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jazz-20200930
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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 September 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) 
Ireland98-1032470
(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 classTrading Symbol(s)Name of each exchange on which registered
Ordinary shares, nominal value $0.0001 per shareJAZZThe 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 October 27, 2020, 55,714,006 ordinary shares of the registrant, nominal value $0.0001 per share, were outstanding.

Table of Contents
JAZZ PHARMACEUTICALS PLC
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020

INDEX
 
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
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, 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
Table of Contents
PART I – FINANCIAL INFORMATION
 
Item 1.Financial Statements

JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30,
2020		December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$741,942 $637,344 
Investments1,175,000 440,000 
Accounts receivable, net of allowances361,664 355,987 
Inventories91,404 78,608 
Prepaid expenses58,305 39,434 
Other current assets127,258 78,895 
Total current assets2,555,573 1,630,268 
Property, plant and equipment, net128,204 131,506 
Operating lease assets130,717 139,385 
Intangible assets, net2,241,107 2,440,977 
Goodwill937,099 920,018 
Deferred tax assets, net254,810 221,403 
Deferred financing costs5,802 7,426 
Other non-current assets38,646 47,914 
Total assets$6,291,958 $5,538,897 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$67,063 $45,732 
Accrued liabilities302,071 269,686 
Current portion of long-term debt243,999 33,387 
Income taxes payable25,910 10,965 
Deferred revenue3,090 4,720 
Total current liabilities642,133 364,490 
Deferred revenue, non-current2,951 4,861 
Long-term debt, less current portion1,843,685 1,573,870 
Operating lease liabilities, less current portion141,925 151,226 
Deferred tax liabilities, net141,588 224,095 
Other non-current liabilities142,475 109,374 
Commitments and contingencies (Note 11)
Shareholders’ equity:
Ordinary shares6 6 
Non-voting euro deferred shares55 55 
Capital redemption reserve472 472 
Additional paid-in capital2,537,989 2,266,026 
Accumulated other comprehensive loss(187,801)(223,393)
Retained earnings1,026,480 1,067,815 
Total shareholders’ equity3,377,201 3,110,981 
Total liabilities and shareholders’ equity$6,291,958 $5,538,897 



The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents

JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Revenues:
Product sales, net$596,949 $532,321 $1,685,357 $1,559,075 
Royalties and contract revenues3,939 5,381 12,693 20,946 
Total revenues600,888 537,702 1,698,050 1,580,021 
Operating expenses:
Cost of product sales (excluding amortization of acquired developed technologies)42,095 31,400 98,760 92,582 
Selling, general and administrative207,255 178,706 607,061 522,667 
Research and development78,647 79,855 243,676 202,344 
Intangible asset amortization66,684 62,863 192,505 181,324 
Acquired in-process research and development10,000 51,775 215,250 109,975 
Impairment charge— — 136,139 — 
Total operating expenses404,681 404,599 1,493,391 1,108,892 
Income from operations196,207 133,103 204,659 471,129 
Interest expense, net(27,428)(17,861)(72,134)(54,017)
Foreign exchange loss(639)(1,033)(2,235)(3,577)
Income before income tax provision (benefit) and equity in loss of investees168,140 114,209 130,290 413,535 
Income tax provision (benefit)19,283 10,903 22,750 (38,631)
Equity in loss of investees623 1,030 2,338 2,791 
Net income$148,234 $102,276 $105,202 $449,375 
Net income per ordinary share:
Basic$2.67 $1.80 $1.89 $7.90 
Diluted$2.64 $1.78 $1.87 $7.80 
Weighted-average ordinary shares used in per share calculations - basic55,545 56,674 55,637 56,860 
Weighted-average ordinary shares used in per share calculations - diluted56,236 57,438 56,297 57,647 











The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Net income$148,234 $102,276 $105,202 $449,375 
Other comprehensive income (loss):
Foreign currency translation adjustments47,139 (48,448)37,879 (56,271)
Unrealized gain (loss) on hedging activities, net of income tax provision (benefit) of $167, ($80), ($327) and ($769), respectively
1,169 (558)(2,287)(5,380)
Other comprehensive income (loss)48,308 (49,006)35,592 (61,651)
Total comprehensive income$196,542 $53,270 $140,794 $387,724 

























The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 Ordinary SharesNon-voting Euro DeferredCapital
Redemption
Reserve		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Total
Equity
SharesAmountSharesAmount
Balance at December 31, 201956,140 $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 options145 — — — — 13,264 — — 13,264 
Issuance of ordinary shares in conjunction with vesting of restricted stock units214 — — — — — — — — 
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, 202055,368 $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 options74 — — — — 4,440 — — 4,440 
Issuance of ordinary shares under employee stock purchase plan65 — — — — 6,547 — — 6,547 
Issuance of ordinary shares in conjunction with vesting of restricted stock units19 — — — — — — — — 
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, 202055,456 $6 4,000 $55 $472 $2,499,135 $(236,109)$878,246 $3,141,805 
Partial repurchase of Exchangeable Senior Notes, due 2021— — — — — (444)— — (444)
Issuance of ordinary shares in conjunction with exercise of share options96 — — — — 10,088 — — 10,088 
Issuance of ordinary shares in conjunction with vesting of restricted stock units40 — — — — — — — — 
Shares withheld for payment of employee's withholding tax liability— — — — — (1,097)— — (1,097)
Share-based compensation— — — — — 30,307 — — 30,307 
Other comprehensive income— — — — — — 48,308 — 48,308 
Net income— — — — — — — 148,234 148,234 
Balance at September 30, 202055,592 $6 4,000 $55 $472 $2,537,989 $(187,801)$1,026,480 $3,377,201 
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JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(Continued)
(In thousands)
(Unaudited)
 Ordinary SharesNon-voting Euro DeferredCapital
Redemption
Reserve		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Total
Equity
SharesAmountSharesAmount
Balance at December 31, 201857,504 $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 options54 — — — — 3,057 — — 3,057 
Issuance of ordinary shares in conjunction with vesting of restricted stock units203 — — — — — — — — 
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, 201956,903 $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 options98 — — — — 7,033 — — 7,033 
Issuance of ordinary shares under employee stock purchase plan57 — — — — 6,032 — — 6,032 
Issuance of ordinary shares in conjunction with vesting of restricted stock units15 — — — — — — — — 
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, 201956,626 $6 4,000 $55 $472 $2,171,458 $(210,436)$1,021,879 $2,983,434 
Issuance of ordinary shares in conjunction with exercise of share options110 — — — — 9,968 — — 9,968 
Issuance of ordinary shares in conjunction with vesting of restricted stock units32 — — — — — — — — 
Shares withheld for payment of employee's withholding tax liability— — — — — (1,087)— — (1,087)
Share-based compensation— — — — — 28,817 — — 28,817 
Shares repurchased(149)— — — — — — (19,997)(19,997)
Other comprehensive loss— — — — — — (49,006)— (49,006)
Net income— — — — — — — 102,276 102,276 
Balance at September 30, 201956,619 $6 4,000 $55 $472 $2,209,156 $(259,442)$1,104,158 $3,054,405 

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JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 Nine Months Ended
September 30,
 20202019
Operating activities
Net income$105,202 $449,375 
Adjustments to reconcile net income to net cash provided by operating activities:
Intangible asset amortization192,505 181,324 
Share-based compensation 89,614 84,626 
Impairment charge136,139 — 
Depreciation14,076 10,885 
Acquired in-process research and development215,250 109,975 
Deferred tax benefit(120,909)(167,935)
Provision for losses on accounts receivable and inventory9,148 3,847 
Loss on extinguishment of debt5,089 — 
Amortization of debt discount and deferred financing costs40,613 34,415 
Other non-cash transactions12,672 (1,638)
Changes in assets and liabilities:
Accounts receivable(5,004)(4,307)
Inventories(21,861)(23,028)
Prepaid expenses and other current assets(64,902)(22,858)
Other non-current assets13,941 (540)
Operating lease assets9,730 10,919 
Accounts payable20,645 29,104 
Accrued liabilities26,510 (37,369)
Income taxes payable15,089 42,813 
Deferred revenue(3,540)(4,234)
Other non-current liabilities33,254 (3,634)
Operating lease liabilities, less current portion(9,884)(3,137)
Net cash provided by operating activities713,377 688,603 
Investing activities
Proceeds from maturity of investments920,000 820,000 
Purchases of property, plant and equipment(10,889)(32,998)
Acquisitions, net of cash acquired— (55,074)
Acquired in-process research and development(215,250)(61,700)
Acquisition of intangible assets(113,000)(80,500)
Acquisition of investments(1,661,750)(585,975)
Net cash provided by (used in) investing activities(1,080,889)3,753 
Financing activities
Net proceeds from issuance of Exchangeable Senior Notes, due 2026981,381 — 
Proceeds from revolving credit facility500,000 — 
Proceeds from employee equity incentive and purchase plans34,339 26,090 
Payment of employee withholding taxes related to share-based awards(15,760)(15,900)
Repayments of long-term debt(25,040)(25,040)
Share repurchases(146,537)(191,115)
Payments for partial repurchase of Exchangeable Senior Notes, due 2021(356,188)— 
Repayments under revolving credit facility(500,000)— 
Net cash provided by (used in) financing activities472,195 (205,965)
Effect of exchange rates on cash and cash equivalents(85)(838)
Net increase in cash and cash equivalents104,598 485,553 
Cash and cash equivalents, at beginning of period637,344 309,622 
Cash and cash equivalents, at end of period$741,942 $795,175 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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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, a 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 narcolepsy patients seven years of age and older;
•Xywav™ (calcium, magnesium, potassium, and sodium oxybates) oral solution, a product that contains 92% less sodium than Xyrem, approved by FDA and launched in the U.S. in November 2020 for the treatment of cataplexy or EDS in narcolepsy patients seven years of age and older;
•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 launched in July 2020 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.
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 and nine months ended September 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.
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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 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 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 ASC 848-50-25-2, which allows us to assume that our hedged interest payments will probably occur 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. Since the second quarter of 2020, we have been experiencing financial and other impacts of the pandemic, and 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 continue to have 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
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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 future plans assume that our newly launched oxybate product Xywav, with 92% lower sodium compared to Xyrem, absence of a sodium warning and dosing titration option, will become the treatment of choice for patients who can benefit from oxybate treatment, current Xyrem patients, and patients who previously were not prescribed Xyrem, including those patients for whom sodium content is a concern. While we expect that our business will continue to be substantially dependent on oxybate product sales from both Xyrem and Xywav, there is no guarantee that we can maintain oxybate sales at or near historical levels, or that oxybate sales will continue to grow. Our ability to maintain or increase oxybate 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, including our ability to obtain and maintain adequate coverage and reimbursement for Xywav, challenges to our intellectual property around Xyrem and Xywav, and continued acceptance of Xyrem by physicians and patients and acceptance of Xywav by payors, physicians and patients.
In addition to risks related specifically to Xyrem and Xywav, 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 and Zepzelca, 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 September 30, 2020, we had foreign exchange forward contracts with notional amounts totaling $300.5 million. As of September 30, 2020, the outstanding foreign exchange forward contracts had a net liability fair value of $0.1 million. As of September 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 $4.1 million as of September 30, 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 September 30, 2020 and December 31, 2019, allowances on receivables were not material. As of September 30, 2020, two customers accounted for 81% of gross accounts
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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 8% 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. The new guidance is not expected to have a material impact on our results of operations and financial position.
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This new standard will be effective for us for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than the fiscal year beginning after December 15, 2020. We may elect to apply the amendments on a retrospective or modified retrospective basis. We are currently evaluating the timing, method of adoption and overall impact of this standard on our consolidated financial statements.

2. License Agreement
On December 19, 2019, we entered into an exclusive license agreement, or original 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 the original license 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 for the nine months ended September 30, 2020. In June 2020, we made a milestone payment of $100.0 million to PharmaMar following FDA accelerated 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 continued U.S. regulatory approval of Zepzelca following the successful completion of confirmatory trials within certain timelines. PharmaMar is also eligible to receive up to $550.0 million in potential U.S. 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.
In October 2020, we entered into an amendment and restatement of the original license agreement with PharmaMar, or the amended license agreement, which expanded our exclusive license to include rights to develop and commercialize Zepzelca in Canada.

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3. Cash and Available-for-Sale Securities
Cash, cash equivalents and investments consisted of the following (in thousands): 
September 30, 2020
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value		Cash and
Cash
Equivalents		Investments
Cash$406,338 $— $— $406,338 $406,338 $— 
Time deposits1,255,000 — — 1,255,000 80,000 1,175,000 
Money market funds255,604 — — 255,604 255,604 — 
Totals$1,916,942 $— $— $1,916,942 $741,942 $1,175,000 
December 31, 2019
Amortized
Cost