Where Will Jazz Pharmaceuticals Be in 5 Years? Oncology Is Becoming Its Growth Engine

Could Jazz Pharmaceuticals (NASDAQ: JAZZ) turn over a new leaf? Over the past five years, the company has faced various challenges that have contributed to unimpressive top-line growth. But the drugmaker is increasingly pushing into oncology, which has helped improve its financial results. Does that make Jazz Pharmaceuticals an attractive stock to own through the next five years? Let's find out how the company might perform through 2031.

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Jazz's strong second-quarter results

In the second quarter, Jazz Pharmaceuticals' revenue grew by 16% year over year to $1.2 billion. That was a fairly strong performance for the company, and several products contributed to that. For instance, Jazz's Xywav, a medicine approved to treat cataplexy in narcolepsy patients, posted sales of $471.2 million, up 13.5% year over year. Xywav has done a good job of replacing Jazz Pharmaceuticals' Xyrem, a medicine approved across Xywav's indications and once the company's best-selling medicine.

Xyrem started facing generic competition in the U.S. in 2023, and it no longer contributes much to Jazz's results. Other key growth drivers for the biotech company include Epidiolex, a medicine approved to treat seizures associated with certain rare forms of epilepsy. Epidiolex's second-quarter revenue grew 16% year over year to $292.1 million. Epidiolex appears to have a solid medium-term outlook. It likely won't face generic competition within the next five years, and Jazz Pharmaceuticals is seeking to launch it in other countries, including Japan.

But Xywav's prospects are a bit more uncertain, as the company faces competition from Lumryz, a medicine approved for cataplexy in narcolepsy patients with a more convenient once-nightly dosing schedule (Xywav is taken up to twice nightly). Xywav also continues to compete with generics for Xyrem. The drug has performed fairly well despite that, largely because of its lower sodium content (high sodium levels can cause serious health complications).

Still, given that this medicine accounted for about 39% of Jazz Pharmaceuticals' top line in the second quarter, competitive threats could weigh on the stock until the company successfully diversifies its portfolio. That's what it is doing thanks to its oncology lineup. In the second quarter, Jazz Pharmaceuticals' oncology revenue increased by almost 32% year over year to $362.3 million.

The company's Zepzelca, a lung cancer medicine, was the best-selling product in the oncology business. It posted sales of $105.8 million, up 42% year over year. The question is whether Jazz Pharmaceuticals' oncology segment can continue performing well over the medium term.

What does the future hold?

Jazz Pharmaceuticals is running more oncology clinical trials than in any other area, and one of its more promising products is called Ziihera. Jazz Pharmaceuticals first earned approval for this medicine in the U.S. in 2024. In August, this therapy earned a label expansion to treat certain patients with gastroesophageal adenocarcinoma. Ziihera is also being tested across at least half a dozen other potential indications.

Ziihera did not contribute much to sales in the second quarter, which isn't that surprising, given it hasn't been on the market for very long. But with its recent label expansion and potential additional indications, it could become a meaningful growth driver for the company. So could some of Jazz Pharmaceuticals' other candidates. The company earned U.S. approval for Modeyso, a medicine for diffuse midline glioma, last year, and it is also undergoing other clinical trials that could support label expansions.

Jazz's recent oncology launches look promising, and the company's deep pipeline offers significant opportunities to expand its market presence and boost sales growth, potentially allowing it to diversify away from Xywav. By 2031, the company could have a much stronger approved lineup that generates consistent sales and earnings growth. Does that make Jazz Pharmaceuticals a buy right now? My view is that the stock is attractive at current levels for investors willing to hold onto its shares for at least five years. In addition to Epidiolex, which could help drive sales growth for a while, and its improving oncology lineup, Jazz is trading at just 10.9x forward earnings, which compares very favorably with the 19.2x average for healthcare stocks.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.