Jazz Pharma Misses on Earnings, Outlook Encourages

Zacks

Jazz Pharmaceuticals’ (JAZZ) fourth-quarter 2013 adjusted (including stock-based compensation expense and depreciation) earnings of $1.56 per share were well below the Zacks Consensus Estimate of $1.64 but above the year-ago adjusted earnings of $1.38 per share.

Quarterly revenues increased 28% year over year to $235.8 million driven by strong sales of Xyrem (narcolepsy) and Erwinaze (oncology). Revenues were slightly below the Zacks Consensus Estimate of $238 million.

Full year adjusted (including stock-based compensation expense and depreciation) earnings grew 28.9% to $5.69 per share. Earnings were seven cents below the Zacks Consensus Estimate. Revenues, which increased 49% to $872.4 million, were also below the Zacks Consensus Estimate of $875 million.

Quarter in Detail

In the reported quarter, Xyrem sales increased 45% to $164.2 million. Jazz Pharma stated that during the quarter approximately 11,250 patients were on Xyrem compared to 10,450 in the year-ago quarter. To boost revenues, the company has expanded its sales force by 25%.

Erwinaze generated revenues of $43.5 million, up 26% year over year. Prialt (for pain) revenues were $6.4 million, an increase of 9% from the year-ago period. Meanwhile, psychiatry products sales declined 49.4% to $9.1 million. The decline was due to generic competition.

Jazz Pharma’s selling, general and administrative (SG&A) expenses (on a reported basis) during the quarter increased 32.5% to $81.3 million. Research and development (R&D) expenses (on a reported basis) during the quarter shot up 89.8% to $13.8 million. The increase in SG&A and R&D expenses was due to a higher headcount and related expenses resulting from the EUSA Pharma acquisition in Jun 2012.

Pipeline Update

The company will submit a supplemental biological license application (sBLA) to the U.S. Food and Drug Administration (:FDA) later this quarter to allow intravenous administration of Erwinaze. Another study for the use of Erwinaze in adolescents and young adults with acute lymphoblastic leukemia (ALL), who are hypersensitive to E. coli-derived asparaginase, is expected to commence enrollment by second quarter 2014.

In Jan 2014, Jazz Pharma acquired worldwide development, manufacturing and commercial rights to JZP-110 from Aerial BioPharma. JZP-110 is being developed for the treatment of excessive daytime sleepiness (EDS) in patients suffering from narcolepsy. Meanwhile, Jazz Pharma has acquired 98% of Gentium shares, adding Defitelio to its portfolio. Defitelio is approved in the EU (Oct 2013) for the treatment of severe hepatic veno-occlusive disease (VOD) in patients undergoing hematopoietic stem cell transplantation. Jazz Pharma expects to launch the drug in certain EU countries in 2014.

2014 Guidance

For 2014, Jazz Pharma expects adjusted earnings in the range of $8.00 to $8.25 per share. The guidance excludes share-based compensation expense, which is expected in the range of $65–$70 million. The Zacks Consensus Estimate currently stands at $7.76 per share.

Jazz Pharma expects revenue in the range of $1,100–$1,160 million, above the Zacks Consensus Estimate of $1,079 million.  Xyrem net sales are expected in the range of $755–$775 million (up 33% to 36% from 2013). Erwinaze net sales are expected in the range of $185–$200 million (2013 sales: $174.3 million), while Defitelio is expected to generate revenues of approximately $42–$52 million.

Meanwhile, Jazz Pharma also announced that Matthew Young will be the company’s new chief financial officer (:CFO) replacing Kathryn Falberg who has resigned to pursue other interests.

Our Take

Jazz Pharma’s fourth quarter results missed our expectations on both counts of earnings and revenues. However, the company’s 2014 guidance looks promising. We are positive on its Gentium and Aerial BioPharma deal. We expect the company to remain active on the acquisition front. However, Xyrem patent litigation remains an overhang on the stock. Sooner-than-expected entry of Xyrem generics would be a huge setback for the company.

Jazz Pharma, a biopharmaceutical company, currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the biopharmaceutical sector include Alexion Pharmaceuticals, Inc. (ALXN), Biogen Idec Inc. (BIIB) and Acceleron Pharma, Inc. (XLRN). While Alexion and Biogen carry a Zacks Rank #1 (Strong Buy), Acceleron holds a Zacks Rank #2 (Buy).

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