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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, 2022
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 filerAccelerated filer
Non-accelerated filerSmaller 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 November 2, 2022, 62,966,320 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, 2022

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, Xywav® (calcium, magnesium, potassium, and sodium oxybates) oral solution, Epidiolex® (cannabidiol) oral solution, Epidyolex® (the trade name in Europe for Epidiolex), 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® (asparaginase erwinia chrysanthemi (recombinant)-rywn) and Sativex® (nabiximols) oral solution. This Quarterly Report on Form 10-Q 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,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$839,358 $591,448 
Investments60,000  
Accounts receivable, net of allowances601,179 563,360 
Inventories728,074 1,072,721 
Prepaid expenses92,877 131,413 
Other current assets250,016 252,392 
Total current assets2,571,504 2,611,334 
Property, plant and equipment, net216,339 256,837 
Operating lease assets73,728 86,586 
Intangible assets, net5,570,394 7,152,328 
Goodwill1,592,635 1,827,609 
Deferred tax assets, net314,965 311,103 
Deferred financing costs9,949 12,029 
Other non-current assets35,153 40,813 
Total assets$10,384,667 $12,298,639 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$102,249 $100,298 
Accrued liabilities668,390 666,304 
Current portion of long-term debt31,000 31,000 
Income taxes payable10,444 9,608 
Deferred revenue871 2,093 
Total current liabilities812,954 809,303 
Deferred revenue, non-current116 463 
Long-term debt, less current portion5,695,814 6,018,943 
Operating lease liabilities, less current portion72,984 87,200 
Deferred tax liabilities, net933,670 1,300,541 
Other non-current liabilities123,935 116,998 
Commitments and contingencies (Note 10)
Shareholders’ equity:
Ordinary shares6 6 
Non-voting euro deferred shares55 55 
Capital redemption reserve472 472 
Additional paid-in capital3,387,997 3,534,792 
Accumulated other comprehensive loss(1,617,646)(400,360)
Retained earnings974,310 830,226 
Total shareholders’ equity2,745,194 3,965,191 
Total liabilities and shareholders’ equity$10,384,667 $12,298,639 



The accompanying notes are an integral part of these condensed consolidated financial statements.
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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,
 2022202120222021
Revenues:
Product sales, net$935,766 $834,247 $2,673,903 $2,186,118 
Royalties and contract revenues4,886 3,868 13,348 11,389 
Total revenues940,652 838,115 2,687,251 2,197,507 
Operating expenses:
Cost of product sales (excluding amortization of acquired developed technologies)133,661 145,224 373,153 304,607 
Selling, general and administrative358,478 363,682 1,033,764 1,053,221 
Research and development148,870 141,036 417,898 350,305 
Intangible asset amortization141,232 159,804 461,782 368,476 
Acquired in-process research and development  69,148  
Impairment charge133,648  133,648  
Total operating expenses915,889 809,746 2,489,393 2,076,609 
Income from operations24,763 28,369 197,858 120,898 
Interest expense, net(80,244)(93,372)(214,117)(190,168)
Foreign exchange gain (loss)(4,649)(2,631)(16,532)1,262 
Loss before income tax expense (benefit) and equity in loss (gain) of investees(60,130)(67,634)(32,791)(68,008)
Income tax expense (benefit)(43,027)(18,057)(58,603)228,583 
Equity in loss (gain) of investees2,545 3,256 9,148 (2,274)
Net income (loss)$(19,648)$(52,833)$16,664 $(294,317)
Net income (loss) per ordinary share:
Basic$(0.31)$(0.86)$0.27 $(4.98)
Diluted$(0.31)$(0.86)$0.26 $(4.98)
Weighted-average ordinary shares used in per share calculations - basic62,785 61,284 62,365 59,084 
Weighted-average ordinary shares used in per share calculations - diluted62,785 61,284 63,388 59,084 













The accompanying notes are an integral part of these condensed consolidated financial statements.
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JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
Net income (loss)$(19,648)$(52,833)$16,664 $(294,317)
Other comprehensive loss:
Foreign currency translation adjustments(511,617)(206,819)(1,217,414)(265,342)
Loss on fair value hedging activities reclassified from accumulated other comprehensive income (loss) to foreign exchange gain (loss), net of income tax benefit of $, $, $43 and $, respectively
  128  
Loss on cash flow hedging activities reclassified from accumulated other comprehensive income (loss) to interest expense, net of income tax benefit of $, $22, $ and $355, respectively
 153  2,482 
Unrealized loss on cash flow hedging activities, net of income tax benefit of $, $, $ and $2, respectively
   (14)
Unrealized gain (loss) on fair value hedging activities, net of income tax provision (benefit) of $, $28, $ and ($97), respectively
 84  (291)
Other comprehensive loss(511,617)(206,582)(1,217,286)(263,165)
Total comprehensive loss$(531,265)$(259,415)$(1,200,622)$(557,482)


















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

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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
Loss
Retained
Earnings
Total
Equity
SharesAmountSharesAmount
Balance at December 31, 202161,633 $6 4,000 $55 $472 $3,534,792 $(400,360)$830,226 $3,965,191 
Cumulative effect adjustment from adoption of ASU 2020-06— — — — — (333,524)— 127,474 (206,050)
Issuance of ordinary shares in conjunction with exercise of share options207 — — — — 21,729 — — 21,729 
Issuance of ordinary shares in conjunction with vesting of restricted stock units404 — — — — — — — — 
Shares withheld for payment of employee's withholding tax liability— — — — — (33,776)— — (33,776)
Share-based compensation— — — — — 50,106 — — 50,106 
Other comprehensive loss— — — — — — (190,360)— (190,360)
Net income— — — — — — — 1,647 1,647 
Balance at March 31, 202262,244 $6 4,000 $55 $472 $3,239,327 $(590,720)$959,347 $3,608,487 
Issuance of ordinary shares in conjunction with exercise of share options194 — — — — 16,640 — — 16,640 
Issuance of ordinary shares under employee stock purchase plan81 — — — — 8,234 — — 8,234 
Issuance of ordinary shares in conjunction with vesting of restricted stock units104 — — — — — — — — 
Shares withheld for payment of employee's withholding tax liability— — — — — (6,289)— — (6,289)
Share-based compensation— — — — — 54,407 — — 54,407 
Shares repurchased — — — — — — (54)(54)
Other comprehensive loss— — — — — — (515,309)— (515,309)
Net income— — — — — — — 34,665 34,665 
Balance at June 30, 202262,623 $6 4,000 $55 $472 $3,312,319 $(1,106,029)$993,958 $3,200,781 
Issuance of ordinary shares in conjunction with exercise of share options207 — — — — 21,260 — — 21,260 
Issuance of ordinary shares in conjunction with vesting of restricted stock units60 — — — — — — — — 
Shares withheld for payment of employee's withholding tax liability— — — — — (2,567)— — (2,567)
Share-based compensation— — — — — 56,985 — — 56,985 
Other comprehensive loss— — — — — — (511,617)— (511,617)
Net loss— — — — — — — (19,648)(19,648)
Balance at September 30, 202262,890 $6 4,000 $55 $472 $3,387,997 $(1,617,646)$974,310 $2,745,194 

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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
Loss
Retained
Earnings
Total
Equity
SharesAmountSharesAmount
Balance at December 31, 202056,171 $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 options408 — — — — 50,407 — — 50,407 
Issuance of ordinary shares in conjunction with vesting of restricted stock units294 — — — — — — — — 
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, 202156,873 $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 plc3,798 — — — — 608,456 — — 608,456 
Share-based payment - precombination service in connection with the acquisition of GW Pharmaceuticals plc— — — — — 3,555 — — 3,555 
Issuance of ordinary shares in conjunction with exercise of share options328 — — — — 43,600 — — 43,600 
Issuance of ordinary shares under employee stock purchase plan79 — — — — 8,282 — — 8,282 
Issuance of ordinary shares in conjunction with vesting of restricted stock units37 — — — — — — — — 
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, 202161,115 $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 options202 — — — — 14,822 — — 14,822 
Issuance of ordinary shares in conjunction with vesting of restricted stock units63 — — — — — — — — 
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, 202161,380 $6 4,000 $55 $472 $3,469,884 $(397,517)$865,577 $3,938,477 


The accompanying notes are an integral part of these condensed consolidated financial statements.
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JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 Nine Months Ended
September 30,
 20222021
Operating activities
Net income (loss)$16,664 $(294,317)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Intangible asset amortization461,782 368,476 
Acquisition accounting inventory fair value step-up adjustment203,189 148,637 
Share-based compensation 160,438 135,887 
Deferred tax expense (benefit)(146,874)96,593 
Impairment charge133,648  
Acquired in-process research and development69,148  
Loss on disposal of a business39,258  
Non-cash interest expense32,002 66,055 
Depreciation22,958 19,387 
Provision for losses on accounts receivable and inventory13,066 13,444 
Other non-cash transactions(26,352)9,622 
Changes in assets and liabilities:
Accounts receivable(43,868)(27,956)
Inventories(50,458)(33,891)
Prepaid expenses and other current assets23,801 (34,722)
Operating lease assets10,672 12,054 
Other non-current assets(4,006)(1,837)
Accounts payable4,188 19,167 
Accrued liabilities17,864 93,534 
Income taxes payable(172)9,171 
Deferred revenue(1,570)(1,608)
Operating lease liabilities, less current portion(12,139)(13,423)
Other non-current liabilities6,767 16,479 
Net cash provided by operating activities930,006 600,752 
Investing activities
Proceeds from sale of a business53,000  
Purchases of property, plant and equipment(19,668)(17,674)
Acquisition of intangible assets(25,000)(17,891)
Acquisition of investments(61,036)(26,694)
Acquired in-process research and development(69,148) 
Proceeds from maturity of investments 1,095,000 
Acquisition of a business, net of cash acquired (6,234,792)
Net cash used in investing activities(121,852)(5,202,051)
Financing activities
Proceeds from employee equity incentive and purchase plans67,863 117,111 
Share repurchases(54) 
Payment of employee withholding taxes related to share-based awards(42,632)(29,603)
Repayments of long-term debt(574,264)(843,028)
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 
Payments for repurchase of Exchangeable Senior Notes, due 2021 (218,812)
Net cash (used in) provided by financing activities(549,087)4,217,131 
Effect of exchange rates on cash and cash equivalents(11,157)(1,821)
Net increase (decrease) in cash and cash equivalents247,910 (385,989)
Cash and cash equivalents, at beginning of period591,448 1,057,769 
Cash and cash equivalents, at end of period$839,358 $671,780 


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 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 strive to identify 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 approved by the U.S. Food and Drug Administration, or FDA, in July 2020 and launched in the U.S. in November 2020 for the treatment of cataplexy or excessive daytime sleepiness, or EDS, in patients with narcolepsy aged seven years of age and older, and also approved by FDA in August 2021 for the treatment of idiopathic hypersomnia, or IH, in adults and launched in the U.S. in November 2021. Xywav contains 92% less sodium than Xyrem®;
Xyrem® (sodium oxybate) oral solution, a product approved by FDA and distributed in the U.S. for the treatment of cataplexy or EDS in patients seven years of age and older with narcolepsy; Jazz also markets Xyrem in Canada for the treatment of cataplexy in patients with narcolepsy. Xyrem is also approved and distributed in the EU, Great Britain and other markets through a licensing agreement;
Epidiolex® (cannabidiol) oral solution, a product approved by FDA and launched in the U.S. in 2018 by GW Pharmaceuticals plc, or GW, and currently indicated for the treatment of seizures associated with Lennox-Gastaut syndrome, or LGS, Dravet syndrome, or DS, or tuberous sclerosis complex, or TSC, in patients one year of age or older; in the EU (where it is marketed as Epidyolex®) and other markets, it is approved for adjunctive treatment of seizures associated with LGS or DS, in conjunction with clobazam (EU and Great Britain only), in patients 2 years of age and older and for adjunctive treatment of seizures associated with TSC in patients 2 years of age and older; and
Sativex® (nabiximols) oral solution, a product approved and commercialized in 29 countries outside the U.S. 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 under FDA's accelerated approval pathway 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 received conditional approval in September 2021 for the treatment of adults with Stage III or metastatic SCLC, who have progressed on or after platinum-containing therapy;
Rylaze® (asparaginase erwinia chrysanthemi (recombinant)-rywn), 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 one month or older who have developed hypersensitivity to E. coli-derived asparaginase;
Vyxeos® (daunorubicin and cytarabine) liposome for injection, a product approved in the U.S., Canada, EU, Great Britain, Switzerland, Israel and Australia (marketed as Vyxeos® liposomal in the EU, Great Britain, Switzerland and Israel) for the treatment of adults with newly-diagnosed therapy-related acute myeloid leukemia, or t-AML, or AML with myelodysplasia-related changes, or AML-MRC. An expanded indication was granted in the U.S. for the treatment of newly diagnosed t-AML or AML-MRC in pediatric patients aged 1 year and older; and
Defitelio® (defibrotide sodium), a product approved in the U.S. and Brazil for the treatment of hepatic veno-occlusive disease, or VOD, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation, or HSCT, and in Japan for the treatment of hepatic sinusoidal obstruction syndrome (hepatic veno-occlusive disease). It is currently approved in the EU, Great Britain and other markets for the treatment of severe hepatic VOD, also known as sinusoidal obstructive syndrome, or SOS, in HSCT therapy. It is indicated in adults and pediatric patients over 1 month of age.
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Throughout this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, 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, 2021.
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, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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, 2021, 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.
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 2020, the Financial Accounting Standards Board, or 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”, or ASU 2020-06. ASU 2020-06 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. The Company adopted ASU 2020-06 on January 1, 2022, on a modified retrospective basis. This impacted the accounting for our 1.50% exchangeable senior notes due 2024, or the 2024 Notes, and our 2.00% exchangeable senior notes due 2026, or the 2026 Notes, collectively known as the Exchangeable Senior Notes. As a result of the adoption of ASU 2020-06, the Exchangeable Senior Notes are now accounted for entirely as liabilities measured at amortized cost. ASU 2020-06 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.
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The adoption of ASU 2020-06 resulted in the following adjustments to the condensed consolidated balance sheet (in thousands):
Balance Sheet Item:December 31, 2021Adoption of ASU 2020-06January 1, 2022
Deferred tax assets, net$311,103 $109 $311,212 
Long-term debt, less current portion6,018,943 206,159 6,225,102 
Retained earnings830,226 127,474 957,700 
Additional paid-in capital3,534,792 (333,524)3,201,268 
Interest expense on the Exchangeable Senior Notes is lower as a result of adoption of this guidance. During the three and nine months ended September 30, 2022 the effect of adoption reduced interest expense, net and increased net income by approximately $12 million and $36 million, respectively, and increased basic and diluted EPS by approximately $0.20 per share and $0.57 per share, respectively. The Exchangeable Senior Notes were determined to be anti-dilutive for the three and nine months ended September 30, 2022. The adoption of ASU 2020-06 did not impact our cash flows or compliance with debt covenants.
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 varied manner due to the emergence of variants with increased transmissibility, even in vaccinated people, including with respect to limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment. We believe these dynamics have negatively impacted new patient starts in the U.S. and Europe. We expect that our business, financial condition, results of operations and growth prospects may continue to be negatively impacted by the pandemic on a limited basis that may vary depending on the context. However, we have begun to observe, and expect to continue to observe, a gradual normalization in patient and health care provider practices, as providers and patients have adapted their behaviors and procedures to the evolving circumstances and as COVID-19 vaccines continue to be administered. With respect to our commercialization activities, while there continues to be some negative impact on demand, new patient starts and treatments for our products arising from the pandemic, primarily due to the inherent limitations of telemedicine and a reprioritization of healthcare resources toward COVID-19, we have seen improvements as healthcare systems have adapted to cope with the ongoing situation. The extent of the impact on our ability to generate sales of 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.
Our business has been substantially dependent on Xyrem and 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 revenues at or near current levels, or that oxybate revenues will continue to grow. Our ability to maintain or increase oxybate revenues and realize the anticipated benefits from our investment in Xywav are subject to a number of risks and uncertainties including, without limitation, those related to the launch of Xywav for the treatment of IH in adults and adoption in that indication; competition from the near-term introduction of authorized generic versions of sodium oxybate and from generic versions of sodium oxybate and new products for treatment of cataplexy and/or EDS in narcolepsy in the U.S. market and from other competitors; the current and potential impacts of the COVID-19 pandemic, including the current and expected future negative impact on demand for our products; increased pricing pressure from, changes in policies by, or restrictions on reimbursement imposed by, third party payors, including our ability to maintain adequate coverage and reimbursement for Xywav and Xyrem; increased rebates required to maintain access to our products; challenges to our intellectual property around Xywav and/or Xyrem, including pending antitrust and intellectual property litigation; and continued acceptance of Xywav and Xyrem by physicians and patients.
In addition to risks related specifically to Xywav and Xyrem, we are subject to other challenges and risks related to successfully commercializing a portfolio of oncology products and other neuroscience products, 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: ongoing clinical research activity and related outcomes, obtaining regulatory approval of our late-stage product candidates; effectively commercializing our approved or acquired products such as Epidiolex, Zepzelca and Rylaze; obtaining and maintaining adequate coverage and reimbursement for our products; contracting and rebates to pharmacy benefit managers that reduces our net revenue; increasing scrutiny of pharmaceutical product pricing and resulting changes in healthcare laws and policy; market acceptance; regulatory concerns with controlled substances generally and the potential for abuse; future legislation, action by the U.S. Drug Enforcement Administration, or DEA, or FDA action authorizing the sale, distribution, use,
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and insurance reimbursement of non-FDA approved cannabinoid products; delays or problems in the supply of our products, loss of single source suppliers or failure to comply with manufacturing regulations; delays or problems with third parties that are part of our manufacturing and supply chain; 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 o