Morningstar | Jazz Finishes Fiscal 2018 Strong as Vyxeos Picks Up Steam; Shares Remain Undervalued With $153 FVE
Fourth-quarter results exceeded our expectations, with the company posting about $467 million in quarterly revenue. The outperformance was largely driven by better-than-expected Xyrem and Erwinaze revenue, while the Vyxeos launch continued to roll out within our expectations. Further, operating expenses came in slightly lower than we had anticipated. Full-year Vyxeos revenue was about $101 million, up from $34 million in 2017 after its mid-2017 launch.We remain comfortable with our long-term outlook, which includes a 4% five-year revenue CAGR, hit by Xyrem's patent expiration in 2023, and about a 10% five-year adjusted earnings CAGR. We expect Vyxeos and Xyrem to carry revenue growth in 2019, especially as Vyxeos gains momentum with payer reimbursement. Further, we model a significant increase in research and development spending, growing to about $350 million for the full year, as Jazz pushes forward with its pipeline in both sleeping disorders and hematology-oncology. We don't anticipate a material change to our fair value estimate of $153 per share, and we continue to believe that shares look attractive at these levels. We were pleased to see that management took advantage of stock market volatility in the fourth quarter, buying back a significant number of shares for about $447 million.
Looking ahead, the company is anticipating an FDA decision on solriamfetol for obstructive sleep apnea in March, which we expect could contribute about $50 million in revenue in 2019, if approved. The company also mentioned that Jazz's agreement with supplier Porton Biopharma for Erwinaze is being re-negotiated after Porton gave Jazz notice earlier in February. If the two parties cannot agree, Jazz will lose the license to Erwinaze after 2020. We haven't modeled any impact from the agreement at this point, but we'll be watching these negotiations closely. We note that Erwinaze is a small portion of revenue, relatively low-margin, and has been riddled with supply issues.
Jazz Pharmaceuticals is a biopharmaceutical company focused on identifying, developing and commercializing products that address unmet medical needs. Co.'s products and product candidates focus on sleep and hematology/oncology. Co.'s products are: Xyrem® oral solution, which treats both cataplexy and excessive daytime sleepiness, in patients with narcoleps; Erwinaze®, which treats patients with acute lymphoblastic leukemia, who have developed hypersensitivity to E. coli-derived asparaginase; and Defitelio®, which treats adult and pediatric patients with hepatic veno-occlusive disease, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation.
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