Why Is Jazz (JAZZ) Down 2.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Jazz Pharmaceuticals (JAZZ). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Jazz due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Jazz Pharmaceuticals Q2 Earnings Beat, Sales Top Estimates
Jazz Pharmaceuticals reported adjusted earnings of $3.49 per share for second-quarter 2018, which beat the Zacks Consensus Estimate of $3.22. Earnings rose 36% from the year-ago figure.
Total revenues in the quarter rose 27% year over year to $500.5 million owing to higher sales of Xyrem, Prialt and Defitelio. Sales also beat the Zacks Consensus Estimate of $470 million.
Quarter in Detail
Net product sales in the quarter increased 27.3% from the year-ago quarter to $496.1 million. Royalties and contract revenues declined 7.3% to $4.4 million in the second quarter.
Xyrem sales gained 19% year over year to $356 million in the quarter. Sales were driven by a 9% rise in bottle volume growth. The average number of active Xyrem patients increased 7% in the second quarter.
After lower-than-expected sales in 2017, Xyrem witnessed improved volume trends in the first half of 2018, supported by the company’s disease awareness efforts, which led to increased diagnosis rate of new narcolepsy patients.
Erwinaze/Erwinase revenues were $58.7 million, up 20% year over year.
Jazz has been facing challenges in building sufficient inventory levels for Erwinaze due to constrained manufacturing capacity. This has resulted in supply disruptions and the company has warned of supply challenges through the rest of the year.
Prialt revenues rose almost 58% year over year to $8.92 million. In June, Jazz entered into a definitive agreement to sell Prialt to small drugmaker, TerSera Therapeutics for $80 million in cash upon closing. The deal is expected to be completed in the third quarter of 2018, subject to customary closing conditions.
Defitelio sales rose 34% year over year to $40.5 million in the quarter. Defitelio product sales vary from quarter to quarter in both in the U.S. and EU markets because Defitelio treats an ultra-rare acute condition —hepatic veno-occlusive disease (VOD).
Vyxeos generated sales of $28.0 million in the United States compared with $26.2 million in the previous quarter. Vyxeos sales were lower than management’s expectation due to softer demand in academic centers, which account for the majority of the drug’s volumes.
Other product sales declined 40.3% to $4.0 million.
Adjusted selling, general and administrative (SG&A) expenses rose 23.6% to $137.7 million due to higher expenses related to business expansion, including costs related to continued launch of Vyxeos in the United States and potential launch of Vyxeos in the EU and JZP-110 in the United States.
Adjusted research and development (R&D) expenses increased 45.7% to $51.4 million, mainly due to escalated expenses related to the company’s pipeline and regulatory activities.
2018 Guidance
Despite the better-than-expected second-quarter results, Jazz maintained its earnings and sales guidance for 2018. Though the guidance range for Xyrem’s sales was slightly raised, the company lowered its full-year expectations for its newest drug, Vyxeos.
Jazz expects earnings in the range of $12.75-$13.25 per share. Total revenues are expected in the range of $1.88-$1.93 billion.
Total product sales are predicted in the range of $1.87-$1.91 billion in 2018. Xyrem sales are estimated in the range of $1.35-$1.38 billion, higher than $1.32-$1.35 billion expected previously, indicating growth of 14% to 16% over 2017. Also, Jazz raised its 2018 volume growth guidance for Xyrem to a mid to high-single digits range from the previous guidance of mid-single digit range.
Erwinaze/Erwinase sales forecast was maintained in the range of $190-$220 million.
Defitelio net sales prediction for 2018 was also maintained in the band of $145-$165 million. Vyxeos net sales expectations were lowered from the previous range of $130-$155 million to $115-$135 million.
Adjusted gross margin is expected to be 93%. Adjusted SG&A expenses are still expected to be in the range of $525 million - $555 million while adjusted R&D expenses are still expected to be in the range of $205 million - $225 million. SG&A costs are expected to be higher in the second half than the first half.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Jazz has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Jazz has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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