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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2021
or
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☐ | 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.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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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 November 2, 2021, 61,469,645 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 SEPTEMBER 30, 2021
INDEX
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Item 6. | | |
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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, Xywav® (calcium, magnesium, potassium, and sodium oxybates) oral solution, Epidiolex® (cannabidiol) oral solution, Epidyolex® (the trade name in Europe for Epidiolex), Sunosi® (solriamfetol), Defitelio® (defibrotide sodium), Defitelio® (defibrotide), CombiPlex®, Vyxeos® (daunorubicin and cytarabine) liposome for injection, Vyxeos® liposomal 44 mg/100 mg powder for concentrate for solution for infusion, Zepzelca® (lurbinectedin), Rylaze™ (recombinant Erwinia asparaginase) and Sativex® (nabiximols) 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.
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 671,780 | | | $ | 1,057,769 | |
Investments | — | | | 1,075,000 | |
Accounts receivable, net of allowances | 499,023 | | | 396,490 | |
Inventories | 1,137,851 | | | 95,396 | |
Prepaid expenses | 94,474 | | | 62,422 | |
Other current assets | 225,098 | | | 152,491 | |
| | | |
Total current assets | 2,628,226 | | | 2,839,568 | |
Property, plant and equipment, net | 255,006 | | | 127,935 | |
Operating lease assets | 89,628 | | | 129,169 | |
Intangible assets, net | 7,282,579 | | | 2,195,051 | |
Goodwill | 1,849,547 | | | 958,303 | |
Deferred tax assets, net | 314,666 | | | 254,916 | |
Deferred financing costs | 12,724 | | | 5,238 | |
Other non-current assets | 45,776 | | | 25,721 | |
Total assets | $ | 12,478,152 | | | $ | 6,535,901 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 63,815 | | | $ | 26,945 | |
Accrued liabilities | 603,715 | | | 352,732 | |
Current portion of long-term debt | 31,000 | | | 246,322 | |
Income taxes payable | 34,256 | | | 25,200 | |
Deferred revenue | 2,267 | | | 2,546 | |
Total current liabilities | 735,053 | | | 653,745 | |
Deferred revenue, non-current | 986 | | | 2,315 | |
Long-term debt, less current portion | 6,247,287 | | | 1,848,516 | |
Operating lease liabilities, less current portion | 89,359 | | | 140,035 | |
Deferred tax liabilities, net | 1,329,184 | | | 130,397 | |
Other non-current liabilities | 137,806 | | | 101,148 | |
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 | 3,469,884 | | | 2,633,670 | |
Accumulated other comprehensive loss | (397,517) | | | (134,352) | |
Retained earnings | 865,577 | | | 1,159,894 | |
| | | |
| | | |
Total shareholders’ equity | 3,938,477 | | | 3,659,745 | |
Total liabilities and shareholders’ equity | $ | 12,478,152 | | | $ | 6,535,901 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | |
Product sales, net | $ | 834,247 | | | $ | 596,949 | | | $ | 2,186,118 | | | $ | 1,685,357 | |
Royalties and contract revenues | 3,868 | | | 3,939 | | | 11,389 | | | 12,693 | |
Total revenues | 838,115 | | | 600,888 | | | 2,197,507 | | | 1,698,050 | |
Operating expenses: | | | | | | | |
Cost of product sales (excluding amortization of acquired developed technologies) | 145,224 | | | 42,095 | | | 304,607 | | | 98,760 | |
Selling, general and administrative | 363,682 | | | 207,255 | | | 1,053,221 | | | 607,061 | |
Research and development | 141,036 | | | 78,647 | | | 350,305 | | | 243,676 | |
Intangible asset amortization | 159,804 | | | 66,684 | | | 368,476 | | | 192,505 | |
Acquired in-process research and development | — | | | 10,000 | | | — | | | 215,250 | |
Impairment charge | — | | | — | | | — | | | 136,139 | |
Total operating expenses | 809,746 | | | 404,681 | | | 2,076,609 | | | 1,493,391 | |
Income from operations | 28,369 | | | 196,207 | | | 120,898 | | | 204,659 | |
Interest expense, net | (93,372) | | | (27,428) | | | (190,168) | | | (72,134) | |
Foreign exchange gain (loss) | (2,631) | | | (639) | | | 1,262 | | | (2,235) | |
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Income (loss) before income tax provision (benefit) and equity in (gain) loss of investees | (67,634) | | | 168,140 | | | (68,008) | | | 130,290 | |
Income tax provision (benefit) | (18,057) | | | 19,283 | | | 228,583 | | | 22,750 | |
Equity in (gain) loss of investees | 3,256 | | | 623 | | | (2,274) | | | 2,338 | |
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Net income (loss) | $ | (52,833) | | | $ | 148,234 | | | $ | (294,317) | | | $ | 105,202 | |
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Net income (loss) per ordinary share: | | | | | | | |
Basic | $ | (0.86) | | | $ | 2.67 | | | $ | (4.98) | | | $ | 1.89 | |
Diluted | $ | (0.86) | | | $ | 2.64 | | | $ | (4.98) | | | $ | 1.87 | |
Weighted-average ordinary shares used in per share calculations - basic | 61,284 | | | 55,545 | | | 59,084 | | | 55,637 | |
Weighted-average ordinary shares used in per share calculations - diluted | 61,284 | | | 56,236 | | | 59,084 | | | 56,297 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | $ | (52,833) | | | $ | 148,234 | | | $ | (294,317) | | | $ | 105,202 | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (206,819) | | | 47,139 | | | (265,342) | | | 37,879 | |
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Unrealized gain (loss) on cash flow hedging activities, net of income tax provision (benefit) of $22, $167, $353 and ($327), respectively | 153 | | | 1,169 | | | 2,468 | | | (2,287) | |
| | | | | | | |
Unrealized gain (loss) on fair value hedging activities, net of income tax provision (benefit) of $28, $—, ($97) and $—, respectively | 84 | | | — | | | (291) | | | — | |
Other comprehensive income (loss) | (206,582) | | | 48,308 | | | (263,165) | | | 35,592 | |
Total comprehensive income (loss) | $ | (259,415) | | | $ | 196,542 | | | $ | (557,482) | | | $ | 140,794 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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 Loss | | Retained Earnings | | | | | | Total Equity |
Shares | | Amount | | Shares | | Amount | | |
Balance at December 31, 2020 | 56,171 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 2,633,670 | | | $ | (134,352) | | | $ | 1,159,894 | | | | | | | $ | 3,659,745 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares in conjunction with exercise of share options | 408 | | | — | | | — | | | — | | | — | | | 50,407 | | | — | | | — | | | | | | | 50,407 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares in conjunction with vesting of restricted stock units | 294 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Shares withheld for payment of employee's withholding tax liability | — | | | — | | | — | | | — | | | — | | | (23,784) | | | — | | | — | | | | | | | (23,784) | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | | — | | | — | | | 34,565 | | | — | | | — | | | | | | | 34,565 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (45,076) | | | — | | | | | | | (45,076) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 121,832 | | | | | | | 121,832 | |
Balance at March 31, 2021 | 56,873 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 2,694,858 | | | $ | (179,428) | | | $ | 1,281,726 | | | | | | | $ | 3,797,689 | |
Issuance of ordinary shares in connection with the acquisition of GW Pharmaceuticals plc | 3,798 | | | — | | | — | | | — | | | — | | | 608,456 | | | — | | | — | | | | | | | 608,456 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based payment - pre-combination service in connection with the acquisition of GW Pharmaceuticals plc | — | | | — | | | — | | | — | | | — | | | 3,555 | | | — | | | — | | | | | | | 3,555 | |
Issuance of ordinary shares in conjunction with exercise of share options | 328 | | | — | | | — | | | — | | | — | | | 43,600 | | | — | | | — | | | | | | | 43,600 | |
Issuance of ordinary shares under employee stock purchase plan | 79 | | | — | | | — | | | — | | | — | | | 8,282 | | | — | | | — | | | | | | | 8,282 | |
Issuance of ordinary shares in conjunction with vesting of restricted stock units | 37 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Shares withheld for payment of employee's withholding tax liability | — | | | — | | | — | | | — | | | — | | | (3,388) | | | — | | | — | | | | | | | (3,388) | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | | — | | | — | | | 48,119 | | | — | | | — | | | | | | | 48,119 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (11,507) | | | — | | | | | | | (11,507) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (363,316) | | | | | | | (363,316) | |
Balance at June 30, 2021 | 61,115 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 3,403,482 | | | $ | (190,935) | | | $ | 918,410 | | | | | | | $ | 4,131,490 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares in conjunction with exercise of share options | 202 | | | — | | | — | | | — | | | — | | | 14,822 | | | — | | | — | | | | | | | 14,822 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares in conjunction with vesting of restricted stock units | 63 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Shares withheld for payment of employee's withholding tax liability | — | | | — | | | — | | | — | | | — | | | (2,431) | | | — | | | — | | | | | | | (2,431) | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | | — | | | — | | | 54,011 | | | — | | | — | | | | | | | 54,011 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (206,582) | | | — | | | | | | | (206,582) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (52,833) | | | | | | | (52,833) | |
Balance at September 30, 2021 | 61,380 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 3,469,884 | | | $ | (397,517) | | | $ | 865,577 | | | | | | | $ | 3,938,477 | |
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 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 | |
Partial repurchase of Exchangeable Senior Notes, due 2021 | — | | | — | | | — | | | — | | | — | | | (444) | | | — | | | — | | | | | | | (444) | |
Issuance of ordinary shares in conjunction with exercise of share options | 96 | | | — | | | — | | | — | | | — | | | 10,088 | | | — | | | — | | | | | | | 10,088 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares in conjunction with vesting of restricted stock units | 40 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
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, 2020 | 55,592 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 2,537,989 | | | $ | (187,801) | | | $ | 1,026,480 | | | | | | | $ | 3,377,201 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Operating activities | | | |
Net income (loss) | $ | (294,317) | | | $ | 105,202 | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Intangible asset amortization | 368,476 | | | 192,505 | |
Acquisition accounting inventory fair value step-up adjustment | 148,637 | | | — | |
Share-based compensation | 135,887 | | | 89,614 | |
Deferred tax provision (benefit) | 96,593 | | | (120,909) | |
Non-cash interest expense | 66,055 | | | 45,702 | |
Depreciation | 19,387 | | | 14,076 | |
Provision for losses on accounts receivable and inventory | 13,444 | | | 9,148 | |
Impairment charge | — | | | 136,139 | |
Acquired in-process research and development | — | | | 215,250 | |
| | | |
| | | |
| | | |
| | | |
Other non-cash transactions | 9,622 | | | 12,672 | |
Changes in assets and liabilities: | | | |
Accounts receivable | (27,956) | | | (5,004) | |
Inventories | (33,891) | | | (21,861) | |
Prepaid expenses and other current assets | (34,722) | | | (64,902) | |
Operating lease assets | 12,054 | | | 9,730 | |
Other non-current assets | (1,837) | | | 13,941 | |
Accounts payable | 19,167 | | | 20,645 | |
Accrued liabilities | 93,534 | | | 26,510 | |
Income taxes payable | 9,171 | | | 15,089 | |
Deferred revenue | (1,608) | | | (3,540) | |
Operating lease liabilities, less current portion | (13,423) | | | (9,884) | |
Other non-current liabilities | 16,479 | | | 33,254 | |
Net cash provided by operating activities | 600,752 | | | 713,377 | |
Investing activities | | | |
Proceeds from maturity of investments | 1,095,000 | | | 920,000 | |
| | | |
Purchases of property, plant and equipment | (17,674) | | | (10,889) | |
Acquisition of intangible assets | (17,891) | | | (113,000) | |
| | | |
Acquisition of investments | (26,694) | | | (1,661,750) | |
Acquisition of a business, net of cash acquired | (6,234,792) | | | — | |
Acquired in-process research and development | — | | | (215,250) | |
Net cash used in investing activities | (5,202,051) | | | (1,080,889) | |
Financing activities | | | |
Net proceeds from issuance of borrowings under credit agreement | 3,719,930 | | | — | |
Net proceeds from issuance of Senior Secured Notes, due 2029 | 1,471,533 | | | — | |
Proceeds from employee equity incentive and purchase plans | 117,111 | | | 34,339 | |
Payment of employee withholding taxes related to share-based awards | (29,603) | | | (15,760) | |
Payments for repurchase of Exchangeable Senior Notes, due 2021 | (218,812) | | | (356,188) | |
Repayments of long-term debt | (843,028) | | | (25,040) | |
Net proceeds from issuance of Exchangeable Senior Notes, due 2026 | — | | | 981,381 | |
Net proceeds from revolving credit facility | — | | | 500,000 | |
Share repurchases | — | | | (146,537) | |
| | | |
Repayments under revolving credit facility | — | | | (500,000) | |
| | | |
Net cash provided by financing activities | 4,217,131 | | | 472,195 | |
Effect of exchange rates on cash and cash equivalents | (1,821) | | | (85) | |
Net increase (decrease) in cash and cash equivalents | (385,989) | | | 104,598 | |
Cash and cash equivalents, at beginning of period | 1,057,769 | | | 637,344 | |
Cash and cash equivalents, at end of period | $ | 671,780 | | | $ | 741,942 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 whose purpose is to innovate to transform the lives of patients and their families. We are dedicated to developing life-changing medicines for people with serious diseases - often with limited or no therapeutic options. We have a diverse portfolio of marketed medicines and novel product candidates, from early- to late-stage development, in neuroscience and oncology. Within these therapeutic areas, we are identifying new options for patients by actively exploring small molecules and biologics, and through innovative delivery technologies and cannabinoid science.
Our lead marketed products are:
Neuroscience
•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 and approved by FDA in August 2021 for the treatment of adults with idiopathic hypersomnia and launched in the U.S. in November 2021;
•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; Jazz also markets Xyrem in Canada for the treatment of cataplexy in patients with narcolepsy;
•Epidiolex® (cannabidiol) oral solution, a product approved by FDA and launched in the U.S. in 2018 by GW Pharmaceuticals plc, or GW, for the treatments of seizures associated with Lennox-Gastaut syndrome, Dravet syndrome, or tuberous sclerosis complex in patients one year of age or older; in Europe (where it is marketed as Epidyolex®) and other markets, it is approved for adjunctive treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome, in conjunction with clobazam, in patients 2 years of age and older and for adjunctive treatment of seizures associated with tuberous sclerosis complex in patients 2 years of age and older (note that the clobazam restriction is limited to EU and UK);
•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; and
•Sativex® (nabiximols) oral solution, a product marketed in Europe as treatment for symptom improvement in adult patients with moderate to severe spasticity due to multiple sclerosis, or MS, who have not responded adequately to other anti-spasticity medication and who demonstrate clinically significant improvement in spasticity-related symptoms during an initial trial of therapy.
Oncology
•Zepzelca® (lurbinectedin), a product approved by FDA in June 2020 and launched in the U.S. in July 2020 for the treatment of adult patients with metastatic small cell lung cancer, or SCLC, with disease progression on or after platinum-based chemotherapy; in Canada, Zepzelca was approved in September 2021 for the treatment of adults with Stage III or metastatic SCLC, who have progressed on or after platinum-containing therapy;
•Rylaze™ (recombinant Erwinia asparaginase), a product approved by FDA in June 2021 and launched in the U.S. in July 2021 for use as a component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia, or ALL, or lymphoblastic lymphoma, or LBL, in adults and pediatric patients who have developed hypersensitivity or silent inactivation to E. coli-derived asparaginase;
•Vyxeos® (daunorubicin and cytarabine) liposome for injection, a product approved in the U.S., Europe, U.K., and Canada (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
•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 Internationally (where it is marketed as Defitelio® (defibrotide)) for the treatment of severe VOD in adults and children following HSCT therapy.
In May 2021, we acquired GW with the objectives of broadening our neuroscience portfolio, further diversifying our revenue and driving sustainable, long-term value creation opportunities. The total consideration paid by us for the entire issued share capital of GW was $7.2 billion. The acquisition, which we refer to as the GW Acquisition, closed on May 5, 2021. For further information regarding the GW Acquisition, please see Note 2.
Throughout this report, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” "the Company", “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, 2020.
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, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, 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, 2020, other than as described below.
These condensed consolidated financial statements include the accounts of Jazz Pharmaceuticals plc and our subsidiaries, and intercompany transactions and balances have been eliminated.
The results of operations of the acquired GW business, along with the estimated fair values of the assets acquired and liabilities assumed in the GW Acquisition, have been included in our condensed consolidated financial statements since the closing of the GW Acquisition on May 5, 2021.
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 December 2019, the Financial Accounting Standards Board, or 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. We adopted this standard on January 1, 2021 and adoption did not have a material impact on our consolidated financial statements.
Performance-Based Restricted Stock Unit Awards
Performance-based restricted stock units, or PRSUs, awarded to employees vest upon the achievement of certain performance criteria at the end of a specified performance period, subject to a relative total shareholder return, or TSR, modifier. The estimated fair value of these PRSUs is based on a Monte Carlo simulation model. Compensation expense for PRSUs is recognized from the date the Company determines the performance criteria probable of being achieved to the date the award, or relevant portion of the award, is expected to vest. Cumulative adjustments are recorded on a quarterly basis to reflect subsequent changes to the estimated outcome of the performance criteria until the date results are determined.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories. Our policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. The estimate of excess quantities is subjective and primarily dependent on our estimates of future demand for a particular product. If our estimate of future demand changes, we consider the impact on the reserve for excess inventory and adjust the reserve as required. Increases in the reserve are recorded as charges in cost of product sales.
We capitalize inventory costs associated with our products prior to regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. The determination to capitalize inventory costs is based on various factors, including status and expectations of the regulatory approval process, any known safety or efficacy concerns, potential labeling restrictions, and any other impediments to obtaining regulatory approval. We had no pre-approval inventory on our condensed consolidated balance sheets as of September 30, 2021 or December 31, 2020.
Our inventory production process for our cannabinoid products includes the cultivation of botanical raw material. Because of the duration of the cultivation process, a portion of our inventory will not be sold within one year. Consistent with the practice in other industries that cultivate botanical raw materials, all inventory is classified as a current asset.
Derivative Instruments and Hedging Activities
We record the fair value of derivative instruments as either assets or liabilities on the condensed consolidated balance sheets. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative instrument is designated as part of a hedging transaction and, if it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and throughout the hedged period, we formally document the nature and relationships between the hedging instruments and hedged item.
For derivatives formally designated as hedges, we assess both at inception and quarterly thereafter, whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item.
Gains or losses on cash flow hedges are reclassified from other comprehensive income (loss) to earnings when the hedged transaction occurs. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting and any related unrealized gain or loss on the derivative instrument is recognized in current earnings.
We designate cross-currency interest rate swaps as fair value hedges to hedge foreign currency risks related to our borrowings denominated in currencies other than the U.S. dollar. Fair value hedge amounts included in the assessment of hedge effectiveness are recognized in foreign exchange gain (loss) within the condensed consolidated statements of income (loss), along with the offsetting gains and losses of the related hedged item. We have elected to exclude the total forward points or currency basis from the assessment of hedge effectiveness and account for them as excluded components. The initial fair value of the excluded component is amortized to foreign exchange gain (loss) and the difference between changes in fair value of the excluded component and the amount recorded in earnings is recorded in other comprehensive income (loss).
Derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current earnings.
Variable Interest Entity
In the nine months ended September 30, 2021, we invested in a cell of a protected cell company, or the protected cell, as part of our directors’ and officers’ liability risk financing strategy. Based on our control and the structure of the protected cell, we concluded that Jazz is the primary beneficiary of the protected cell and is required to consolidate the protected cell. The insurance premium payable to the protected cell for the three and nine months ended September 30, 2021 and the protected cell’s assets and liabilities as of September 30, 2021 were immaterial.
Significant Risks and Uncertainties
We have implemented a comprehensive response strategy designed to manage the ongoing impact of the COVID-19 pandemic on our employees, patients and our business. The prolonged nature of the pandemic is negatively impacting our business in a limited and varied manner due to the e