Jazz Pharmaceuticals, the Dublin-based maker of the narcolepsy treatment Xyrem, is buying Italian rare disease drug developer Gentium in a $1 billion deal.

Jazz will pay $57 a share in cash, a 2.4 per cent premium over yesterday’s closing price in New York for Gentium’s American depositary receipts, the companies said in a statement.

Gentium received approval in October from European regulators for Defitelio, a treatment for a disease that can occur after stem cell transplants.

Jazz has been seen as a takeover target for a foreign drugmaker that could use the transaction to lower its tax rate. The company moved its headquarters from Palo Alto, California, in January 2012 after closing its acquisition of Azur Pharma, which had been based in Dublin.

The deal for Gentium is expected to add immediately to Jazz’s earnings per share, the companies said. Jazz is focused on the specialty pharma sector, with drugs sold through a small cohort of doctors to treat a serious disorder.

"Incorporating Gentium into Jazz Pharmaceuticals is a strong strategic fit as Defitelio would diversify our development and commercial portfolio and complement our clinical experience," Bruce Cozadd, Jazz's chief executive officer, said in a statement announcing the deal.

The acquisition was approved by both boards, and is expected to close in the first quarter of next year, the companies said.

Jazz last year purchased Eusa Pharma for $650 million, giving it the leukemia drug Erwinaze. It's biggest product, Xyrem, is expected to generate sales of $567 million this year, according to the average of eight analysts' estimates compiled by Bloomberg.

Jazz gained as much as 11 per cent to $126.99 in extended trading yesterday in New York after closing at $114.72 before the deal was announced. The company’s shares have more than doubled this year. – Bloomberg