Is Jazz Pharmaceuticals Stock a Buy After GW Pharma Acquisition?
Acquisitions have become the most popular tool for growth explosion for companies wanting to expand their businesses. It’s the same story in the marijuana industry as well. However, due to lower valuations thanks to the pandemic, inorganic growth significantly slowed down in 2020. Now, it looks like M&As are back. Recently an acquisition announcement took the entire market by storm. Dublin-based neuroscience company Jazz Pharmaceuticals announced on February 3rd that it intended to acquire GW Pharmaceuticals, a reputed biopharma company with a heavy CBD focus, for $7.2 billion in cash and stock. But Is Jazz Pharmaceuticals Stock a Buy After GW Pharma Acquisition?
Per the proposed deal, GW Pharma investors will be receiving $200 in cash along with $20 in Jazz stock per share. It is a win-win situation for the investors as well because they would be receiving a 50% premium in their investments from the said merger.
How has the Market Reacted to the News?
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The cannabis industry is extremely volatile and when two powerful companies agree to grow together it is definitely a scary moment for competitors. We recently saw this with the Tiray/Aphria merger. Wall Street was not expecting this move as some investors believe both the companies don’t belong to the same market vertical.
The news of the acquisition was very well received by the market. The cheer was such that just within 48 hours, GW Pharma stock rose by 46%. When we wrote about why GW Pharma is a good stock to add to your portfolio on January 30, we certainly didn’t expect this sort of movement but we’re thrilled with cannin members who had taken our advice. But is Jazz Pharmaceuticals stock a buy?
Will this Merger Benefit Companies?
GW Pharma’s most popular product Epidiolex is the first ever plant-based cannabinoid medicine that was approved by FDA in the US. Even Europe has approved it. The product is so popular that it could successfully churn out revenue of $576 million even at a time when the coronavirus was at its peak. With the acquisition, Jazz will get to expand its neuroscience business by adding this blockbuster product to its portfolio.
The management of both the companies believes that the combined entity might become a global leader in neuroscience along with having a global franchise with complementary therapeutic expertise to maximize the value of its products like Xywav (calcium, magnesium, potassium, and sodium oxybate) oral solution, Epidiolex, and others.
Their collective effort is a welcome addition to Jazz’s pro forma pipeline of 19 clinical development programs across avenues like neuroscience and oncology, sleep, epilepsy and so on.
Shareholders are expected to benefit substantially as it’s expected the merger would bring rapid paced double-digit top-line revenue growth to Jazz. The growth aspects will likely be visible from the first year itself and would gradually accelerate thereafter. Also, a target net leverage of less than 3.5x is expected to be achieved by the end of 2022 which is pretty amazing – But is Jazz Pharmaceuticals stock a buy?
Why did Jazz Select GW Pharma?
It is normally said organizations that have a uniform set of values and cultures can collaborate better. Both Jazz and GW Pharma are focused on developing life changing medications for people with serious diseases.
Jazz believes GW’s global teams possess the required talents and expertise to aid Jazz’s capability to develop and launch differentiated therapies for the often overlooked patient populations. Most importantly the deal would let both the companies have a significant presence in the United Kingdom.
Bottom Line: Is Jazz Pharmaceuticals Stock a Buy After GW Pharma Acquisition?
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Usually, it’s a win when the expertise of two experienced and renowned organizations come together. The deal has made a huge difference in GW’s stock prices already. The stock is trading at $214.57 currently, up from $146.07 on February 2, that’s an upside of over 46%. Looking at the present performance of both the entities it appears the same is going to continue in the coming years also.
Jazz will likely increase its revenues and margins with the buyout. In the long term, that will bring Jazz stock value higher. For cannabis and hemp stock investors that have a higher risk tolerance – it may make sense to take a position in Jazz stock now before it climbs.
Is Jazz Pharmaceuticals Stock a Buy After GW Pharma Acquisition?
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