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In the second-quarter ended June 2015, Jazz Pharmaceuticals [NASDAQ:JAZZ] reported revenues of $333.75 million, up 14.6% year-over-year and non-GAAP EPS of $2.41 per share, up 19.3% year-over-year. Wall Street was expecting revenues of $335.86 million and EPS of $2.41 per share. The revenue shortfall could be attributed to the foreign currency loss of $1.91 million, compared to a $74k gain in the same quarter last year, and an increase in chargebacks and rebates for cancer drug Erwinaze/Erwinase (asparaginase Erwinia chrysanthemi).
Sales of Xyrem (sodium oxybate), a drug for the treatment of patients with narcolepsy-related daytime sleepiness and narcolepsy-related acute muscle fatigue, were up 30% year-on-year, to $247.8 million from $191.4 million. Revenue from Xyrem accounts for about 74.25% of the Jazz’s total revenues. Sales of Erwinaze/Erwinase, a drug for the treatment of patients with acute lymphoblastic leukemia (ALL), were down 3.6% year-on-year, to $46.2 million from $47.9 million.
Sales of Defitelio (defibrotide), an orphan drug for the treatment of severe hepatic veno-occlusive disease, a condition in which veins in the liver become obstructed, were down 23.4% year-on-year, to $15.3 million from $20.2 million. The decline was due to the impact of foreign exchange rates on sales made in euros and the discontinuation of the cost recovery program in the U.S. in July 2014.
Looking forward, Jazz reaffirmed revenue guidance of $1.31 billion to $1.37 billion in 2015 and a non-GAAP diluted EPS of $9.45 to $9.75 per share, compared with analysts' estimates for EPS of $9.66 on revenues of $1.35 billion. Jazz said they are completing their rolling new drug application (NDA) submission for defibrotide, preparing for the potential launch of defibrotide in the U.S.
There is the looming generic threat to Jazz’s Xyrem drug from multiple generic drugmakers, including Amneal Pharmaceuticals, Par Pharmaceuticals, and Roxane Laboratories. Although a series of patents for Xyrem will not expire until 2019 to 2024, Roxane made an argument that Jazz's patents for Xyrem are invalid. Jazz subsequently filed a lawsuit against Roxane in February as an attempt to block the entry of a generic version.
Roxane contends that U.S. Patent Number 8,772,306, one of the three in Jazz's lawsuit, claims an invention that isn't patentable. Roxane urged a New Jersey federal judge in April to throw out the Jazz patent. In July, Jason Gerberry of Leerink said the generic patent challenge remains a lengthy process with the patent trial to occur as soon as the fourth-quarter.
Rumors have been circulating that Jazz could be a takeover target by a potential suitor, such as New Jersey-based Merck & Co. [NYSE:MRK]. According to Jacob Plieth, a senior analyst at Evalute Ltd, Jazz's Xyrem and Erwinaze are perfect complements to Merck’s sleep disorder drug, Belsomra, and their oncology medications, including Keytruda (pembrolizumab), a drug for the treatment of metastatic melanoma.
Jazz Pharmaceuticals may be interested in making a $1 billion bid themselves, for Sigma-Tau’s rare-diseases business, a unit of Sigma-Tau Group, a closely-held Italian pharmaceutical company. Sigma-Tau’s rare-diseases group develops and manufactures drugs, including Adagen (pegademase bovine) for the treatment of severe combined immunodeficieny (ADA-SCID), and generates annual sales of about 165 million euros. Jazz has already acquired Sigma-Tau’s rights to defibrotide in the U.S., for as much as $250 million last year.
M&A has always been part of Jazz’s growth strategies. In September 2011, the company acquired Dublin, Ireland-based Azur Pharma, adding new central nervous system (CNS) drugs to its list of approved drugs and moved its headquarters from Palo Alto, California to Dublin, Ireland to lower tax rates, known as a tax inversion.
From our technical viewpoint, JAZZ broke out from the symmetrical triangle chart pattern in October 2014 with the projected price at $230 a share, determined by adding the width at the top of the pattern to the point of breakout. Since then, the stock has been moving in an ascending triangle chart pattern within a long-term up trend channel, and a head resistance at $190 a share.
As of July 31, 2015, the short interest for JAZZ is 2,392,784 shares, or about 4% of the float. The stock has a one-year price target of $205.25 per share, according to Yahoo Finance. Jazz Pharmaceuticals will release its third-quarter 2015 earnings report on November 2-6. Wall Street is expecting revenues of $347.63 million, up 13.4% year-on-year, and an EPS of $2.56 per share, up 9.9% year-on-year.
Disclosure: Long position in JAZZ. No positions in any other stocks mentioned. |
