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Earnings Up at Jazz Pharma, Guidance Reiterated

Zacks Equity Research

Jazz Pharmaceuticals’ (JAZZ) first-quarter 2014 adjusted (including stock-based compensation expense and depreciation) earnings of $1.51 per share were above the year-ago adjusted earnings of $1.25 per share.

Quarterly revenues increased 26% year over year to $246.9 million driven by strong sales of Xyrem (narcolepsy), Erwinaze (oncology) and Defitelio (severe hepatic veno-occlusive disease). Revenues were below the Zacks Consensus Estimate of $272 million.

Quarter in Detail

In the reported quarter, Xyrem sales increased 36% to $160.4 million. Jazz Pharma stated that during the quarter approximately 11,400 patients were on Xyrem, up 8% from 10,550 in the year-ago quarter. Revenues also benefited from a 12% price increase effective from Feb 3, 2014. The company expects to deliver double-digit volume growth for the product in 2014.

Erwinaze generated revenues of $46.9 million, up 12% year over year. Prialt (for pain) revenues were $4.3 million, a decrease of 14% from the year-ago period. Meanwhile, psychiatry products sales declined 44.1% to $9.9 million. The decline was due to generic competition.

Earlier this year the company launched Defitelio in several European countries including Germany, Austria and the United Kingdom. We note that the product was added to Jazz Pharma’s portfolio following its acquisition of more than 98% of Gentium shares. The company recorded net sales of $12.2 million in the first quarter of 2014. Jazz Pharma plans to continue to roll out the product in other European countries in 2014 and 2015.

Jazz Pharma’s selling, general and administrative (SG&A) expenses (including stock-based compensation expense and depreciation) during the quarter increased 38.5% to $88.8 million. Research and development (R&D) expenses (including stock-based compensation expense and depreciation) during the quarter shot up 166.4% to $18.0 million.

Pipeline Update

The company has some interesting candidates including JZP-110. JZP-110 is being developed for the treatment of excessive daytime sleepiness (EDS) in patients suffering from narcolepsy. The company expects to have an end of phase II meeting with the U.S. Food and Drug Administration (:FDA) in mid 2014.

Meanwhile, Jazz Pharma is also working on expanding the label for its existing products. The company is looking to get an intravenous administration of Erwinaze approved in the U.S. The FDA is expected to render a decision by Dec 28, 2014.

Additionally, the company is also initiating a pediatric narcolepsy study and plans to open clinical sites for this study in the second half of 2014.

2014 Guidance Reiterated

For 2014, Jazz Pharma continues to expect adjusted earnings in the range of $8.00 to $8.25 per share. The guidance excludes share-based compensation expense.

Jazz Pharma still expects revenue in the range of $1,100–$1,160 million. The Zacks Consensus Estimate of $1,129 million is within the guidance range. Xyrem net sales are expected in the range of $755–$775 million. Erwinaze net sales are expected in the range of $185–$200 million, while Defitelio is expected to generate revenues of approximately $42–$52 million.

Our Take

Jazz Pharma’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), Regeneron Pharmaceuticals, Inc. (REGN) and Gilead Sciences Inc. (GILD). While Alexion and Gilead carry a Zacks Rank #1 (Strong Buy), Regeneron holds a Zacks Rank #2 (Buy).

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