Jazz Pharma's (JAZZ) Stock Down Despite Q2 Earnings Beat

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Jazz Pharmaceuticals plcJAZZ 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.

Shares of the company were down around 7% in afterhours trading on Tuesday. However, so far this year, the stock has outperformed the industry . The stock has rallied 33.6% compared with the industry's 0.9% increase.

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 (cataplexy and excessive daytime sleepiness (EDS) in narcolepsy patients) 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 (acute lymphoblastic leukemia [ALL]) 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 (non-opioid pain) 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. Please note that 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 majority of the drug's volumes.

The acute myeloid leukemia (AML)drug was launched in the United States in August last year. The drug is under accelerated assessment in the EU for the same indication with an approval expected in early September. In June, the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion recommending marketing authorization for Vyxeos.

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 its lead pipeline candidate, 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.

Pipeline Update

Jazz is striving to expand Xyrem's label and has filed a supplemental new drug application (sNDA) for the same to include the pediatric indication. The FDA granted the sNDA a priority review designation in June with a decision expected on Oct 27.

JZP-110 is under review in the United States for the treatment of excessive sleepiness ("ES") in adult patients with narcolepsy or obstructive sleep apnea ("OSA").A response from the FDA is awaited on Dec 20.Jazz expects to launch the candidate in early 2019. In the EU, Jazz expects to file a regulatory application by the end of this year.

Also, the company is conducting a phase II clinical study evaluating JZP-110 for the treatment of excessive sleepiness associated with Parkinson's disease. Top-line results from the study are expected in early 2019.

Other than JZP-110, Jazz is also studying JZP-258 (a low sodium formulation and a Xyrem follow-on product) in phase III studies for EDS and cataplexy in narcolepsy patients with a NDA filing expected by 2019. JZP-258 is also being studied for Idiopathic hypersomnia, or IH, for which a phase III study is expected to begin in the second half of 2018.

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 from its newest drug, Vyxeos.

This probably hurt investor sentiment and sent shares of the company down in after-hours trading.

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.

Jazz currently carries a Zacks Rank #3 (Hold).

Jazz Pharmaceuticals PLC Price, Consensus and EPS Surprise

Jazz Pharmaceuticals PLC Price, Consensus and EPS Surprise | Jazz Pharmaceuticals PLC Quote

Some better-ranked stocks in the drugs/biotech sector are Vertex Pharmaceuticals VRTX , Seattle Genetics SGEN and Aerie Pharmaceuticals, Inc. AERI . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Vertex's earnings per share estimates moved up from $3.16 to $3.79 for 2018 and from $4.33 to $4.58 for 2019 in the last 30 days. The company delivered a positive surprise in all the trailing four quarters with an average beat of 27.5%. Share price of the company has increased 18.4% this year so far.

Seattle Genetics' 2018 loss per share estimates narrowed from $1.81 to 83 cents and from 81 cents to 39 cents, for 2018 and 2019, respectively, in the last 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 12.93%. The company's shares have rallied 36.3% year to date.

Aerie Pharmaceuticals' loss estimates narrowed from $3.57 to $3.46 for 2018 over the last 30 days. The company's shares have increased 9.6% so far this year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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