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Could Supply Limit Growth for Erwinaze?

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May. 5 2016, Updated 12:04 a.m. ET

Erwinaze

Erwinaze (or Erwinase) is approved in the United States and certain European countries for the indication of acute lymphoblastic leukemia (or ALL) in patients who have developed hypersensitivity to E. coli-derived asparaginase.

As Jazz Pharmaceuticals’ (JAZZ) second-largest drug, Erwinaze earned $203 million, or ~15% of the company’s net sales, in fiscal 2015. Lower sales in fiscal 2015 were due to supply disruptions.

Wall Street analysts expect the drug to add $213.6 million and $226.8 million to revenues during fiscal 2016 and 2017, respectively. Jazz’s guidance suggests that the drug might fetch $200 million to $225 million during fiscal 2016.

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Supply disruptions

Erwinaze’s distribution to hospitals is managed by McKesson, a specialty distributor. During the fourth quarter of 2015, Jazz experienced supply challenges for the drug. Although there was a 7% yearly volume rise in 4Q15, inventory depletion at McKesson led to lower quarter-over-quarter sales.

In fiscal 2016, Jazz expects a similar inventory depletion, which could lead to volatile inventory levels. Although Jazz expects inventory fluctuations following supply challenges, it intends to supply McKesson with a standard inventory level.

What is acute lymphoblastic leukemia?

Acute lymphoblastic leukemia (or ALL) is the most common childhood cancer. The annual incidence of the disease stood at ~5,000–6,000 in fiscal 2014. According to Pediatric Blood & Cancer and the Journal of Clinical Oncology, up to 20% of ALL patients may develop hypersensitivity to E. coli-derived asparaginase.

Alexion Pharmaceuticals (ALXN), BioMarin (BMRN), and Medivation (MDVN) concentrate on orphan diseases. To get exposure to Jazz and control excessive company-specific risks, investors could invest in the iShares US Pharmaceuticals ETF (IHE). Jazz accounts for 3.0% of IHE’s total holdings.

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