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Why Is Jazz (JAZZ) Down 7.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Jazz Pharmaceuticals (JAZZ). Shares have lost about 7.3% 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 catalysts.

Jazz Pharmaceuticals Q1 Earnings and Sales Beat Estimates

Jazz Pharmaceuticals delivered adjusted earnings of $3.67 per share for the first quarter of 2019, which surpassed the Zacks Consensus Estimate of $3.16. Earnings rose 23% from the year-ago figure driven by higher sales and reduced share count.

Total revenues in the reported quarter rose 14% year over year to $508.2 million and also beat the Zacks Consensus Estimate of $471.0 million. This can be attributed to higher sales of Xyrem and Defitelio and improved sales of Vyxeos and Erwinaze.

Quarter in Detail

Net product sales in the reported quarter increased 14.2% from the year-ago quarter to $503.3 million. Royalties and contract revenues rose 28.9% to $4.9 million in the quarter.

Xyrem (cataplexy and excessive daytime sleepiness [“EDS”] in narcolepsy patients) sales rose 16% year over year to $368.3 million in the quarter. Sales were driven by 5% rise in bottle volume growth. The average number of active Xyrem patients increased 6% in the quarter.

Erwinaze/Erwinase (acute lymphoblastic leukemia [“ALL”]) revenues were $60.9 million, up 20% year over year. Jazz has been facing challenges in building sufficient inventory levels for Erwinaze due to constrained manufacturing capacity. This resulted in supply disruptions and hurt sales of Erwinaze in 2017 as well as in 2018. Sales however improved in the first quarter of 2019 due to higher availability of products compared to prior periods. The company expects significantly reduced product availability in the second quarter as well as further supply disruptions throughout 2019.

Defitelio sales rose 18% year over year to $41.5 million in the quarter aided by growth in use by transplant centers to treat both adult and pediatric patients. Please note that Defitelio product sales vary from quarter to quarter in both the United States and EU markets because Defitelio treats an ultra-rare acute condition — hepatic veno-occlusive disease (“VOD”).

Vyxeos generated sales of $28.9 million, higher than $25.7 million in the previous quarter primarily due to a rolling launch in the EU initiated in September 2018. The drug is now commercially available to patients in nine European countries.

Vyxeos generated lower-than-expected sales in second as well as the third quarters of 2018 as the drug faced challenges related to its adoption as a central therapy in eligible patients in a crowded AML market. However, sales improved sequentially in the past two quarters as the company focused resources to drive adoption of Vyxeos and due to increased contribution from sales in EU.

Other product sales declined 69.8% to $3.7 million.

Adjusted selling, general and administrative (SG&A) expenses rose 11.8% to $147.6 million owing to higher expenses related to business expansion and costs to support the launch of Sunosi in the United States and the rolling launch of Vyxeos in the EU.

Adjusted research and development (R&D) expenses increased 15.4% to $54.6 million, primarily due to escalating expenses related to the company’s pipeline and regulatory activities.

2019 Guidance

The company maintained its previously issued guidance for earnings and total revenues including the expected sales range from all its products.

It expects earnings in the range of $14.30-$15.00 per share in 2019. Total revenues are expected in the range of $2.05-$2.13 billion.

Total product sales are predicted in the range of $2.04-$2.11 billion in 2019. Xyrem sales are estimated in the range of $1.53-$1.57 billion, indicating growth of 10% over 2018 at the mid-point. Erwinaze/Erwinase sales are forecast in the range of $160-$195 million.

Defitelio’s net sales prediction for 2019 is in the band of $155-$180 million, which indicates year-over-year growth of approximately 12% at the mid-point. Vyxeos net sales expectations are in the range of $120-$150 million, representing an increase of 34% over 2018 at the mid-point. This is likely to be driven by increased growth in the United States in the second half and an increasing contribution from EU.

While adjusted SG&A expenses are anticipated in the range of $620 million to $650 million, adjusted R&D expenses is expected to be in the band of $235 million to $265 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.89% due to these changes.

VGM Scores

At this time, Jazz has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.



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