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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 June 30, 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 July 28, 2020, 55,458,631 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 JUNE 30, 2020

INDEX
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
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, Vyxeos® liposomal 44 mg/100 mg powder for concentrate for solution for infusion, Zepzelca™ (lurbinectedin), and Xywav™ (calcium, magnesium, potassium, and sodium oxybates) oral solution. 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)
 
June 30,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
786,082

 
$
637,344

Investments
910,000

 
440,000

Accounts receivable, net of allowances
351,920

 
355,987

Inventories
92,534

 
78,608

Prepaid expenses
49,109

 
39,434

Other current assets
112,701

 
78,895

Total current assets
2,302,346

 
1,630,268

Property, plant and equipment, net
128,259

 
131,506

Operating lease assets
133,179

 
139,385

Intangible assets, net
2,286,126

 
2,440,977

Goodwill
918,021

 
920,018

Deferred tax assets, net
243,395

 
221,403

Deferred financing costs
6,347

 
7,426

Other non-current assets
48,828

 
47,914

Total assets
$
6,066,501

 
$
5,538,897

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
50,043

 
$
45,732

Accrued liabilities
266,918

 
269,686

Current portion of long-term debt
33,387

 
33,387

Income taxes payable
55,979

 
10,965

Deferred revenue
3,633

 
4,720

Total current liabilities
409,960

 
364,490

Deferred revenue, non-current
3,588

 
4,861

Long-term debt, less current portion
2,069,669

 
1,573,870

Operating lease liabilities, less current portion
144,264

 
151,226

Deferred tax liabilities, net
162,376

 
224,095

Other non-current liabilities
134,839

 
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
2,499,135

 
2,266,026

Accumulated other comprehensive loss
(236,109
)
 
(223,393
)
Retained earnings
878,246

 
1,067,815

Total shareholders’ equity
3,141,805

 
3,110,981

Total liabilities and shareholders’ equity
$
6,066,501

 
$
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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Product sales, net
$
558,203

 
$
523,423

 
$
1,088,408

 
$
1,026,754

Royalties and contract revenues
4,233

 
10,710

 
8,754

 
15,565

Total revenues
562,436

 
534,133

 
1,097,162

 
1,042,319

Operating expenses:
 
 
 
 
 
 
 
Cost of product sales (excluding amortization of acquired developed technologies)
28,008

 
27,676

 
56,665

 
61,182

Selling, general and administrative
191,406

 
176,014

 
399,806

 
343,961

Research and development
78,922

 
62,384

 
165,029

 
122,489

Intangible asset amortization
62,974

 
61,576

 
125,821

 
118,461

Acquired in-process research and development
3,000

 
2,200

 
205,250

 
58,200

Impairment charge

 

 
136,139

 

Total operating expenses
364,310

 
329,850

 
1,088,710

 
704,293

Income from operations
198,126

 
204,283

 
8,452

 
338,026

Interest expense, net
(26,210
)
 
(18,234
)
 
(44,706
)
 
(36,156
)
Foreign exchange loss
(464
)
 
(1,933
)
 
(1,596
)
 
(2,544
)
Income (loss) before income tax provision (benefit) and equity in loss of investees
171,452

 
184,116

 
(37,850
)
 
299,326

Income tax provision (benefit)
54,754

 
(78,650
)
 
3,467

 
(49,534
)
Equity in loss of investees
1,897

 
868

 
1,715

 
1,761

Net income (loss)
$
114,801

 
$
261,898

 
$
(43,032
)
 
$
347,099

 
 
 
 
 
 
 
 
Net income (loss) per ordinary share:
 
 
 
 
 
 
 
Basic
$
2.07

 
$
4.62

 
$
(0.77
)
 
$
6.09

Diluted
$
2.06

 
$
4.56

 
$
(0.77
)
 
$
6.01

Weighted-average ordinary shares used in per share calculations - basic
55,413

 
56,707

 
55,684

 
56,955

Weighted-average ordinary shares used in per share calculations - diluted
55,864

 
57,427

 
55,684

 
57,753












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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Net income (loss)
$
114,801

 
$
261,898

 
$
(43,032
)
 
$
347,099

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
20,730

 
13,319

 
(9,260
)
 
(7,823
)
Unrealized gain (loss) on hedging activities, net of income tax provision (benefit) of $85, ($440), ($494) and ($689), respectively
597

 
(3,081
)
 
(3,456
)
 
(4,822
)
Other comprehensive income (loss)
21,327

 
10,238

 
(12,716
)
 
(12,645
)
Total comprehensive income (loss)
$
136,128

 
$
272,136

 
$
(55,748
)
 
$
334,454

























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

Issuance of Exchangeable Senior Notes, due 2026

 

 

 

 

 
176,260

 

 

 
176,260

Partial repurchase of Exchangeable Senior Notes, due 2021

 

 

 

 

 
(12,069
)
 

 

 
(12,069
)
Issuance of ordinary shares in conjunction with exercise of share options
74

 

 

 

 

 
4,440

 

 

 
4,440

Issuance of ordinary shares under employee stock purchase plan
65

 

 

 

 

 
6,547

 

 

 
6,547

Issuance of ordinary shares in conjunction with vesting of restricted stock units
19

 

 

 

 

 

 

 

 

Shares withheld for payment of employee's withholding tax liability

 

 

 

 

 
(1,116
)
 

 

 
(1,116
)
Share-based compensation

 

 

 

 

 
30,599

 

 

 
30,599

Shares repurchased
(70
)
 

 

 

 

 

 

 
(7,484
)
 
(7,484
)
Other comprehensive income

 

 

 

 

 

 
21,327

 

 
21,327

Net income

 

 

 

 

 

 

 
114,801

 
114,801

Balance at June 30, 2020
55,456

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,499,135

 
$
(236,109
)
 
$
878,246

 
$
3,141,805




6



JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(Continued)
(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, 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

Issuance of ordinary shares in conjunction with exercise of share options
98

 

 

 

 

 
7,033

 

 

 
7,033

Issuance of ordinary shares under employee stock purchase plan
57

 

 

 

 

 
6,032

 

 

 
6,032

Issuance of ordinary shares in conjunction with vesting of restricted stock units
15

 

 

 

 

 

 

 

 

Shares withheld for payment of employee's withholding tax liability

 

 

 

 

 
(1,003
)
 

 

 
(1,003
)
Share-based compensation

 

 

 

 

 
28,658

 

 

 
28,658

Shares repurchased
(447
)
 

 

 

 

 

 

 
(59,869
)
 
(59,869
)
Other comprehensive income

 

 

 

 

 

 
10,238

 

 
10,238

Net income

 

 

 

 

 

 

 
261,898

 
261,898

Balance at June 30, 2019
56,626

 
$
6

 
4,000

 
$
55

 
$
472

 
$
2,171,458

 
$
(210,436
)
 
$
1,021,879

 
$
2,983,434



7



JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended
June 30,
 
2020
 
2019
Operating activities
 
 
 
Net income (loss)
$
(43,032
)
 
$
347,099

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Intangible asset amortization
125,821

 
118,461

Share-based compensation
59,258

 
55,841

Impairment charge
136,139

 

Depreciation
9,266

 
6,894

Acquired in-process research and development
205,250

 
58,200

Deferred tax benefit
(82,768
)
 
(151,347
)
Provision for losses on accounts receivable and inventory
4,078

 
2,403

Loss on extinguishment of debt
4,475

 

Amortization of debt discount and deferred financing costs
24,793

 
22,584

Other non-cash transactions
3,496

 
(779
)
Changes in assets and liabilities:

 

Accounts receivable
3,640

 
(47,574
)
Inventories
(18,826
)
 
(18,562
)
Prepaid expenses and other current assets
(44,853
)
 
(15,929
)
Other non-current assets
1,982

 
(1,067
)
Operating lease assets
6,422

 
7,399

Accounts payable
5,264

 
(14,096
)
Accrued liabilities
(6,972
)
 
(59,031
)
Income taxes payable
45,481

 
29,050

Deferred revenue
(2,360
)
 
(3,054
)
Other non-current liabilities
25,912

 
14,177

Operating lease liabilities, less current portion
(6,978
)
 
431

Net cash provided by operating activities
455,488

 
351,100

Investing activities
 
 
 
Proceeds from maturity of investments
565,000

 
630,000

Purchases of property, plant and equipment
(7,520
)
 
(21,911
)
Acquired in-process research and development
(205,250
)
 
(58,200
)
Acquisition of intangible assets
(113,000
)
 
(25,500
)
Acquisition of investments
(1,040,475
)
 
(360,975
)
Net cash provided by (used in) investing activities
(801,245
)
 
163,414

Financing activities
 
 
 
Net proceeds from issuance of Exchangeable Senior Notes, due 2026
981,381

 

Proceeds from revolving credit facility
500,000

 

Proceeds from employee equity incentive and purchase plans
24,251

 
16,122

Payment of employee withholding taxes related to share-based awards
(14,663
)
 
(14,813
)
Repayments of long-term debt
(16,693
)
 
(16,693
)
Share repurchases
(146,537
)
 
(171,118
)
Payments for partial repurchase of Exchangeable Senior Notes, due 2021
(332,888
)
 

Repayments under revolving credit facility
(500,000
)
 

Net cash provided by (used in) financing activities
494,851

 
(186,502
)
Effect of exchange rates on cash and cash equivalents
(356
)
 
105

Net increase in cash and cash equivalents
148,738

 
328,117

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

 
309,622

Cash and cash equivalents, at end of period
$
786,082

 
$
637,739


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

8



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 that transform the lives of patients 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 malignancies and solid tumors. We actively explore new options for patients including novel compounds, small molecule advancements, biologics and innovative 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. and in Europe to improve wakefulness in adult patients with EDS associated with narcolepsy or obstructive sleep apnea;
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;
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; and
Zepzelca (lurbinectedin), a product approved by FDA in June 2020 and recently launched in the U.S. for the treatment of adult patients with metastatic small cell lung cancer, or SCLC, with disease progression on or after platinum-based chemotherapy.
On July 21, 2020, Xywav™ (formerly JZP-258) was approved in the U.S. for the treatment of cataplexy or EDS in narcolepsy patients seven years of age and older; we expect to launch Xywav in the fourth quarter of 2020. This approval follows multiple significant regulatory approvals and product launches over the last five years. In 2020, we also obtained our European approval of Sunosi, which was launched in Germany in May 2020, and the U.S. approval of Zepzelca, which was launched in July 2020.
Our strategy to create shareholder value is focused on:
Strong execution driving sales growth in our core therapy areas through leveraging our leading market position and expertise in sleep and new high growth products in oncology that address significant unmet needs;
Expanding our pipeline with external patient-centric innovation to achieve a balanced portfolio of highly differentiated programs;
Continuing to build a flexible, efficient, and productive development engine for targeted therapeutic conditions to identify and progress early- and mid-stage assets; and
Investing in a scalable operating model and differentiated capabilities to enable successful partnerships and unlock further value through indication expansion and global markets.
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.

9



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 and six months ended June 30, 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.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. ASC 848 allows for different elections to be made at different points in time, and the timing of those elections will be documented as applicable. For the avoidance of doubt, we intend to reassess the elections of optional expedients and exceptions included within ASC 848 related to our hedging activities and will document the election of these items on a quarterly basis. ASC 848 is effective for us as of January 1, 2020 and will no longer be available to apply after December 31, 2022. In June 2020, we elected the expedient in

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ASC 848-50-25-2, which allows us to assume that our hedged interest payments are probable of occurring regardless of any expected modification in their terms related to reference rate reform.
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, patients 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 continue to be adversely affected in future quarters. With respect to our commercialization activities, the evolving effects of the COVID-19 pandemic are having a negative impact on demand, new patient starts and treatments 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 and severity of the pandemic, 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, those related to 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. market, the current and potential impacts of the ongoing COVID-19 pandemic, including the current and expected future negative impact on demand for our products and the uncertainty with respect to our ability to meet commercial demand in the future, 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 oncology products and other neuroscience products, including Sunosi, Defitelio, Erwinaze, Vyxeos, Zepzelca and Xywav, 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; effectively commercializing our recently approved products such as Sunosi, Zepzelca and Xywav; 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 COVID-19 pandemic continues to adversely affect 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 June 30, 2020, we had foreign exchange forward contracts with notional amounts totaling $283.7 million. As of June 30, 2020, the outstanding foreign exchange forward contracts had a net liability fair value of $0.3 million. As of June 30, 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 $5.5 million as of June 30, 2020. The counterparties to these contracts are large multinational commercial banks, and we believe the risk of nonperformance is not significant.

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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 June 30, 2020 and December 31, 2019, allowances on receivables were not material. As of June 30, 2020, two customers accounted for 87% of gross accounts receivable, Express Scripts Specialty Distribution Services, Inc. and its affiliates, or ESSDS, which accounted for 73% of gross accounts receivable, and McKesson Corporation and affiliates, or McKesson, which accounted for 14% 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 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 Zepzelca. Zepzelca was granted orphan drug designation for relapsed SCLC by FDA in August 2018. In December 2019, PharmaMar submitted a new drug application, or NDA, to FDA for accelerated approval of Zepzelca for relapsed SCLC based on data from a Phase 2 trial, and in February 2020, FDA accepted the NDA for filing with priority review. In June 2020, FDA approved the NDA for Zepzelca for the treatment of adult patients with metastatic SCLC with disease progression on or after platinum-based chemotherapy.
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 in-process research and development, or IPR&D expense in our condensed consolidated statements of income (loss) for the six months ended June 30, 2020. In June 2020, we made a milestone payment of $100.0 million to PharmaMar following FDA approval of Zepzelca, which was capitalized as an intangible asset on our condensed consolidated balance sheet.
PharmaMar is eligible to receive potential future regulatory milestone payments of up to $150.0 million upon the achievement of full regulatory approval of Zepzelca 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 Zepzelca 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 Zepzelca and will supply the product to us.


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3. Cash and Available-for-Sale Securities
Cash, cash equivalents and investments consisted of the following (in thousands): 
 
June 30, 2020
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Cash and
Cash
Equivalents
 
Investments
Cash
$
470,560

 
$

 
$

 
$
470,560

 
$
470,560

 
$

Time deposits
1,100,000

 

 

 
1,100,000

 
190,000

 
910,000

Money market funds
125,522

 

 

 
125,522

 
125,522

 

Totals
$
1,696,082

 
$

 
$

 
$
1,696,082

 
$
786,082

 
$
910,000


 
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 condensed 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 $3.1 million and $7.6 million in three and six months ended June 30, 2020, respectively, and $5.0 million and $9.8 million in the three and six months ended June 30, 2019, respectively.

4. Fair Value Measurement
The following table summarizes, by major security type, our available-for-sale securities and derivative contracts as of June 30, 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): 
 
June 30, 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
$

 
$
1,100,000

 
$
1,100,000

 
$

 
$
460,000

 
$
460,000

Money market funds
125,522

 

 
125,522

 
284,172

 

 
284,172

Foreign exchange forward contracts

 
1,454

 
1,454

 

 
2,508

 
2,508

Totals
$
125,522

 
$
1,101,454

 
$
1,226,976

 
$
284,172

 
$
462,508

 
$
746,680

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$

 
$
5,479

 
$
5,479

 
$

 
$
1,515

 
$
1,515

Foreign exchange forward contracts