earlier generic entry, slower price increases, and disappointing early sales of new drugs. Risks to the short position are mitigated by hedging strategies.

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    DCF / Valuation Case Study: Jazz Pharmaceuticals (JAZZ) - Stock Pitch Outline

    Uploaded by

    Sumalya Bhattaacharyaa
    113 views2 pages
    The document outlines a recommendation to short Jazz Pharmaceuticals stock because it is currently overvalued. The investment thesis is that the market has incorrectly assumed later generic entry for Xyrem, greater pricing power, and higher peak sales for new drugs than is reasonable. Even optimistic assumptions only value the stock appropriately currently. Catalysts for the stock price to decrease include earlier generic entry, slower price increases, and disappointing early sales of new drugs. Risks to the short position are mitigated by hedging strategies.

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    JAZZ Outline Investment Thesis

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    The document outlines a recommendation to short Jazz Pharmaceuticals stock because it is currently overvalued. The investment thesis is that the market has incorrectly assumed later generic entry for Xyrem, greater pricing power, and higher peak sales for new drugs than is reasonable. Even optimistic assumptions only value the stock appropriately currently. Catalysts for the stock price to decrease include earlier generic entry, slower price increases, and disappointing early sales of new drugs. Risks to the short position are mitigated by hedging strategies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    113 views2 pages

    DCF / Valuation Case Study: Jazz Pharmaceuticals (JAZZ) - Stock Pitch Outline

    Uploaded by

    Sumalya Bhattaacharyaa
    The document outlines a recommendation to short Jazz Pharmaceuticals stock because it is currently overvalued. The investment thesis is that the market has incorrectly assumed later generic entry for Xyrem, greater pricing power, and higher peak sales for new drugs than is reasonable. Even optimistic assumptions only value the stock appropriately currently. Catalysts for the stock price to decrease include earlier generic entry, slower price increases, and disappointing early sales of new drugs. Risks to the short position are mitigated by hedging strategies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    DCF / Valuation Case Study: Jazz Pharmaceuticals [JAZZ] – Stock Pitch Outline

     Recommendation: We recommend SHORTING Jazz Pharmaceuticals [JAZZ] because:

    o It’s overvalued by 50-70% currently because the market has incorrectly assumed
    a later entrance year for Xyrem generics (FY 23 rather than FY 20-21), more
    pricing power than the company has, and greater peak sales from Vyxeos and
    JZP-110 than we believe is reasonable.

    o Even if we’re wrong about all those factors, the company is only valued
    appropriately right now (with optimistic assumptions).

    o Catalysts include more Xyrem generics winning FDA approval, a further


    slowdown in price increases following the Brent Saunders “price hike limit,” and
    early sales results from Vyxeos.

    o Investment risks include Xyrem generics entering the market later than
    expected, Vyxeos and JZP-110 performing above expectations, and pipeline
    drugs such as JZP-258 and JZP-507 getting positive clinical trial data, implying
    higher long-term sales potential. We could mitigate these risks by purchasing call
    options, shorting companies seeking to produce Xyrem generics, or longing a
    broader pharma/biotech index fund or ETF.

     Company Background: [State the business model, multiples, financial projections, and
    revenue by product.]

     Investment Thesis: The stock is priced imperfectly because:

    o Xyrem generics are more likely to arrive earlier (FY 20-21) than later (FY 23); that
    earlier entrance reduces the company’s implied share price by ~10%.

    o The company is unlikely to raise prices on any product by more than single-digit
    percentages each year; that implies a slower climb to the “peak sales” estimates
    in press releases, which, in turn, reduces the PV of cash flows.

    1 of 2 http://breakingintowallstreet.co
    Access the Rest of the Fundamentals Course

    o Market expectations for Vyxeos and JZP-110 are out-of-line with reality – it will
    take longer than expected to reach peak sales figures, and the uptake may be
    less than expected because JZP-110 might be too similar to Xyrem generics that
    will be on the market in future years.

     Catalysts:

    o More Xyrem generics win FDA approval.

    o Price increases slow down further, perhaps entering low-single-digit


    percentages, following the Brent Saunders "price hike limit.”

    o Early sales results from Vyxeos disappoint, causing the market to reduce its
    expectations for both Vyxeos and JZP-110.

     Valuation: [We’ll briefly describe the results from the DCF and comparables.]

     Risk Factors:

    o Xyrem generics enter the market later than expected (~10% share price impact).

    o Vyxeos and JZP-110 perform above expectations (~15-20% share price impact).

    o Pipeline drugs such as JZP-258 and JZP-507 get positive clinical data, implying
    higher-than-expected sales potential (~10-15% share price impact).

    o We could mitigate these risks by purchasing call options, shorting companies


    seeking to produce Xyrem generics, or longing a broad pharma/biotech index
    fund or ETF.

    o Worst-Case Scenario: If we get a true “perfect storm” of all these elements


    together, the company’s stock price could potentially increase to ~$200 within
    the next year (~35% loss). But we view that as highly unlikely, and we can hedge
    against that risk with the strategies above.

    2 of 2 http://breakingintowallstreet.co

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