Jazz Pharma (JAZZ) Q3 Earnings Top, Sales Lag Estimates

Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) reported third-quarter 2016 earnings of $2.16 per share (including stock based compensation expense) which surpassed the Zacks Consensus Estimate of $1.57. Earnings were, however, almost unchanged from the year-ago tally. Excluding stock-based compensation expense, quarterly earnings were up 2% to $2.57 per share.

Total revenue in the reported quarter climbed 9.8% year over year to $374.2 million, mainly driven by higher sales of Xyrem and Defitelio. Reported revenues, however, fell short of the Zacks Consensus Estimate of $389 million.

Quarter in Detail

Net product sales in third-quarter 2016 increased 9.7% to 371.6 million compared to year ago quarter.

In the reported quarter, Xyrem sales rose 17.7% to $285.9 million. The company reported 9% bottle volume growth in the quarter, with expectations of mid-to-high single-digit volume growth in 2016.

Xyrem is currently facing patent challenges from several companies – a decision on the Roxane Laboratories case will be given in the second quarter of 2017. Meanwhile, trial dates for other patent challenges are yet to be set.

Erwinaze/Erwinase generated revenues of $43 million, down 23.6% year over year. The company stated that it has been facing issues in building sufficient inventory levels to absorb supply disruption due to constrained manufacturing capacity. Management warned that the inventory and supply challenges could lead to further disruptions in its ability to supply products to certain markets including the U.S.

Prialt revenues came in at $8.8 million, up a significant 46.7% from the year-ago period driven primarily by sales to Eisai for distribution and sales in Europe. Meanwhile, psychiatry product sales plunged 60.6% to $3.9 million.

The company recorded Defitelio sales of $28.1 million in the third quarter of 2016, up 43.4% year over year. Sales benefited from the Apr 2016 launch of Defitelio in the U.S., which raked in sales of $7 million. The company reported that 105 unique accounts ordered Defitileo in the third quarter, with 72% reordering since its launch.

Adjusted selling, general and administrative (SG&A) expenses (excluding stock based compensation expense) during the quarter increased 12% to $94.5 million primarily due to a higher headcount and an increase in other expenses related to business expansion.

Likewise, adjusted research and development (R&D) expenses climbed 88.4% to $43.3 million due to costs related to the development of its pipeline candidate JZP-110, including accelerated enrollment in the narcolepsy studies, oxybate-related R&D programs, study for Defitelio, the Xyrem phase III pediatric study activities and costs related to Vyxeos rolling NDA submission.

Note that JZP-110 is in phase III safety and efficacy studies for the treatment of excessive daytime sleepiness in patients suffering from narcolepsy or obstructive sleep apnea (OSA). In Sep 2016, the company completed enrollment in two phase III studies and expects preliminary data from these studies in the first quarter of 2017.

In the same month, the company also initiated the rolling NDA submission to the FDA for Vyxeos for the treatment of acute myeloid leukemia (AML). The company estimates completing the submission in the first quarter of 2017. Vyxeos has Fast Track designation in the U.S. and plans to request for priority review as well.

Moreover, the company has activated clinical sites for a phase III study on Defitelio for the prevention of veno-occlusive disease (VOD) in high-risk patients following hematopoietic stem cell transplantation in the third quarter of 2016. In Nov 2016, enrollment in a phase III study on Xyrem in pediatric narcolepsy patients with cataplexy was complete.

During the third quarter of 2016, the company spent $97 million on share buybacks, completing its prior $300 million share repurchase program.

In the third quarter, Jazz completed the acquisition of Celator Pharmaceuticals, a clinical-stage oncology-focused biopharmaceutical company.

2016 Guidance Revised

The company maintained its earnings guidance in the range of $9.90–$10.30 per share (excluding stock based compensation expense). Jazz continues to expect revenues in the range of $1,485–$1,530 million. Total product sales are still expected in the range of $1,477–$1,522 million.

Xyrem sales are now expected in the range of $1,100–$1,125 million, compared to its earlier guidance of $1,095–$1,130. Erwinaze/Erwinase sales are anticipated in the range of $190–$215 million. Defitelio revenues are now projected in the range of $105–$120 million, compared to the old guidance of $105–$125 million, including U.S. sales of about $25–$30 (prior estimate: $25–$35 million) and European sales of $80–$90 million.

Meanwhile, the company has lowered its adjusted SG&A expenses guidance to the range of $395–$405 million from $400–$415 million guided earlier, while R&D expenditure is now envisioned in the range of $145–$155 million compared with $135–$145 million projected previously.

Zacks Rank & Key Picks

Jazz currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector include Anika Therapeutics Inc. (NASDAQ:ANIK) , Cambrex Corporation (NYSE:CBM) and Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) . Each of these stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anika’s earnings estimates have increased from $1.96 to $2.06 for 2016 and from $2.03 to $2.09 for 2017 over the last 60 days. The company has posted a positive earnings surprise in all of the four trailing quarters with an average beat of 33.14%. Its share price has increased 13% year to date.

Cambrex’s earnings estimates have increased from $2.46 to $2.60 for 2016 but have remained unchanged for 2017 over the last 60 days. The company has posted a positive earnings surprise in three of the four trailing quarters with an average beat of 19.78%.

Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 over the last 60 days. The company has posted a positive earnings surprise in all of the four trailing quarters with an average beat of 67.62%.

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