Zhanna Hapanovich/iStock via Getty Images
A Jazz Pharmaceuticals (NASDAQ:JAZZ) spin out of its CNS business or a potential sale of Epidiolex make sense following a report that the company is evaluating its strategic options, include a sale, according to a Truist analyst.
Jazz Pharma (JAZZ) rose 3.4% Friday amid a Bloomberg report that the company is talking with advisers to see if there’s interest. Jazz is also looking at options that may include a breakup or the sale of parts of its business, and it’s considering separating its cannabinoid business from its oncology operations.
“Based on what we perceive to be a lack of appreciation of JAZZ’s growing oncology portfolio, coupled with the CNS franchise that is facing intensifying competition, we think the potential separation of the businesses makes sense,” Truist analyst Joon Lee wrote in a note on Friday. “In our view, the spin-out of CNS franchise with CVR makes sense. Divestment of Epidiolex , as mentioned in the article, almost makes sense given Paragraph IV challenges.”
Truist, which has a buy rating on Jazz, values the company at $200 a share using a sum-of-the-parts valuation.
Separately, Bofa analyst Jason Geberry argues that potentially selling oncology and becoming a pure-play CNS company, or a spin on oncology and the sale of Remainco, may be a more likely scenario than a sale of the entire company.
“Given company size and the diverse assortment of portfolio assets, this could theoretically shrink the number of interested large pharma,” Gerberry, who has a buy rating and $217 price target on Jazz, wrote in a note on Friday. ” A second impediment to a whole company deal would be patent and competitive overhangs.”
A sale of Jazz’s oncology business would quickly improve the company’s capital structure, improve its margin profile, and give it more “firepower” for CNS-related M&A, according to Gerberry.
Under another scenario where Jazz spins its oncology business, the company would “meaningfully” reduce its current debt.
“This approach would give Jazz more time to validate the Xywav launch and erode concerns around competitive threats within the category, which would help a strategic more fairly value the CNS business,” Gerberry added.
