Shares of Jazz Pharmaceuticals PLC surged Friday after the Irish drug company agreed to buy cancer drug maker EUSA Pharma for as much as $700 million.
THE SPARK: Jazz said Thursday that it agreed to buy EUSA for $650 million upfront. It will pay EUSA shareholders another $50 million if the company's leukemia drug Erwinaze reaches U.S. sales targets in 2013. EUSA's other products include Caphosol, a treatment for oral mucositis; ProstaScint, an imaging agent that is used in diagnosing prostate cancer; and Quadramet, a pain drug for cancer patients whose tumors have spread to the bone.
The companies said the deal should close in June and will add $210 million to $230 million to Jazz's revenue in 2013.
THE BIG PICTURE: Erwinaze is designed to treat acute lymphoblastic leukemia, which is the most common type of cancer in children. It is intended for patients who cannot take other drugs for the condition. Sales totaled $33 million in the first quarter, including $25 million in the U.S.
Jazz makes the narcolepsy drug Xyrem, which brings in most of its revenue, and the obsessive compulsive disorder treatment Luvox CR. In January, the company completed an all-stock acquisition of Azur Pharma Ltd. and relocated to Ireland from California. Jazz expects $465 million to $490 million in revenue in 2012, including $330 million to $340 million from Xyrem sales.
THE ANALYSIS: Jefferies & Co. analyst Corey Davis called the deal "stellar" and said Jazz is paying a good price for EUSA. He said the deal gives the company entry into the cancer treatment market and broadens its sources of revenue. He estimated the potential U.S. market for the drug will be around $180 million, as a year of treatment with Erwinaze costs about $150,000.
The company also said Thursday prescriptions for Xyrem grew 10 percent in the first quarter, and Davis said that was better than he expected. The analyst maintained a "Buy" rating on Jazz shares and increased his price target to $74 per share from $64.
SHARE ACTION: Jazz stock rose $6.79, or 15 percent, to $51.99 in afternoon trading. The shares are up 35 percent in 2012.