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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 
FORM 10-Q
 
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission File Number: 001-33500
JAZZ PHARMACEUTICALS PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter) 
Ireland
98-1032470
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Fifth Floor, Waterloo Exchange,
Waterloo Road, Dublin 4, Ireland D04 E5W7
011-353-1-634-7800
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per share
JAZZ
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 
As of April 28, 2020, 55,330,359 ordinary shares of the registrant, nominal value $0.0001 per share, were outstanding.




JAZZ PHARMACEUTICALS PLC
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020

INDEX
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 

We own or have rights to various copyrights, trademarks, and trade names used in our business in the U.S. and/or other countries, including the following: Jazz Pharmaceuticals®, Xyrem® (sodium oxybate) oral solution, Sunosi® (solriamfetol), Defitelio® (defibrotide sodium), Defitelio® (defibrotide), Erwinaze® (asparaginase Erwinia chrysanthemi), Erwinase®, CombiPlex®, Vyxeos® (daunorubicin and cytarabine) liposome for injection and Vyxeos® liposomal 44 mg/100 mg powder for concentrate for solution for infusion. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.



2



PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements

JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
March 31,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
701,602

 
$
637,344

Investments
280,000

 
440,000

Accounts receivable, net of allowances
317,301

 
355,987

Inventories
85,610

 
78,608

Prepaid expenses
38,824

 
39,434

Other current assets
94,300

 
78,895

Total current assets
1,517,637

 
1,630,268

Property, plant and equipment, net
129,562

 
131,506

Operating lease assets
135,976

 
139,385

Intangible assets, net
2,238,658

 
2,440,977

Goodwill
909,226

 
920,018

Deferred tax assets, net
230,242

 
221,403

Deferred financing costs
6,887

 
7,426

Other non-current assets
47,107

 
47,914

Total assets
$
5,215,295

 
$
5,538,897

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
66,308

 
$
47,545

Accrued liabilities
261,041

 
267,873

Current portion of long-term debt
33,387

 
33,387

Income taxes payable
31,211

 
10,965

Deferred revenue
4,176

 
4,720

Total current liabilities
396,123

 
364,490

Deferred revenue, non-current
4,225

 
4,861

Long-term debt, less current portion
1,576,984

 
1,573,870

Operating lease liabilities, less current portion
147,110

 
151,226

Deferred tax liabilities, net
165,095

 
224,095

Other non-current liabilities
117,258

 
109,374

Commitments and contingencies (Note 11)

 


Shareholders’ equity:
 
 
 
Ordinary shares
6

 
6

Non-voting euro deferred shares
55

 
55

Capital redemption reserve
472

 
472

Additional paid-in capital
2,294,474

 
2,266,026

Accumulated other comprehensive loss
(257,436
)
 
(223,393
)
Retained earnings
770,929

 
1,067,815

Total shareholders’ equity
2,808,500

 
3,110,981

Total liabilities and shareholders’ equity
$
5,215,295

 
$
5,538,897




The accompanying notes are an integral part of these condensed consolidated financial statements.

3




JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2020
 
2019
Revenues:
 
 
 
Product sales, net
$
530,205

 
$
503,331

Royalties and contract revenues
4,521

 
4,855

Total revenues
534,726

 
508,186

Operating expenses:
 
 
 
Cost of product sales (excluding amortization of acquired developed technologies)
28,657

 
33,506

Selling, general and administrative
208,400

 
167,947

Research and development
86,107

 
60,105

Intangible asset amortization
62,847

 
56,885

Acquired in-process research and development
202,250

 
56,000

Impairment charge
136,139

 

Total operating expenses
724,400

 
374,443

Income (loss) from operations
(189,674
)
 
133,743

Interest expense, net
(18,496
)
 
(17,922
)
Foreign exchange loss
(1,132
)
 
(611
)
Income (loss) before income tax provision (benefit) and equity in loss (gain) of investees
(209,302
)
 
115,210

Income tax provision (benefit)
(51,287
)
 
29,116

Equity in loss (gain) of investees
(182
)
 
893

Net income (loss)
$
(157,833
)
 
$
85,201

 
 
 
 
Net income (loss) per ordinary share:
 
 
 
Basic
$
(2.82
)
 
$
1.49

Diluted
$
(2.82
)
 
$
1.47

Weighted-average ordinary shares used in per share calculations - basic
55,956

 
57,206

Weighted-average ordinary shares used in per share calculations - diluted
55,956

 
58,081















The accompanying notes are an integral part of these condensed consolidated financial statements.

4



JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2020
 
2019
Net income (loss)
$
(157,833
)
 
$
85,201

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
(29,990
)
 
(21,142
)
Unrealized loss on hedging activities, net of income tax benefit of $579 and $249, respectively
(4,053
)
 
(1,741
)
Other comprehensive income (loss)
(34,043
)
 
(22,883
)
Total comprehensive income (loss)
$
(191,876
)
 
$
62,318



























The accompanying notes are an integral part of these condensed consolidated financial statements.

5



JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Ordinary Shares
 
Non-voting Euro Deferred
 
Capital Redemption Reserve
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2019
56,140

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,266,026

 
$
(223,393
)
 
$
1,067,815

 
$
3,110,981

Issuance of ordinary shares in conjunction with exercise of share options
145

 

 

 

 

 
13,264

 

 

 
13,264

Issuance of ordinary shares in conjunction with vesting of restricted stock units
214

 

 

 

 

 

 

 

 

Shares withheld for payment of employee's withholding tax liability

 

 

 

 

 
(13,547
)
 

 

 
(13,547
)
Share-based compensation

 

 

 

 

 
28,731

 

 

 
28,731

Shares repurchased
(1,131
)
 

 

 

 

 

 

 
(139,053
)
 
(139,053
)
Other comprehensive loss

 

 

 

 

 

 
(34,043
)
 

 
(34,043
)
Net loss

 

 

 

 

 

 

 
(157,833
)
 
(157,833
)
Balance at March 31, 2020
55,368

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,294,474

 
$
(257,436
)
 
$
770,929

 
$
2,808,500


 
Ordinary Shares
 
Non-voting Euro Deferred
 
Capital Redemption Reserve
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2018
57,504

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,113,630

 
$
(197,791
)
 
$
841,050

 
$
2,757,422

Cumulative effect adjustment from adoption of new accounting standards

 

 

 

 

 

 

 
4,848

 
4,848

Issuance of ordinary shares in conjunction with exercise of share options
54

 

 

 

 

 
3,057

 

 

 
3,057

Issuance of ordinary shares in conjunction with vesting of restricted stock units
203

 

 

 

 

 

 

 

 

Shares withheld for payment of employee's withholding tax liability

 

 

 

 

 
(13,810
)
 

 

 
(13,810
)
Share-based compensation

 

 

 

 

 
27,861

 

 

 
27,861

Shares repurchased
(858
)
 

 

 

 

 

 

 
(111,249
)
 
(111,249
)
Other comprehensive loss

 

 

 

 

 

 
(22,883
)
 

 
(22,883
)
Net income

 

 

 

 

 

 

 
85,201

 
85,201

Balance at March 31, 2019
56,903

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,130,738

 
$
(220,674
)
 
$
819,850

 
$
2,730,447



6



JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Three Months Ended
March 31,
 
2020
 
2019
Operating activities
 
 
 
Net income (loss)
$
(157,833
)
 
$
85,201

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Intangible asset amortization
62,847

 
56,885

Share-based compensation
28,654

 
27,552

Impairment charge
136,139

 

Depreciation
4,527

 
3,539

Acquired in-process research and development
202,250

 
56,000

Loss on disposal of assets
73

 
3

Deferred tax benefit
(63,976
)
 
(17,053
)
Provision for losses on accounts receivable and inventory
2,620

 
528

Amortization of debt discount and deferred financing costs
12,000

 
11,133

Other non-cash transactions
1,902

 
(738
)
Changes in assets and liabilities:

 

Accounts receivable
37,861

 
(56,960
)
Inventories
(10,235
)
 
(8,688
)
Prepaid expenses and other current assets
(17,843
)
 
(988
)
Other non-current assets
323

 
426

Operating lease assets
3,195

 
2,108

Accounts payable
19,604

 
1,554

Accrued liabilities
(12,198
)
 
(3,730
)
Income taxes payable
20,829

 
39,726

Deferred revenue
(1,180
)
 
(1,874
)
Other non-current liabilities
7,316

 
6,773

Operating lease liabilities, less current portion
(3,906
)
 
856

Net cash provided by operating activities
272,969

 
202,253

Investing activities
 
 
 
Proceeds from maturity of investments
345,000

 
345,000

Purchases of property, plant and equipment
(4,830
)
 
(7,948
)
Acquired in-process research and development
(202,250
)
 
(56,000
)
Acquisition of intangible assets
(13,000
)
 

Acquisition of investments
(185,000
)
 
(115,000
)
Net cash (used in) provided by investing activities
(60,080
)
 
166,052

Financing activities
 
 
 
Proceeds from employee equity incentive and purchase plans
13,264

 
3,057

Payment of employee withholding taxes related to share-based awards
(13,547
)
 
(13,810
)
Repayments of long-term debt
(8,347
)
 
(8,347
)
Share repurchases
(139,053
)
 
(111,249
)
Net cash used in financing activities
(147,683
)
 
(130,349
)
Effect of exchange rates on cash and cash equivalents
(948
)
 
(112
)
Net increase in cash and cash equivalents
64,258

 
237,844

Cash and cash equivalents, at beginning of period
637,344

 
309,622

Cash and cash equivalents, at end of period
$
701,602

 
$
547,466








The accompanying notes are an integral part of these condensed consolidated financial statements.

7



JAZZ PHARMACEUTICALS PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The Company and Summary of Significant Accounting Policies
Jazz Pharmaceuticals plc is a global biopharmaceutical company dedicated to developing and commercializing life-changing medicines for people with serious diseases – often with limited or no options. We have a diverse portfolio of marketed medicines and novel product candidates, from early- to late-stage development, in key therapeutic areas. Our focus is in neuroscience, including sleep medicine and movement disorders, and in oncology, including hematologic and solid tumors. We actively explore new options for patients including novel compounds, small molecule advancements, biologics and innovative drug delivery technologies.
Our lead marketed products are:
Xyrem® (sodium oxybate) oral solution, the only product approved by the U.S. Food and Drug Administration, or FDA, and marketed in the U.S. for the treatment of both cataplexy and excessive daytime sleepiness, or EDS, in both adult and pediatric patients with narcolepsy;
Sunosi® (solriamfetol), a product approved by FDA and marketed in the U.S. to improve wakefulness in adult patients with EDS associated with narcolepsy or obstructive sleep apnea, and also recently approved in Europe in January 2020 by the European Commission;
Defitelio® (defibrotide sodium), a product approved in the U.S. for the treatment of adult and pediatric patients with hepatic veno-occlusive disease, or VOD, also known as sinusoidal obstruction syndrome, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation, or HSCT, and in Europe (where it is marketed as Defitelio® (defibrotide)) for the treatment of severe VOD in adults and children undergoing HSCT therapy;
Erwinaze® (asparaginase Erwinia chrysanthemi), a treatment approved in the U.S. and in certain markets in Europe (where it is marketed as Erwinase®) for patients with acute lymphoblastic leukemia, or ALL, who have developed hypersensitivity to E. coli-derived asparaginase; and
Vyxeos® (daunorubicin and cytarabine) liposome for injection, a product approved in the U.S. and in Europe (where it is marketed as Vyxeos® liposomal 44 mg/100 mg powder for concentrate for solution for infusion) for the treatment of adults with newly-diagnosed therapy-related acute myeloid leukemia, or AML, or AML with myelodysplasia-related changes.
Our strategy to create shareholder value is focused on:
Strong financial execution through growth in sales of our current lead marketed products;
Building a diversified product portfolio and development pipeline through a combination of our internal research and development efforts and obtaining rights to clinically meaningful and differentiated on- or near-market products and early- to late-stage product candidates through corporate development transactions; and
Maximizing the value of our products and product candidates by continuing to implement our comprehensive global development plans, including through generating additional clinical data and seeking regulatory approval for new indications and new geographies.
Throughout this report, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” “we,” “us,” and “our” refer to Jazz Pharmaceuticals plc and its consolidated subsidiaries. Throughout this report, all references to “ordinary shares” refer to Jazz Pharmaceuticals plc’s ordinary shares.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared following the requirements of the U.S. Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles, or U.S. GAAP, can be condensed or omitted. The information included in this Quarterly Report on Form 10‑Q should be read in conjunction with our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of our financial position and operating results. The results for the three months

8



ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, for any other interim period or for any future period.
Our significant accounting policies have not changed substantially from those previously described in our Annual Report on Form 10-K for the year ended December 31, 2019.
These condensed consolidated financial statements include the accounts of Jazz Pharmaceuticals plc and our subsidiaries, and intercompany transactions and balances have been eliminated.
Our operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision maker, or CODM. Our CODM has been identified as our chief executive officer. We have determined that we operate in one business segment, which is the identification, development and commercialization of meaningful pharmaceutical products that address unmet medical needs.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
Adoption of New Accounting Standards
In August 2018, the Financial Accounting Standards Board, or FASB, issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 and adoption did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Goodwill impairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill. We adopted this standard on January 1, 2020 and adoption did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which requires that credit losses on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. We adopted this standard on January 1, 2020 and adoption did not have a material impact on our consolidated financial statements.
Significant Risks and Uncertainties
With the global impact of the COVID-19 pandemic, we have developed a comprehensive response strategy including establishing cross-functional response teams and implementing business continuity plans to manage the impact of the COVID-19 pandemic on our employees, customers and our business. Given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, we expect that our business, financial condition, results of operations and growth prospects will be adversely affected in the future. With respect to our commercialization activities, the evolving effects of the COVID-19 pandemic are having a negative impact on demand for our products, primarily due to the inherent limitations of telemedicine and a reprioritization of healthcare resources toward COVID-19. The extent of the impact on our ability to generate sales of and revenues from our approved products, execute on new product launches, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our ordinary shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of or reemergence of outbreaks, governmental “stay-at-home” orders and travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Ireland and other countries, and the effectiveness of actions taken globally to contain and treat the disease.
Our financial results are significantly influenced by sales of Xyrem. Our ability to maintain or increase Xyrem product sales is subject to a number of risks and uncertainties including, without limitation, the introduction of authorized generic and generic versions of sodium oxybate and/or new products for treatment of cataplexy and/or EDS in narcolepsy in the U.S.

9



market, the potential impacts of the ongoing COVID-19 pandemic, including disruption of demand for our products and our ability to meet commercial demand, increased pricing pressure from, changes in policies by, or restrictions on reimbursement imposed by, third party payors, challenges to our intellectual property around Xyrem, and continued acceptance of Xyrem by physicians and patients.
In addition to risks related specifically to Xyrem, we are subject to other challenges and risks related to successfully commercializing a portfolio of hematology/oncology products, including Defitelio, Erwinaze and Vyxeos, and other risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our late-stage product candidates including both JZP-258 and lurbinectedin in the U.S.; effectively commercializing our approved products such as Sunosi in the U.S. and EU and, if approved, JZP-258 and lurbinectedin; obtaining and maintaining adequate coverage and reimbursement for our products; increasing scrutiny of pharmaceutical product pricing and resulting changes in healthcare laws and policy; market acceptance; delays or problems in the supply of our products, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements; and possible restrictions on our ability and flexibility to pursue certain future opportunities as a result of our substantial outstanding debt obligations. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, investments and derivative contracts. Our investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper issued by U.S. corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of U.S. states, agencies and municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and investments to the extent recorded on the balance sheet.
We manage our foreign currency transaction risk and interest rate risk within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes. As of March 31, 2020, we had foreign exchange forward contracts with notional amounts totaling $225.4 million. As of March 31, 2020, the outstanding foreign exchange forward contracts had a net liability fair value of $3.6 million. As of March 31, 2020, we had interest rate swap contracts with notional amounts totaling $300.0 million. These outstanding interest rate swap contracts had a net liability fair value of $6.2 million as of March 31, 2020. The counterparties to these contracts are large multinational commercial banks, and we believe the risk of nonperformance is not significant.
We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a reserve against uncollectible accounts receivable as necessary. We extend credit to pharmaceutical wholesale distributors and specialty pharmaceutical distribution companies, primarily in the U.S., and to other international distributors and hospitals. Customer creditworthiness is monitored and collateral is not required. We monitor deteriorating economic conditions in certain European countries which may result in variability of the timing of cash receipts and an increase in the average length of time that it takes to collect accounts receivable outstanding. Historically, we have not experienced significant credit losses on our accounts receivable and as of March 31, 2020 and December 31, 2019, allowances on receivables were not material. As of March 31, 2020, two customers accounted for 88% of gross accounts receivable, Express Scripts Specialty Distribution Services, Inc. and its affiliates, or ESSDS, which accounted for 81% of gross accounts receivable, and McKesson Corporation and affiliates, or McKesson, which accounted for 7% of gross accounts receivable. As of December 31, 2019, two customers accounted for 89% of gross accounts receivable, ESSDS, which accounted for 77% of gross accounts receivable, and McKesson, which accounted for 12% of gross accounts receivable.
We depend on single source suppliers for most of our products, product candidates and their active pharmaceutical ingredients, or APIs. With respect to Xyrem, the API is manufactured for us by a single source supplier and the finished product is manufactured both by us in our facility in Athlone, Ireland and by our U.S.-based Xyrem supplier.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments are effective for annual

10



reporting periods beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the impact of adopting this new accounting guidance.

2. License Agreement
On December 19, 2019, we entered into an exclusive license agreement with Pharma Mar, S.A., or PharmaMar, for development and U.S. commercialization of lurbinectedin, a product candidate under clinical investigation for the treatment of patients with relapsed small cell lung cancer, or SCLC. Lurbinectedin was granted orphan drug designation for SCLC by FDA in August 2018. In December 2019, PharmaMar submitted a new drug application, or NDA to FDA for accelerated approval of lurbinectedin for relapsed SCLC based on data from a Phase 2 trial, and in February 2020, FDA accepted the NDA for filing with priority review.
Under the terms of this agreement, which became effective in January 2020 upon expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, we paid PharmaMar an upfront payment of $200.0 million, which was recorded as acquired IPR&D expense in our consolidated statements of income (loss) for the three months ended March 31, 2020.
PharmaMar is eligible to receive potential regulatory milestone payments of up to $250.0 million upon the achievement of accelerated and/or full regulatory approval of lurbinectedin by FDA within certain timelines. PharmaMar is also eligible to receive up to $550.0 million in potential commercial milestone payments, as well as incremental tiered royalties on future net sales of lurbinectedin ranging from the high teens up to 30 percent. PharmaMar may receive additional payments on approval of other indications, with any such payments creditable against commercial milestone payment obligations. PharmaMar retains production rights for lurbinectedin and will supply the product to Jazz.

3. Cash and Available-for-Sale Securities
Cash, cash equivalents and investments consisted of the following (in thousands): 
 
March 31, 2020
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Cash and
Cash
Equivalents
 
Investments
Cash
$
226,349

 
$

 
$

 
$
226,349

 
$
226,349

 
$

Time deposits
630,000

 

 

 
630,000

 
350,000

 
280,000

Money market funds
125,253

 

 

 
125,253

 
125,253

 

Totals
$
981,602

 
$

 
$

 
$
981,602

 
$
701,602

 
$
280,000


 
December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Cash and
Cash
Equivalents
 
Investments
Cash
$
333,172

 
$

 
$

 
$
333,172

 
$
333,172

 
$

Time deposits
460,000

 

 

 
460,000

 
20,000

 
440,000

Money market funds
284,172

 

 

 
284,172

 
284,172

 

Totals
$
1,077,344

 
$

 
$

 
$
1,077,344

 
$
637,344

 
$
440,000


Cash equivalents and investments are considered available-for-sale securities. We use the specific-identification method for calculating realized gains and losses on securities sold and include them in interest expense, net in the consolidated statements of income (loss). Our investment balances represent time deposits with original maturities of greater than three months and less than one year. Interest income from available-for-sale securities was $4.4 million and $4.8 million in the three months ended March 31, 2020 and 2019, respectively.


11



4. Fair Value Measurement
The following table summarizes, by major security type, our available-for-sale securities and derivative contracts as of March 31, 2020 and December 31, 2019 that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands): 
 
March 31, 2020
 
December 31, 2019
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
Estimated
Fair Value
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
Estimated
Fair Value  
Assets:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Time deposits
$

 
$
630,000

 
$
630,000

 
$

 
$
460,000

 
$
460,000

Money market funds
125,253

 

 
125,253

 
284,172

 

 
284,172

Foreign exchange forward contracts

 
316

 
316

 

 
2,508

 
2,508

Totals
$
125,253

 
$
630,316

 
$
755,569

 
$
284,172

 
$
462,508

 
$
746,680

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$

 
$
6,155

 
$
6,155

 
$

 
$
1,515

 
$
1,515

Foreign exchange forward contracts

 
3,955

 
3,955

 

 
182

 
182

Totals
$

 
$
10,110

 
$
10,110

 
$

 
$
1,697

 
$
1,697


As of March 31, 2020, our available-for-sale securities included time deposits and money market funds and their carrying values were approximately equal to their fair values. Time deposits were measured at fair value using Level 2 inputs and money market funds were measured using quoted prices in active markets, which represent Level 1 inputs. Level 2 inputs, obtained from various third party data providers, represent quoted prices for similar assets in active markets, or these inputs were derived from observable market data, or if not directly observable, were derived from or corroborated by other observable market data.
Our derivative assets and liabilities include interest rate and foreign exchange derivatives that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk as well as an evaluation of our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.
There were no transfers between the different levels of the fair value hierarchy in 2020 or 2019.
As of March 31, 2020, the carrying amount of investments measured using the measurement alternative for equity investments without a readily determinable fair value was $4.5 million. The carrying amount, which is recorded within other non-current assets, represents the purchase price paid in 2018.
As of March 31, 2020, the estimated fair values of our 1.875% exchangeable senior notes due 2021, or the 2021 Notes, and our 1.50% exchangeable senior notes due 2024, or the 2024 Notes, were approximately $550 million and $502 million, respectively. The fair values of the 2021 Notes and the 2024 Notes, which we refer to together as the Exchangeable Senior Notes, were estimated using quoted market prices obtained from brokers (Level 2). The estimated fair value of our borrowing under our term loan was approximately equal to its book value based on the borrowing rates currently available for variable rate loans (Level 2).

5. Derivative Instruments and Hedging Activities
We are exposed to certain risks arising from operating internationally, including fluctuations in interest rates on our outstanding term loan borrowings and fluctuations in foreign exchange rates primarily related to the translation of euro-denominated net monetary liabilities, including intercompany balances, held by subsidiaries with a U.S. dollar functional currency. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.
To achieve a desired mix of floating and fixed interest rates on our variable rate debt, we entered into interest rate swap agreements in March 2017 which are effective until July 2021. These agreements hedge contractual term loan interest rates. As of March 31, 2020 and December 31, 2019, the interest rate swap agreements had a notional amount of $300.0 million. As

12



a result of these agreements, the interest rate on a portion of our term loan borrowings was fixed at 1.895%, plus the borrowing spread, until July 12, 2021.
The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The impact on accumulated other comprehensive loss and earnings from derivative instruments that qualified as cash flow hedges for the three months ended March 31, 2020 and 2019 was as follows (in thousands):
 
Three Months Ended
March 31,
Interest Rate Contracts:
2020
 
2019
Loss recognized in accumulated other comprehensive loss, net of tax
$
(4,200
)
 
$
(1,341
)
Loss (gain) reclassified from accumulated other comprehensive loss to interest expense, net of tax
147

 
(400
)

Assuming no change in LIBOR-based interest rates from market rates as of March 31, 2020, $4.1 million of losses, net of tax, recognized in accumulated other comprehensive loss will be reclassified to earnings over the next 12 months.
We enter into foreign exchange forward contracts, with durations of up to 12 months, designed to limit the exposure to fluctuations in foreign exchange rates related to the translation of certain non-U.S. dollar denominated liabilities, including intercompany balances. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of March 31, 2020 and December 31, 2019, the notional amount of foreign exchange contracts where hedge accounting is not applied was $225.4 million and $180.9 million, respectively.
The foreign exchange loss in our condensed consolidated statements of income (loss) included the following losses associated with foreign exchange contracts not designated as hedging instruments (in thousands):
 
Three Months Ended
March 31,
Foreign Exchange Forward Contracts:
2020
 
2019
Loss recognized in foreign exchange loss
$
(6,139
)
 
$
(3,409
)

The cash flow effects of our derivative contracts for the three months ended March 31, 2020 and 2019 are included within net cash provided by operating activities in the condensed consolidated statements of cash flows.
The following tables summarize the fair value of outstanding derivatives (in thousands):
 
March 31, 2020
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate contracts
Other current assets
 
$

 
Accrued liabilities
 
$
4,708

 

 

 
Other non-current liabilities
 
1,447

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
316

 
Accrued liabilities
 
3,955

Total fair value of derivative instruments
 
 
$
316

 
 
 
$
10,110



13



 
December 31, 2019
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate contracts
Other current assets
 
$

 
Accrued liabilities
 
$
855

 

 

 
Other non-current liabilities
 
660

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Other current assets
 
2,508

 
Accrued liabilities
 
182

Total fair value of derivative instruments
 
 
$
2,508

 
 
 
$
1,697


Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. The following tables summarize the potential effect on our condensed consolidated balance sheets of offsetting our interest rate contracts and foreign exchange forward contracts subject to such provisions (in thousands):
 
March 31, 2020
 
Gross Amounts of Recognized Assets/ Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
Description
 
 
 
Derivative Financial Instruments
 
Cash Collateral Received (Pledged)
 
Net Amount
Derivative assets
$
316

 
$

 
$
316

 
$
(316
)
 
$

 
$

Derivative liabilities
(10,110
)
 

 
(10,110
)
 
316

 

 
(9,794
)

 
December 31, 2019
 
Gross Amounts of Recognized Assets/ Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
Description
 
 
 
Derivative Financial Instruments
 
Cash Collateral Received (Pledged)
 
Net Amount
Derivative assets
$
2,508

 
$

 
$
2,508

 
$
(596
)
 
$

 
$
1,912

Derivative liabilities
(1,697
)
 

 
(1,697
)
 
596

 

 
(1,101
)


6. Inventories
Inventories consisted of the following (in thousands): 
 
March 31,
2020
 
December 31,
2019
Raw materials
$
13,901

 
$
13,595

Work in process
37,689

 
36,658

Finished goods
34,020

 
28,355

Total inventories
$
85,610

 
$
78,608




14



7. Goodwill and Intangible Assets
The gross carrying amount of goodwill was as follows (in thousands):
Balance at December 31, 2019
$
920,018

Foreign exchange
(10,792
)
Balance at March 31, 2020
$
909,226


The gross carrying amounts and net book values of our intangible assets were as follows (in thousands): 
 
March 31, 2020
 
December 31, 2019
 
Remaining
Weighted-
Average Useful
Life
(In years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Acquired developed technologies
13.2
 
$
3,152,634

 
$
(913,976
)
 
$
2,238,658

 
$
3,166,485

 
$
(864,834
)
 
$
2,301,651

Manufacturing contracts
 
11,728

 
(11,728
)
 

 
12,025

 
(12,025
)
 

Trademarks
 
2,883

 
(2,883
)
 

 
2,890

 
(2,890
)
 

Priority review voucher
 

 

 

 
111,101

 
(111,101
)
 

Total finite-lived intangible assets
 
 
3,167,245

 
(928,587
)
 
2,238,658

 
3,292,501

 
(990,850
)
 
2,301,651

Acquired IPR&D assets
 
 

 

 

 
139,326

 

 
139,326

Total intangible assets
 
 
$
3,167,245

 
$
(928,587
)
 
$
2,238,658

 
$
3,431,827

 
$
(990,850
)
 
$
2,440,977


The decrease in the gross carrying amount of intangible assets as of March 31, 2020 compared to December 31, 2019 reflects the impairment of our acquired IPR&D asset of $136.1 million following the decision to stop enrollment in our Phase 3 clinical study of defibrotide due to a determination that the study is highly unlikely to reach one of its primary endpoints, the prevention of VOD, the redemption of the Priority Review Voucher in January 2020 and the negative impact of foreign currency translation adjustments due to the weakening of the euro against the U.S. dollar, partially offset by the capitalization of milestone payments of $13.0 million triggered by European Marketing Authorization of Sunosi in January 2020.
The assumptions and estimates used to determine future cash flows and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors, such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.
Based on finite-lived intangible assets recorded as of March 31, 2020, and assuming the underlying assets will not be impaired and that we will not change the expected lives of the assets, future amortization expenses were estimated as follows (in thousands): 
Year Ending December 31,
Estimated
Amortization  
Expense
2020 (remainder)
$
186,372

2021
203,041

2022
159,167

2023
159,167

2024
159,167

Thereafter
1,371,744

Total
$
2,238,658




15



8. Certain Balance Sheet Items
Property, plant and equipment consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Leasehold improvements
$
52,275

 
$
52,294

Land and buildings
47,040

 
47,053

Manufacturing equipment and machinery
29,961

 
28,860

Computer software
23,044

 
25,680

Computer equipment
16,932

 
16,577

Furniture and fixtures
11,281

 
11,152

Construction-in-progress
4,472

 
5,147

Subtotal
185,005

 
186,763

Less accumulated depreciation and amortization
(55,443
)
 
(55,257
)
Property, plant and equipment, net
$
129,562

 
$
131,506


Accrued liabilities consisted of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Rebates and other sales deductions
$
121,369

 
$
96,860

Employee compensation and benefits
52,080

 
80,290

Current portion of operating lease liabilities
12,357

 
12,728

Derivative instrument liabilities
8,663

 
1,037

Selling and marketing accruals
8,443

 
11,299

Inventory-related accruals
7,706

 
7,816

Sales returns reserve
4,519

 
3,462

Accrued collaboration expenses
3,865

 
2,494

Professional fees
3,495

 
4,718

Royalties
2,654

 
6,931

Accrued interest
2,520

 
7,386

Clinical trial accruals
2,473

 
2,551

Accrued construction-in-progress
256

 
1,564

Other
30,641

 
28,737

Total accrued liabilities
$
261,041

 
$
267,873




16



9. Debt
The following table summarizes the carrying amount of our indebtedness (in thousands):
 
March 31,
2020
 
December 31,
2019
2021 Notes
$
575,000

 
$
575,000

Unamortized discount and debt issuance costs on 2021 Notes
(33,152
)
 
(38,865
)
2021 Notes, net
541,848

 
536,135

 
 
 
 
2024 Notes
575,000

 
575,000

Unamortized discount and debt issuance costs on 2024 Notes
(112,389
)
 
(117,859
)
2024 Notes, net
462,611

 
457,141

 
 
 
 
Term loan
605,912

 
613,981

Total debt
1,610,371

 
1,607,257