Jazz Pharma ratchets down IPO hopes amid drug controversy

(UPDATED: See below.) Jazz Pharmaceuticals, the generally unexciting specialty-pharmaceutical maker that had hoped to raise $179.4 million in an IPO, has collided with reality.

The company today lowered its expected IPO take to a maximum of $144.9 million, a drop of almost 20 percent, based on an expected offering of up to 6.9 million shares at a price of $20 to $21 apiece. Jazz had previously intended to price its shares between $24 and $26. Here is its amended SEC filing.

I previously wrote about Jazz and its wildly overrated strategy of salvaging poorly performing or cast-off drugs from other companies here, so the company’s IPO pullback doesn’t come as a huge surprise. Even at the lower price, however, the offering is still pretty extravagant compared to what most biotech and pharma companies going public can expect these days.

One thing that did come as a surprise — and which I’m kicking myself for not having noticed the last time I went through the company’s S-1 — is the fact that the active ingredient in Jazz’s lead drug, a narcolepsy treatment called Xyrem, is derived from gamma hydroxybutyrate (GHB), a “club drug” linked to overdose deaths and use in date rape. What’s more, Jazz is under investigation by the feds regarding allegations that it has illegally promoted Xyrem for unapproved use in fibromyalgia and other conditions. It disclosed that it is currently negotiating a settlement that would include a guilty plea and a $20.5 million fine in order to avoid prosecution.

Alex Berenson of the NYT has more here; his earlier article on the indictment of a Brooklyn physician accused of illegally promoting Xyrem is here.

UPDATE: In its S-1, Jazz refers to Xyrem’s active ingredient, sodium oxybate, as a “derivative” of GHB. The NYT, however, bluntly stated in this morning’s article that Xyrem “is gamma hydroxybutyrate, or GHB.” Who’s right?

Give this one to the NYT. Jazz’s S-1 contradicts the prescription label for Xyrem, which leads off with a black-box warning that states (emphasis added):

Sodium oxybate is GHB, a known drug of abuse. Abuse has been associated with some important central nervous system (CNS) adverse events (including death). Even at recommended doses, use has been associated with confusion, depression and other neuropsychiatric events. Reports of respiratory depression occurred in clinical trials. Almost all of the patients who received sodium oxybate during clinical trials were receiving CNS stimulants.

Check out the warning yourself here (You’ll have to click on the “For Healthcare Professionals” button, which will pop up the warning.) Since the content of warning boxes has to be negotiated with the FDA, I give the label description more credence than Jazz’s S-1. I’ve called the company to ask them to explain the discrepancy; an outside PR rep returned the call, but hasn’t come back with an answer yet.

For disclosure gluttons, here’s an excerpt of the relevant S-1 passage (JZP-6 is an anticipated liquid form of Xyrem):

We could be materially adversely affected if we or our products are subject to negative publicity. For example, sodium oxybate, the active pharmaceutical ingredient in Xyrem and JZP-6, is a derivative of gamma hydroxybutyrate, or GHB, which has been a drug of abuse and may not be sold legally in the United States. If physicians and patients perceive Xyrem and JZP-6 to be the same as or similar to GHB, sales of Xyrem and JZP-6 could be adversely affected.

From time to time, there is negative publicity about GHB and its effects, including with respect to illegal use, overdoses, serious injury and death and because sodium oxybate, the active pharmaceutical ingredient in Xyrem, is a derivative of GHB, Xyrem sometimes also receives negative mention in publicity relating to GHB. Because sodium oxybate is a derivative of GHB, patients, physicians and regulators may view Xyrem as the same as or similar to GHB. In addition, there are regulators and some law enforcement agencies that oppose the prescription and use of Xyrem generally….