In the first-quarter ended March 2015, Jazz Pharmaceuticals [NASDAQ:JAZZ] reported revenues of $309.3 million, up 25% year-over-year and non-GAAP EPS of $1.99 per share, up 25.2% year-over-year. Wall Street was expecting revenues of $308.3 million and EPS of $2.14 per share. One of the reasons for the earnings shortfall could be attributed to an increase in the SG&A expenses as a result of higher headcount, an increase in marketing and promotional expenses and an increase in professional services expenses.

Sales of Xyrem, a drug for the treatment of patients with narcolepsy-related daytime sleepiness and narcolepsy-related acute muscle fatigue, were up 32.6% year-on-year, to $212.7 million from $160.4 million. Revenue from Xyrem accounts for about 68.8% of the Jazz’s total revenues. Sales of Erwinaze/Erwinase, a drug for the treatment of patients with acute lymphoblastic leukemia (ALL), were up 7.3% year-on-year, to $50.4 million from $46.9 million. Sales of Defitelio/defibrotide, a drug for the treatment of severe hepatic veno-occlusive disease, a condition in which veins in the liver become obstructed, were up 42.2% year-on-year, to $17.4 million from $12.2 million.

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 $9.69 on revenues of $1.36 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. 

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 has been moving in an ascending triangle pattern, with the head resistance at $176.60, since the beginning of 2014. The stock has made several breakout attempts since mid-March 2015 and is now trading between the 50- and 100-day SMA. Another symmetrical triangle chart pattern has also emerged where the trendline resistance is at around the $183 level.

In the event of a successful ascending triangle breakout event, our projected price target for JAZZ is $260 in the next 12 to 14 months, determined by adding the width at the top of the pattern to the point of breakout. According to Yahoo Finance, the stock has a one-year price target of $192.47 per share.

Jazz Pharmaceuticals will release its second-quarter 2015 earnings report on August 3-7. Wall Street is expecting revenues of $335.8 million, up 15.3% year-on-year, and an EPS of $2.41 per share, up 17.6% year-on-year.

Disclosure: Long Position in JAZZ. No Positions in any other stocks mentioned.