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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2024
or
| | | | | |
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 001-33500
JAZZ PHARMACEUTICALS PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
| | | | | |
Ireland | 98-1032470 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Fifth Floor, Waterloo Exchange,
Waterloo Road, Dublin 4, Ireland D04 E5W7
011-353-1-634-7800
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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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 April 25, 2024, 63,039,618 ordinary shares of the registrant, nominal value $0.0001 per share, were outstanding.
JAZZ PHARMACEUTICALS PLC
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
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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®, Xywav® (calcium, magnesium, potassium, and sodium oxybates) oral solution, Xyrem® (sodium oxybate) oral solution, Epidiolex® (cannabidiol) oral solution, Epidyolex® (the trade name in Europe and other countries outside the U.S. for Epidiolex), Rylaze® (asparaginase erwinia chrysanthemi (recombinant)-rywn), Enrylaze® (the trade name in Europe and other countries outside the U.S. and Canada for Rylaze), Zepzelca® (lurbinectedin), Defitelio® (defibrotide sodium), Defitelio® (defibrotide), Vyxeos® (daunorubicin and cytarabine) liposome for injection, Vyxeos® liposomal 44 mg/100 mg powder for concentrate for solution for infusion, CombiPlex® 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.
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
JAZZ PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
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| March 31, 2024 | | December 31, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,443,385 | | | $ | 1,506,310 | |
Investments | 375,000 | | | 120,000 | |
Accounts receivable, net of allowances | 707,095 | | | 705,794 | |
Inventories | 577,321 | | | 597,039 | |
Prepaid expenses | 122,562 | | | 185,476 | |
Other current assets | 314,535 | | | 320,809 | |
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Total current assets | 3,539,898 | | | 3,435,428 | |
Property, plant and equipment, net | 166,236 | | | 169,646 | |
Operating lease assets | 61,637 | | | 65,340 | |
Intangible assets, net | 5,235,496 | | | 5,418,039 | |
Goodwill | 1,739,495 | | | 1,753,130 | |
Deferred tax assets, net | 507,749 | | | 477,834 | |
Deferred financing costs | 5,784 | | | 6,478 | |
Other non-current assets | 70,780 | | | 67,464 | |
Total assets | $ | 11,327,075 | | | $ | 11,393,359 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 80,976 | | | $ | 102,750 | |
Accrued liabilities | 826,530 | | | 793,914 | |
Current portion of long-term debt | 605,375 | | | 604,954 | |
Income taxes payable | 49,325 | | | 35,074 | |
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Total current liabilities | 1,562,206 | | | 1,536,692 | |
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Long-term debt, less current portion | 5,105,111 | | | 5,107,988 | |
Operating lease liabilities, less current portion | 56,158 | | | 59,225 | |
Deferred tax liabilities, net | 809,714 | | | 847,706 | |
Other non-current liabilities | 97,425 | | | 104,751 | |
Commitments and contingencies (Note 9) | | | |
Shareholders’ equity: | | | |
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Ordinary shares | 6 | | | 6 | |
Non-voting euro deferred shares | 55 | | | 55 | |
Capital redemption reserve | 473 | | | 473 | |
Additional paid-in capital | 3,714,283 | | | 3,699,954 | |
Accumulated other comprehensive loss | (882,394) | | | (842,147) | |
Retained earnings | 864,038 | | | 878,656 | |
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Total shareholders’ equity | 3,696,461 | | | 3,736,997 | |
Total liabilities and shareholders’ equity | $ | 11,327,075 | | | $ | 11,393,359 | |
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)
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| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Revenues: | | | | | | | |
Product sales, net | $ | 842,102 | | | $ | 884,219 | | | | | |
Royalties and contract revenues | 59,881 | | | 8,593 | | | | | |
Total revenues | 901,983 | | | 892,812 | | | | | |
Operating expenses: | | | | | | | |
Cost of product sales (excluding amortization of acquired developed technologies) | 95,487 | | | 128,644 | | | | | |
Selling, general and administrative | 351,712 | | | 297,917 | | | | | |
Research and development | 222,847 | | | 189,410 | | | | | |
Intangible asset amortization | 155,730 | | | 149,786 | | | | | |
Acquired in-process research and development | 10,000 | | | 1,000 | | | | | |
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Total operating expenses | 835,776 | | | 766,757 | | | | | |
Income from operations | 66,207 | | | 126,055 | | | | | |
Interest expense, net | (66,116) | | | (74,147) | | | | | |
Foreign exchange gain (loss) | (1,693) | | | 3,193 | | | | | |
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Income (loss) before income tax expense (benefit) and equity in loss of investees | (1,602) | | | 55,101 | | | | | |
Income tax expense (benefit) | 11,669 | | | (15,324) | | | | | |
Equity in loss of investees | 1,347 | | | 1,005 | | | | | |
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Net income (loss) | $ | (14,618) | | | $ | 69,420 | | | | | |
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Net income (loss) per ordinary share: | | | | | | | |
Basic | $ | (0.23) | | | $ | 1.09 | | | | | |
Diluted | $ | (0.23) | | | $ | 1.04 | | | | | |
Weighted-average ordinary shares used in per share calculations - basic | 62,537 | | | 63,494 | | | | | |
Weighted-average ordinary shares used in per share calculations - diluted | 62,537 | | | 73,771 | | | | | |
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)
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| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Net income (loss) | $ | (14,618) | | | $ | 69,420 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (44,068) | | | 145,279 | | | | | |
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Unrealized gain on cash flow hedging activities, net of income tax expense of $1,720 and $—, respectively | 5,177 | | | — | | | | | |
Gain on cash flow hedging activities reclassified from accumulated other comprehensive income (loss) to interest expense, net of income tax expense of $451 and $—, respectively | (1,356) | | | — | | | | | |
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Other comprehensive income (loss) | (40,247) | | | 145,279 | | | | | |
Total comprehensive income (loss) | $ | (54,865) | | | $ | 214,699 | | | | | |
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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)
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| 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, 2023 | 62,255 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 473 | | | $ | 3,699,954 | | | $ | (842,147) | | | $ | 878,656 | | | | | | | $ | 3,736,997 | |
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Issuance of ordinary shares in conjunction with exercise of share options | 7 | | | — | | | — | | | — | | | — | | | 494 | | | — | | | — | | | | | | | 494 | |
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Issuance of ordinary shares in conjunction with vesting of restricted stock units | 686 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Issuance of ordinary shares in conjunction with vesting of performance-based restricted stock units | 80 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Shares withheld for payment of employee's withholding tax liability | — | | | — | | | — | | | — | | | — | | | (49,296) | | | — | | | — | | | | | | | (49,296) | |
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Share-based compensation | — | | | — | | | — | | | — | | | — | | | 63,131 | | | — | | | — | | | | | | | 63,131 | |
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Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (40,247) | | | — | | | | | | | (40,247) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14,618) | | | | | | | (14,618) | |
Balance at March 31, 2024 | 63,028 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 473 | | | $ | 3,714,283 | | | $ | (882,394) | | | $ | 864,038 | | | | | | | $ | 3,696,461 | |
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| 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, 2022 | 63,214 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 3,477,124 | | | $ | (1,125,509) | | | $ | 733,586 | | | | | | | $ | 3,085,734 | |
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Issuance of ordinary shares in conjunction with exercise of share options | 188 | | | — | | | — | | | — | | | — | | | 21,228 | | | — | | | — | | | | | | | 21,228 | |
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Issuance of ordinary shares in conjunction with vesting of restricted stock units | 585 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | |
Shares withheld for payment of employee's withholding tax liability | — | | | — | | | — | | | — | | | — | | | (43,266) | | | — | | | — | | | | | | | (43,266) | |
Share-based compensation | — | | | — | | | — | | | — | | | — | | | 56,646 | | | — | | | — | | | | | | | 56,646 | |
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Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 145,279 | | | — | | | | | | | 145,279 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 69,420 | | | | | | | 69,420 | |
Balance at March 31, 2023 | 63,987 | | | $ | 6 | | | 4,000 | | | $ | 55 | | | $ | 472 | | | $ | 3,511,732 | | | $ | (980,230) | | | $ | 803,006 | | | | | | | $ | 3,335,041 | |
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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)
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| Three Months Ended March 31, |
| 2024 | | 2023 |
Operating activities | | | |
Net income (loss) | $ | (14,618) | | | $ | 69,420 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Intangible asset amortization | 155,730 | | | 149,786 | |
Share-based compensation | 61,441 | | | 56,352 | |
Acquisition accounting inventory fair value step-up adjustment | 28,943 | | | 60,458 | |
Acquired in-process research and development | 10,000 | | | 1,000 | |
Depreciation | 7,653 | | | 7,574 | |
Provision for losses on accounts receivable and inventory | 7,403 | | | 2,316 | |
Non-cash interest expense | 5,988 | | | 4,766 | |
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Deferred tax benefit | (66,385) | | | (66,061) | |
Other non-cash transactions | 14,674 | | | 16,773 | |
Changes in assets and liabilities: | | | |
Accounts receivable | (8,443) | | | 28,460 | |
Inventories | (12,844) | | | (6,266) | |
Prepaid expenses and other current assets | 54,947 | | | 42,032 | |
Operating lease assets | 3,703 | | | 4,508 | |
Other non-current assets | (4,090) | | | (9,541) | |
Accounts payable | (19,597) | | | 34,286 | |
Accrued liabilities | 34,677 | | | (96,985) | |
Income taxes payable | 14,858 | | | 25,413 | |
Deferred revenue | — | | | (459) | |
Operating lease liabilities, less current portion | (2,980) | | | (4,959) | |
Other non-current liabilities | (3,831) | | | 1,835 | |
Net cash provided by operating activities | 267,229 | | | 320,708 | |
Investing activities | | | |
Acquisition of investments | (375,000) | | | — | |
Acquired in-process research and development | (10,000) | | | (1,000) | |
Purchases of property, plant and equipment | (6,904) | | | (3,822) | |
Proceeds from maturity of investments | 120,000 | | | — | |
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Net cash used in investing activities | (271,904) | | | (4,822) | |
Financing activities | | | |
Payment of employee withholding taxes related to share-based awards | (49,296) | | | (43,266) | |
Repayments of long-term debt | (7,750) | | | (7,750) | |
Proceeds from employee equity incentive and purchase plans | 494 | | | 21,228 | |
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Net cash used in financing activities | (56,552) | | | (29,788) | |
Effect of exchange rates on cash and cash equivalents | (1,698) | | | 331 | |
Net increase (decrease) in cash and cash equivalents | (62,925) | | | 286,429 | |
Cash and cash equivalents, at beginning of period | 1,506,310 | | | 881,482 | |
Cash and cash equivalents, at end of period | $ | 1,443,385 | | | $ | 1,167,911 | |
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, including leading therapies for sleep disorders and epilepsy, and a growing portfolio of cancer treatments. Our patient-focused and science-driven approach powers pioneering research and development advancements across our robust pipeline of innovative therapeutics in oncology and neuroscience.
Our lead marketed products, listed below, are approved in countries around the world to improve patient care.
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 seven years of age and older with narcolepsy, 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®. Xywav is also approved in Canada for the treatment of cataplexy in patients with narcolepsy;
•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 or 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 European Union, or EU (EU market authorizations include Northern Ireland), Great Britain and other markets through a licensing agreement; and
•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 and Great Britain (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.
Oncology
•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 lymphoblastic lymphoma in adults and pediatric patients aged one month or older who have developed hypersensitivity to E. coli-derived asparaginase. In September 2023, the European Commission granted marketing authorization for this therapy under the trade name Enrylaze; and
•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.
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 audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10‑K for the year ended December 31, 2023.
In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of our financial position and operating results. The results for the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2024, 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, 2023.
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 November 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures”, which requires enhanced disclosures about significant segment expenses. The amendments are effective retrospectively to all prior periods presented in the financial statements, for fiscal years beginning after December 15, 2023. The new guidance is not expected to have a material impact on our financial statement disclosures.
Significant Risks and Uncertainties
Historically, our business was substantially dependent on Xyrem and while we expect that our business will continue to meaningfully depend on oxybate revenues from both Xywav and Xyrem, there is no guarantee that oxybate revenues will remain at current levels. In this regard, our ability to maintain 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 introduction of two authorized generic, or AG, versions of high-sodium oxybate and a branded fixed-dose, high-sodium oxybate, Avadel’s Lumryz, for treatment of cataplexy and/or EDS in narcolepsy in the U.S. market, as well as potential future competition from additional AG versions of high-sodium oxybate and from generic versions of high-sodium oxybate and from other competitors; 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 from pending antitrust and intellectual property litigation; and continued acceptance of Xywav and Xyrem by physicians and patients. A significant decline in oxybate revenues could cause us to reduce our operating expenses or seek to raise additional funds, which would have a material adverse effect on our business, financial condition, results of operations and growth prospects, including on our ability to acquire, in-license or develop new products to grow our business.
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, Rylaze and Zepzelca; obtaining and maintaining adequate coverage and reimbursement for our products; contracting and rebates to pharmacy benefit managers and similar organizations that reduce 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. Federal Government authorizing the sale, distribution, use, 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; our ability to realize the anticipated benefits of acquired or in-licensed products or product candidates, such as Epidiolex and zanidatamab, at the expected levels, with the expected costs and within the expected timeframe; 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.
Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, investments and derivative contracts. Our investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper issued by U.S. corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of U.S. states, agencies and municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and investments to the extent recorded on the balance sheet.
We manage our foreign currency transaction risk and interest rate risk within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes. As of March 31, 2024, we had foreign exchange forward contracts with notional amounts totaling $537.1 million. As of March 31, 2024, the outstanding foreign exchange forward contracts had a net asset fair value of $0.4 million. As of March 31, 2024, we had interest rate swap contracts with notional amounts totaling $500.0 million. These outstanding interest rate swap contracts had an asset fair value of $5.5 million as of March 31, 2024. 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 economic conditions in certain European countries which may result in variability of the timing of cash receipts and an increase in the average length of time that it takes to collect accounts receivable outstanding. Historically, we have not experienced significant credit losses on our accounts receivable and, as of March 31, 2024 and December 31, 2023, allowances on receivables were not material. As of March 31, 2024, five customers accounted for 78% of gross accounts receivable, including Express Scripts Specialty Distribution Services, Inc. and its affiliates, or ESSDS, which accounted for 41% of gross accounts receivable, McKesson Corporation and affiliates, or McKesson, which accounted for 12% of gross accounts receivable and ASD Specialty Healthcare LLC, or ASD, which accounted for 12% of gross accounts receivable. As of December 31, 2023, five customers accounted for 79% of gross accounts receivable, including ESSDS, which accounted for 41% of gross accounts receivable, ASD, which accounted for 13% of gross accounts receivable and McKesson, which accounted for 11% 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 our oxybate products, the API is manufactured for us by a single source supplier and the finished products are manufactured both by us in our facility in Athlone, Ireland and by our U.S.-based supplier.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures”, which requires additional enhanced tax disclosures. The amendments are effective on a prospective basis, with the option to apply it retrospectively, for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of adopting this new accounting guidance.
2. Cash and Available-for-Sale Securities
Cash, cash equivalents and investments consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Cash and Cash Equivalents | | Investments |
Cash | $ | 444,140 | | | $ | — | | | $ | — | | | $ | 444,140 | | | $ | 444,140 | | | $ | — | |
Time deposits | 585,000 | | | — | | | — | | | 585,000 | | | 210,000 | | | 375,000 | |
Money market funds | 789,245 | | | — | | | — | | | 789,245 | | | 789,245 | | | — | |
Totals | $ | 1,818,385 | | | $ | — | | | $ | — | | | $ | 1,818,385 | | | $ | 1,443,385 | | | $ | 375,000 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Cash and Cash Equivalents | | Investments |
Cash | $ | 437,724 | | | $ | — | | | $ | — | | | $ | 437,724 | | | $ | 437,724 | | | $ | — | |
Time deposits | 420,000 | | | — | | | — | | | 420,000 | | | 300,000 | | | 120,000 | |
Money market funds | 768,586 | | | — | | | — | | | 768,586 | | | 768,586 | | | — | |
Totals | $ | 1,626,310 | | | $ | — | | | $ | — | | | $ | 1,626,310 | | | $ | 1,506,310 | | | $ | 120,000 | |
Cash equivalents and investments are considered available-for-sale securities. We use the specific-identification method for calculating realized gains and losses on securities sold and include them in interest expense, net in the condensed consolidated statements of income (loss). Our investment balances represent time deposits with original maturities of greater than three months and less than one year. Interest income from available-for-sale securities was $23.3 million and $10.6 million in the three months ended March 31, 2024 and 2023, respectively.
3. Fair Value Measurement
The following table summarizes, by major security type, our available-for-sale securities and derivative contracts as of March 31, 2024 and December 31, 2023, that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | | Total Estimated Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | | | Total Estimated Fair Value |
Assets: | | | | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | | | | |
Money market funds | $ | 789,245 | | | $ | — | | | | | $ | 789,245 | | | $ | 768,586 | | | $ | — | | | | | $ | 768,586 | |
Time deposits | — | | | 585,000 | | | | | 585,000 | | | — | | | 420,000 | | | | | 420,000 | |
Interest rate contracts | — | | | 5,464 | | | | | 5,464 | | | — | | | 3,784 | | | | | 3,784 | |
Foreign exchange forward contracts | — | | | 708 | | | | | 708 | | | — | | | 18,035 | | | | | 18,035 | |
Totals | $ | 789,245 | | | $ | 591,172 | | | | | $ | 1,380,417 | | | $ | 768,586 | | | $ | 441,819 | | | | | $ | 1,210,405 | |
Liabilities: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Interest rate contracts | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | 3,410 | | | | | $ | 3,410 | |
Foreign exchange forward contracts | — | | | 357 | | | | | 357 | | | — | | | 681 | | | | | 681 | |
Totals | $ | — | | | $ | 357 | | | | | $ | 357 | | | $ | — | | | $ | 4,091 | | | | | $ | 4,091 | |
As of March 31, 2024, our available-for-sale securities included money market funds and time deposits and their carrying values were approximately equal to their fair values. Money market funds were measured using quoted prices in active markets, which represent Level 1 inputs and time deposits were measured at fair value using Level 2 inputs. Level 2 inputs are obtained from various third party data providers and represent quoted prices for similar assets in active markets, or these inputs were derived from observable market data, or if not directly observable, were derived from or corroborated by other observable market data.
Our derivative assets and liabilities include interest rate and foreign exchange derivatives that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk as well as an evaluation of our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.
There were no transfers between the different levels of the fair value hierarchy in 2024 or 2023.
As of March 31, 2024 and December 31, 2023, the carrying amount of investments measured using the measurement alternative for equity investments without a readily determinable fair value was $4.3 million. The carrying amount, which is recorded within other non-current assets, is based on the latest observable transaction price.
As of March 31, 2024, the estimated fair values of the 1.50% exchangeable senior notes due 2024, or 2024 Notes, the 2.00% exchangeable senior notes due 2026, or 2026 Notes, which we refer to collectively as the Exchangeable Senior Notes, the 4.375% senior secured notes, due 2029, or the Secured Notes, and the seven-year $3.1 billion term loan B facility, or the Dollar Term Loan were approximately $566 million, $1.0 billion, $1.4 billion and $2.7 billion respectively. The fair values of each of these debt facilities was estimated using quoted market prices obtained from brokers (Level 2).
4. Derivative Instruments and Hedging Activities
We are exposed to certain risks arising from operating internationally, including fluctuations in foreign exchange rates primarily related to the translation of sterling and euro-denominated net monetary liabilities, including intercompany balances, held by subsidiaries with a U.S. dollar functional currency and fluctuations in interest rates on our outstanding term loan borrowings. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.
We enter into foreign exchange forward contracts, with durations of up to 12 months, designed to limit the exposure to fluctuations in foreign exchange rates related to the translation of certain non-U.S. dollar denominated liabilities, including intercompany balances. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of March 31, 2024 and December 31, 2023, the notional amount of foreign exchange contracts where hedge accounting is not applied was $537.1 million and $511.7 million, respectively.
The foreign exchange gain (loss) in our condensed consolidated statements of income (loss) included the following gain (losses) associated with foreign exchange contracts not designated as hedging instruments (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
Foreign Exchange Forward Contracts: | 2024 | | 2023 | | | | |
Gain (loss) recognized in foreign exchange gain (loss) | $ | (4,086) | | | $ | 4,275 | | | | | |
To achieve a desired mix of floating and fixed interest rates on our variable rate debt, we entered into interest rate swap agreements in April 2023, which are effective until April 2026. These agreements hedge contractual term loan interest rates. As of March 31, 2024, the interest rate swap agreements had a notional amount of $500.0 million. As a result of these agreements, the interest rate on a portion of our term loan borrowings is fixed at 3.9086%, plus the borrowing spread, until April 30, 2026.
The impact on accumulated other comprehensive income (loss) and earnings from derivative instruments that qualified as cash flow hedges for the three months ended March 31, 2024 was as follows (in thousands):
| | | | | | | | | | | |
Interest Rate Contracts: | | | Three Months Ended March 31, 2024 | | | | |
| | | | | | | |
Gain recognized in accumulated other comprehensive income (loss), net of tax | | | $ | 5,177 | | | | | |
Gain reclassified from accumulated other comprehensive income (loss) to interest expense, net of tax | | | (1,356) | | | | | |
Assuming no change in the U.S dollar Secured Overnight Financing Rate, or Term SOFR, based interest rates from market rates as of March 31, 2024, $3.7 million of gains, net of tax, recognized in accumulated other comprehensive income (loss) will be reclassified to earnings over the next 12 months.
The cash flow effects of our derivative contracts for the three months ended March 31, 2024 and 2023 are included within net cash provided by operating activities in the condensed consolidated statements of cash flows.
The following tables summarize the fair value of outstanding derivatives (in thousands):
| | | | | | | | | | | | | | |
| Classification | March 31, 2024 | | December 31, 2023 |
Assets | | | | |
Derivatives designated as hedging instruments: | | | | |
Interest rate contracts | Other current assets | $ | 5,041 | | | $ | 3,784 | |
| Other non-current assets | 423 | | | — | |
Derivatives not designated as hedging instruments: | | | | |
Foreign exchange forward contracts | Other current assets | 708 | | | 18,035 | |
Total fair value of derivative asset instruments | | $ | 6,172 | | | $ | 21,819 | |
| | | | |
Liabilities | | | | |
Derivatives designated as hedging instruments: | | | | |
| | | | |
Interest rate contracts | Other non-current liabilities | $ | — | | | $ | 3,410 | |
Derivatives not designated as hedging instruments: | | | | |
Foreign exchange forward contracts | Accrued liabilities | 357 | | | 681 | |
Total fair value of derivative liability instruments | | $ | 357 | | | $ | 4,091 | |
| | | | |
| | | | |
| | | | |
Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. The following table summarizes the potential effect on our condensed consolidated balance sheets of offsetting our interest rate and foreign exchange forward contracts subject to such provisions (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Gross Amounts of Recognized Assets/ Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet |
Description | | | | Derivative Financial Instruments | | Cash Collateral Received (Pledged) | | Net Amount |
Derivative assets | $ | 6,172 | | | $ | — | | | $ | 6,172 | | | $ | (250) | | | $ | — | | | $ | 5,922 | |
Derivative liabilities | (357) | | | — | | | (357) | | | 250 | | | — | | | (107) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Gross Amounts of Recognized Assets/ Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet |
Description | | | | Derivative Financial Instruments | | Cash Collateral Received (Pledged) | | Net Amount |
Derivative assets | $ | 21,819 | | | $ | — | | | $ | 21,819 | | | $ | (4,091) | | | $ | — | | | $ | 17,728 | |
Derivative liabilities | (4,091) | | | — | | | (4,091) | | | 4,091 | | | — | | | — | |
5. Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Raw materials | $ | 17,769 | | | $ | 25,595 | |
Work in process | 390,882 | | | 431,732 | |
Finished goods | 168,670 | | | 139,712 | |
Total inventories | $ | 577,321 | | | $ | 597,039 | |
As of March 31, 2024 and December 31, 2023 inventories included $297.3 million and $328.0 million, respectively, related to the purchase accounting inventory fair value step-up on inventory acquired as part of our acquisition of GW, which we refer to as the GW Acquisition.
6. Goodwill and Intangible Assets
The gross carrying amount of goodwill was as follows (in thousands):
| | | | | |
Balance at December 31, 2023 | $ | 1,753,130 | |
| |
| |
Foreign exchange | (13,635) | |
Balance at March 31, 2024 | $ | 1,739,495 | |
The gross carrying amounts and net book values of our intangible assets were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Remaining Weighted- Average Useful Life (In years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
Acquired developed technologies | 8.5 | | $ | 7,743,422 | | | $ | (2,507,926) | | | $ | 5,235,496 | | | $ | 7,785,495 | | | $ | (2,367,456) | | | $ | 5,418,039 | |
Manufacturing contracts | — | | 11,572 | | | (11,572) | | | — | | | 11,828 | | | (11,828) | | | — | |
Trademarks | — | | 2,879 | | | (2,879) | | | — | | | 2,886 | | | (2,886) | | | — | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total finite-lived intangible assets | | | $ | 7,757,873 | | | $ | (2,522,377) | | | $ | 5,235,496 | | | $ | 7,800,209 | | | $ | (2,382,170) | | | $ | 5,418,039 | |
The decrease in the gross carrying amount of intangible assets as of March 31, 2024 compared to December 31, 2023 relates to the negative impact of foreign currency translation adjustments primarily due to the weakening of sterling against the U.S. dollar.
The assumptions and estimates used to determine future cash flows and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors, such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.
Based on finite-lived intangible assets recorded as of March 31, 2024, and assuming the underlying assets will not be impaired and that we will not change the expected lives of the assets, future amortization expenses were estimated as follows (in thousands):
| | | | | |
Year Ending December 31, | Estimated Amortization Expense |
2024 (remainder) | $ | 466,008 | |
2025 | 621,344 | |
2026 | 621,344 | |
2027 | 621,344 | |
2028 | 620,012 | |
Thereafter | 2,285,444 | |
Total | $ | 5,235,496 | |
7. Certain Balance Sheet Items
Property, plant and equipment consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Manufacturing equipment and machinery | $ | 85,717 | | | $ | 82,897 | |
Land and buildings | 69,750 | | | 70,912 | |
Leasehold improvements | 69,600 | | | 67,722 | |
Computer software | 38,159 | | | 38,134 | |
Construction-in-progress | 17,274 | | | 18,661 | |
Computer equipment | 16,704 | | | 15,398 | |
Furniture and fixtures | 9,297 | | | 9,273 | |
| | | |
Subtotal | 306,501 | | | 302,997 | |
Less accumulated depreciation and amortization | (140,265) | | | (133,351) | |
Property, plant and equipment, net | $ | 166,236 | | | $ | 169,646 | |
Other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Deferred charge for income taxes on intercompany profit | $ | 178,684 | | | $ | 171,507 | |
Other | 135,851 | | | 149,302 | |
Total other current assets | $ | 314,535 | | | $ | 320,809 | |
Accrued liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Rebates and other sales deductions | $ | 369,301 | | | $ | 325,711 | |
Employee compensation and benefits | 118,966 | | | 121,209 | |
Consulting and professional services | 39,539 | | | 19,538 | |
Clinical trial accruals | 38,406 | | | 44,757 | |
Accrued royalties | 29,236 | | | 30,706 | |
Selling and marketing accruals | 25,890 | | | 14,743 | |
Accrued collaboration expenses | 24,626 | | | 10,158 | |
Accrued interest | 23,392 | | | 36,443 | |
Sales return reserve | 22,137 | | | 20,435 | |
Current portion of lease liabilities | 18,357 | | | 19,447 | |
| | | |
| | | |
Inventory-related accruals | 15,902 | | | 13,977 | |
Accrued construction-in-progress | 7,055 | | | 5,141 | |
Accrued facilities expenses | 5,333 | | | 55,455 | |
Derivative instrument liabilities | 357 | | | 681 | |
| | | |
Other | 88,033 | | | 75,513 | |
Total accrued liabilities | $ | 826,530 | | | $ | 793,914 | |
8. Debt
The following table summarizes the carrying amount of our indebtedness (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
| | | |
| | | |
| | | |
2024 Notes | $ | 575,000 | | | $ | 575,000 | |
Unamortized - debt issuance costs | (624) | | | (1,046) | |
| | | |
2024 Notes, net | 574,376 | | | 573,954 | |
| | | |
2026 Notes | 1,000,000 | | | 1,000,000 | |
Unamortized - debt issuance costs | (5,782) | | | (6,400) | |
| | | |
2026 Notes, net | 994,218 | | | 993,600 | |
| | | |
Secured Notes | 1,481,011 | | | 1,480,214 | |
| | | |
Term Loan | 2,660,881 | | | 2,665,174 | |
| | | |
| | | |
Total debt | 5,710,486 | | | 5,712,942 | |
Less current portion | 605,375 | | | 604,954 | |
Total long-term debt | $ | 5,105,111 | | | $ | 5,107,988 | |
Credit Agreement
On May 5, 2021, the Company, Jazz Financing Lux S.à.r.l., or Jazz Lux, and certain of our other subsidiaries, as borrowers, or, collectively with the Company and Jazz Lux, the “Borrowers”, entered into the Credit Agreement by and among the Borrowers, the lenders and issuing banks from time to time party thereto, Bank of America, N.A., as administrative agent and U.S. Bank Trust Company, National Association, as collateral trustee, or the Credit Agreement, that provided for (i) the Dollar Term Loan which was drawn by Jazz Lux on the Closing Date in U.S. dollars (ii) the Euro Term Loan which was drawn by Jazz Lux on the Closing Date in Euros and (iii) the Revolving Credit Facility.
In January 2024, Jazz Lux entered into an amendment, or Repricing Amendment, to the Credit Agreement. Upon entry into the Repricing Amendment, certain existing lenders converted outstanding Dollar Term Loans into a new tranche of U.S. dollar term loans, or the Tranche B-1 Dollar Term Loans, and Jazz Lux borrowed $201.9 million aggregate principal amount of additional Tranche B-1 Dollar Term Loans, the proceeds of which were used to repay the outstanding Dollar Term Loans that were not converted. The Tranche B-1 Dollar Term Loans are a separate class of term loans under the Credit Agreement with the same material terms (including with respect to maturity, prepayment, security, covenants and events of default) as the previously outstanding Dollar Term Loans, with the interest rate amended as described below. The principal amount of Dollar Term Loans outstanding immediately prior to the Repricing Amendment and the outstanding principal amount of Tranche B-1 Dollar Term Loans immediately following the Repricing Amendment, each totaled $2.723 billion. The Tranche B-1 Dollar Term Loans bear interest at a rate equal to either (a) Term SOFR, or (b) the prime lending rate, in each case, plus an applicable margin. The applicable margin for the Tranche B-1 Dollar Term Loans is 3.00% (in the case of Term SOFR borrowings) and 2.00% (in the case of borrowings at the prime lending rate), a decrease of 50 basis points from the applicable margin on the Initial Dollar Term Loans. The Tranche B-1 Dollar Term Loans are subject to a Term SOFR floor of 0.50%. The applicable margin for the Revolving Credit Facility ranges from 3.25% to 2.75% (in the case of Term SOFR borrowings) and 2.25% to 1.75% (in the case of borrowings at the prime lending rate), depending on our first lien secured net leverage ratio level. The Tranche B-1 Dollar Term Loan is subject to a Term SOFR floor of 0.50% and loans under the Revolving Credit Facility are not subject to a floor. The Revolving Credit Facility has a commitment fee payable on the undrawn amount ranging from 0.50% to 0.40% per annum based upon our first lien secured net leverage ratio. As of March 31, 2024, the interest rate and effective interest rate on the Tranche B-1 Dollar Term Loans were 8.44% and 9.04%, respectively. As of March 31, 2024, we had an undrawn Revolving Credit Facility totaling $500.0 million.
Exchangeable Senior Notes
The Exchangeable Senior Notes were issued by Jazz Investments I Limited, or the Issuer, a 100%-owned finance subsidiary of Jazz Pharmaceuticals plc. The Exchangeable Senior Notes are senior unsecured obligations of the Issuer and are fully and unconditionally guaranteed on a senior unsecured basis by Jazz Pharmaceuticals plc. No subsidiary of Jazz Pharmaceuticals plc guaranteed the Exchangeable Senior Notes. Subject to certain local law restrictions on payment of dividends, among other things, and potential negative tax consequences, we are not aware of any significant restrictions on the ability of Jazz Pharmaceuticals plc to obtain funds from the Issuer or Jazz Pharmaceuticals plc’s other subsidiaries by dividend or loan, or any legal or economic restrictions on the ability of the Issuer or Jazz Pharmaceuticals plc’s other subsidiaries to transfer funds to Jazz Pharmaceuticals plc in the form of cash dividends, loans or advances. There is no assurance that in the future such restrictions will not be adopted.
The total liability of the 2026 Notes is reflected net of issuance costs of $15.3 million which will be amortized over the term of the 2026 Notes. The effective interest rate of the 2026 Notes is 2.26%. During the three months ended March 31, 2024 and 2023, we recognized interest expense of $5.5 million, of which $5.0 million related to the contractual coupon rate and $0.5 million related to the amortization of debt issuance costs, respectively.
The total liability of the 2024 Notes is reflected net of issuance costs of $11.4 million which will be amortized over the term of the 2024 Notes. The effective interest rate of the 2024 Notes is 1.79%. During the three months ended March 31, 2024 and 2023, we recognized interest expense of $2.5 million, of which $2.1 million related to the contractual coupon rate and $0.4 million related to the amortization of debt issuance costs, respectively.
Maturities
Scheduled maturities with respect to our long-term debt principal balances outstanding as of March 31, 2024 were as follows (in thousands):
| | | | | |
Year Ending December 31, | Scheduled Long-Term Debt Maturities |
2024 (remainder) | $ | 598,250 | |
2025 | 31,000 | |
2026 | 1,031,000 | |
2027 | 31,000 | |
2028 | 2,598,500 | |
Thereafter | 1,500,000 | |
Total | $ | 5,789,750 | |
9. Commitments and Contingencies
Indemnification
In the normal course of business, we enter into agreements that contain a variety of representations and warranties and provide for general indemnification, including indemnification associated with product liability or infringement of intellectual property rights. Our exposure under these agreements is unknown because it involves future claims that may be made but have not yet been made against us. To date, we have not paid any claims or been required to defend any action related to these indemnification obligations.
We have agreed to indemnify our executive officers, directors and certain other employees for losses and costs incurred in connection with certain events or occurrences, including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future payments we could be required to make under the indemnification obligations is unlimited; however, we maintain insurance policies that may limit our exposure and may enable us to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, we believe the fair value of these indemnification obligations is not significant. Accordingly, we did not recognize any liabilities relating to these obligations as of March 31, 2024 and December 31, 2023. No assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case we may incur substantial liabilities as a result of these indemnification obligations.
Legal Proceedings
We are involved in legal proceedings, including the following matters:
Xyrem Antitrust Litigation
From June 2020 to May 2022, a number of lawsuits were filed on behalf of purported direct and indirect Xyrem purchasers, alleging that the patent litigation settlement agreements we entered with generic drug manufacturers who had filed Abbreviated New Drug Applications, or ANDA, violate state and federal antitrust and consumer protection laws, as follows:
On June 17, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois by Blue Cross and Blue Shield Association, or BCBS, against Jazz Pharmaceuticals plc, Jazz Pharmaceuticals, Inc., and Jazz Pharmaceuticals Ireland Limited, or, collectively, the Company Defendants (hereinafter referred to as the BCBS Lawsuit). The BCBS Lawsuit also names Roxane Laboratories, Inc., Hikma Pharmaceuticals USA Inc., Eurohealth (USA), Inc., Hikma Pharmaceuticals plc, Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals Inc., and Lupin Inc., or, collectively, the BCBS Defendants.
On June 18 and June 23, 2020, respectively, two additional class action lawsuits were filed against the Company Defendants and the BCBS Defendants: one by the New York State Teamsters Council Health and Hospital Fund in the United States District Court for the Northern District of California, and another by the Government Employees Health Association Inc. in the United States District Court for the Northern District of Illinois (hereinafter referred to as the GEHA Lawsuit).
On June 18, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of California by the City of Providence, Rhode Island, on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals plc, and Roxane Laboratories, Inc., West-Ward Pharmaceuticals Corp., Hikma Labs Inc., Hikma Pharmaceuticals USA Inc., and Hikma Pharmaceuticals plc, or, collectively, the City of Providence Defendants.
On June 30, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois by UFCW Local 1500 Welfare Fund on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals Ireland Ltd., Jazz Pharmaceuticals, Inc., Roxane Laboratories, Inc., Hikma Pharmaceuticals plc, Eurohealth (USA), Inc. and West-Ward Pharmaceuticals Corp., or collectively the UFCW Defendants (hereinafter referred to as the UFCW Lawsuit).
On July 13, 2020, the plaintiffs in the BCBS Lawsuit and the GEHA Lawsuit dismissed their complaints in the United States District Court for the Northern District of Illinois and refiled their respective lawsuits in the United States District Court for the Northern District of California. On July 14, 2020, the plaintiffs in the UFCW Lawsuit dismissed their complaint in the United States District Court for the Northern District of Illinois and on July 15, 2020, refiled their lawsuit in the United States District Court for the Northern District of California.
On July 31, 2020, a class action lawsuit was filed in the United States District Court for the Southern District of New York by the A.F. of L.-A.G.C. Building Trades Welfare Plan on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals plc (hereinafter referred to as the AFL Plan Lawsuit). The AFL Plan Lawsuit also names Roxane Laboratories Inc., West-Ward Pharmaceuticals Corp., Hikma Labs Inc., Hikma Pharmaceuticals plc, Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc.
On August 14, 2020, an additional class action lawsuit was filed in the United States District Court for the Southern District of New York by the Self-Insured Schools of California on behalf of itself and all others similarly situated, against the Company Defendants, as well as Hikma Pharmaceuticals plc, Eurohealth (USA) Inc., Hikma Pharmaceuticals USA, Inc., West-Ward Pharmaceuticals Corp., Roxane Laboratories, Inc., Amneal Pharmaceuticals LLC, Endo International, plc, Endo Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals Inc., Lupin Inc., Sun Pharmaceutical Industries Ltd., Sun Pharmaceutical Holdings USA, Inc., Sun Pharmaceutical Industries, Inc., Ranbaxy Laboratories Ltd., Teva Pharmaceutical Industries Ltd., Watson Laboratories, Inc., Wockhardt Ltd., Morton Grove Pharmaceuticals, Inc., Wockhardt USA LLC, Mallinckrodt plc, and Mallinckrodt LLC (hereinafter referred to as the Self-Insured Schools Lawsuit).
On September 16, 2020, an additional class action lawsuit was filed in the United States District Court for the Northern District of California, by Ruth Hollman on behalf of herself and all others similarly situated, against the same defendants named in the Self-Insured Schools Lawsuit.
In December 2020, the above cases were centralized and transferred to the United States District Court for the Northern District of California, where the multidistrict litigation will proceed for the purpose of discovery and pre-trial proceedings.
On March 18, 2021, United Healthcare Services, Inc. filed a lawsuit in the United States District Court for the District of Minnesota against the Company Defendants, Hikma Pharmaceuticals plc, Roxane Laboratories, Inc., Hikma Pharmaceuticals USA Inc., Eurohealth (USA) Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., and Lupin Pharmaceuticals, Inc., raising similar allegations, or the UHS Lawsuit. On March 24, 2021, the U.S. Judicial Panel on Multidistrict Litigation conditionally transferred the UHS Lawsuit to the United States District Court for the Northern District of California, where it was consolidated for discovery and pre-trial proceedings with the other cases.
On August 13, 2021, the United States District Court for the Northern District of California granted in part and denied in part the Company Defendants' motion to dismiss the complaints in the cases referenced above.
On October 8, 2021, Humana Inc. filed a lawsuit in the United States District Court for the Northern District of California against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations.
On October 8, 2021, Molina Healthcare Inc. filed a lawsuit in the United States District Court for the Northern District of California against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations.
On February 17, 2022, Health Care Service Corporation filed a lawsuit in the United States District Court for the Northern District of California against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations.
On April 19, 2023, the Court held a hearing on class certification in the consolidated multi-district litigation referenced above. On May 12, 2023, the Court granted the plaintiffs’ motion and preliminarily certified classes of Xyrem purchasers seeking monetary and injunctive relief. The Court excluded Xywav purchasers from the classes. On April 26, 2024, we, Hikma, and the plaintiffs filed motions for summary judgment. The Court scheduled a hearing for these motions on July 19, 2024. Trial in this matter is scheduled for October 28, 2024.
On January 13, 2023, Amneal Pharmaceuticals LLC, Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, notified the Court that they had reached a settlement-in-principle with the class action plaintiffs. On April 19, 2023, the Court held a hearing on a motion for preliminary approval of this proposed settlement. On May 12, 2023, the Court granted the motion for preliminary approval of the proposed settlement. On January 11, 2024, the Court held a hearing on the motion for final approval of the proposed settlement. The Court deferred ruling and scheduled a further hearing for final approval of the proposed settlement on April 17, 2024. During February and March 2024, the parties notified the Court of settlements between certain non-class action plaintiffs and each of Amneal and Lupin, and the Court dismissed those plaintiffs’ claims against the applicable parties. On April 17, 2024, the Court issued an order granting the motion for final approval of the settlement between the class action plaintiffs, Amneal, and Lupin.
On December 11, 2023, Blue Cross and Blue Shield of Florida, Inc. and Health Options, Inc. filed a lawsuit in the United States District Court for the Middle District of Florida against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., and Eurohealth (USA), Inc., raising similar allegations. On January 23, 2024, the Blue Cross Florida case was transferred to the United States District Court for the Northern District of California and consolidated with the above referenced multidistrict litigation for pretrial purposes.
On May 9, 2022, Aetna Inc., or Aetna, filed a lawsuit in the Superior Court of California for the County of Alameda against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations. On December 27, 2022, the Court granted in part and denied in part our motion to dismiss Aetna’s complaint. As a result of that ruling, the generic defendants have been dismissed from the case, and certain of Aetna’s claims against Jazz have been dismissed. On January 27, 2023, Aetna filed an amended complaint against Jazz. On March 22, 2023, we filed motions to dismiss and to strike portions of the amended complaint. On June 26, 2023, the Court granted our motions, and granted Aetna leave to further amend its complaint. On November 17, 2023, Aetna filed its second amended complaint. On February 2, 2024, we filed our answer to the second amended complaint and Hikma filed a motion to quash service. That motion remains pending.
The plaintiffs in certain of these lawsuits are seeking to represent a class of direct purchasers of Xyrem, and the plaintiffs in the remaining lawsuits are seeking to represent a class of indirect purchasers of Xyrem. Each of the lawsuits generally alleges violations of U.S. federal and state antitrust, consumer protection, and unfair competition laws in connection with the Company Defendants’ conduct related to Xyrem, including actions leading up to, and entering into, patent litigation settlement agreements with each of the other named defendants. Each of the lawsuits seeks monetary damages, exemplary damages, equitable relief against the alleged unlawful conduct, including disgorgement of profits and restitution, and injunctive relief. It is possible that additional lawsuits will be filed against the Company Defendants making similar or related allegations. If the plaintiffs were to be successful in their claims, they may be entitled to injunctive relief or we may be required to pay significant monetary damages, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
GW Acquisition Litigation
On March 15, 2021, GW filed a definitive proxy statement, or Proxy Statement, with the Securities and Exchange Commission in connection with the GW Acquisition.
Since the filing of the Proxy Statement, Jazz Pharmaceuticals plc has been named in two lawsuits filed in state and federal courts in New York on March 17, 2021 by purported GW shareholders in connection with the GW Acquisition. The first was filed in the United States District Court for the Southern District of New York by James Farrell (hereinafter referred to as the Farrell Lawsuit) and an additional suit was filed in New York state court by Brian Levy (hereinafter referred to as the Levy Lawsuit). In addition to Jazz Pharmaceuticals plc, Jazz Pharmaceuticals U.K. Holdings Ltd., GW Pharmaceuticals plc, and the GW board of directors are named as defendants in the Farrell Lawsuit. In the Levy Lawsuit, GW Pharmaceuticals plc, the GW board of directors, Centerview Partners LLC, and Goldman Sachs & Co. LLC are named as defendants. In addition to the Farrell Lawsuit and the Levy Lawsuit, ten additional suits have been filed in New York, California, and Pennsylvania federal courts by purported GW shareholders against GW Pharmaceuticals plc and its board of directors, but which do not name any Jazz Pharmaceuticals parties (hereinafter referred to as the GW Litigation, and collectively with the Farrell Lawsuit and the Levy Lawsuit, as the Transaction Litigation). In the Transaction Litigation, the plaintiffs allege that the Proxy Statement omitted material information and contained misrepresentations, and that the individual members of the GW board of directors breached their fiduciary duties, in violation of state and federal laws, including the Securities Exchange Act of 1934. The plaintiffs in the Transaction Litigation sought various remedies, including injunctive relief to prevent the consummation of the GW Acquisition unless certain allegedly material information was disclosed, or in the alternative, rescission or damages.
On April 14, 2021, GW filed a Form 8-K containing supplemental disclosures related to the GW Acquisition. Pursuant to a memorandum of understanding between the parties, the Levy Lawsuit was dismissed on April 14, 2021.
On May 27, 2021, a class action lawsuit was filed in the United States District Court for the Southern District of California by plaintiff Kurt Ziegler against GW and its former Directors asserting claims under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, referred to as the Ziegler Lawsuit. The allegations in the Ziegler Lawsuit are similar to those in the previously dismissed Transaction Litigation.
On June 3, 2022, we filed a motion to dismiss the Ziegler Lawsuit. While the motion to dismiss was pending, in December 2022, the parties participated in a mediation and reached a tentative settlement, which remains subject to court approval. On March 20, 2023, the plaintiffs in the Ziegler Lawsuit filed a motion for preliminary approval of the settlement. On July 28, 2023, the Court granted the motion for preliminary approval, which conditionally certified a class for settlement purposes. On December 11, 2023, the Court held a hearing regarding final approval of the proposed settlement and took the matter under advisement. On March 25, 2024, the Court issued an order finally approving the settlement and a judgment dismissing the case. On April 4, 2024, the Court issued amended versions of the order and judgment.
Patent Infringement Litigation
Avadel Litigation
On May 13, 2021, we filed a patent infringement suit against Avadel Pharmaceuticals plc, or Avadel, and several of its corporate affiliates in the United States District Court for the District of Delaware. The suit alleges that Avadel’s Lumryz will infringe five of our patents related to controlled release formulations of oxybate and the safe and effective distribution of oxybate. The suit seeks an injunction to prevent Avadel from launching a product that would infringe these patents, and an award of monetary damages if Avadel does launch an infringing product. Avadel filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product will not infringe our patents. Avadel filed a motion for partial judgment on the pleadings on its counterclaim that one of our patents should be delisted from the Orange Book. On November 18, 2022, the Court issued an order that we delist the patent from the Orange Book. On November 22, 2022, we filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. The Federal Circuit temporarily stayed the District Court’s delisting order. On February 24, 2023, the Federal Circuit affirmed the District Court’s delisting order, lifted the temporary stay, and gave Jazz 14 days to request that FDA delist the patent from the Orange Book. Jazz complied with the Federal Circuit’s order and requested delisting on February 28, 2023. On March 3, 2023, we and Avadel stipulated to the dismissal without prejudice of the claims and counterclaims related to infringement and validity of the delisted patent in both this suit and a later-filed suit described below related to the same patent.
On August 4, 2021, we filed an additional patent infringement suit against Avadel in the United States District Court for the District of Delaware. The second suit alleges that Avadel’s Lumryz will infringe a newly-issued patent related to sustained-release formulations of oxybate. The suit seeks an injunction to prevent Avadel from launching a product that would infringe this patent, and an award of monetary damages if Avadel does launch an infringing product. Avadel filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product will not infringe our patents.
On November 10, 2021, we filed an additional patent infringement suit against Avadel in the United States District Court for the District of Delaware. The third suit alleges that Avadel’s Lumryz will infringe a newly-issued patent related to sustained-release formulations of oxybate. The suit seeks an injunction to prevent Avadel from launching a product that would infringe this patent, and an award of monetary damages if Avadel does launch an infringing product. Avadel filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product will not infringe our patents.
On April 14, 2022, Avadel sued us in the United States District Court for the District of Delaware. Avadel’s new suit alleges that we misappropriated trade secrets related to Avadel’s once-nightly sodium oxybate development program and breached certain contracts between the parties. Avadel seeks monetary damages, an injunction preventing us from using Avadel’s confidential information, and an order directing the United States Patent and Trademark Office to modify the inventorship of one of our oxybate patents. On July 8, 2022, we filed a motion for judgment on the pleadings, which the Court denied on July 18, 2023. The denial is not a ruling that Jazz misappropriated Avadel‘s trade secrets or breached any contract. The case will go forward in discovery and the Court instructed the parties to submit a proposed scheduling order.
On June 7, 2022, we received notice from Avadel that it had filed a "paragraph IV certification" regarding one patent listed in the Orange Book for Xyrem. A paragraph IV certification is a certification by a generic applicant that alleges that patents covering the branded product are invalid, unenforceable, and/or will not be infringed by the manufacture, use or sale of the generic product. On July 15, 2022, we filed an additional lawsuit against Avadel asserting infringement of that patent. The suit alleges that the filing of Avadel’s application for approval of FT218 is an act of infringement, and that Avadel’s product would infringe the patent if launched. The suit seeks an injunction to prevent Avadel from launching a product that would infringe the patent, and an award of damages if Avadel does launch an infringing product. Avadel filed an answer to the complaint and counterclaims asserting that the patent is invalid, that its product would not infringe, and that by listing the patent in the Orange Book, we engaged in unlawful monopolization in violation of the Sherman Act. On December 9, 2022, we filed a motion to dismiss Avadel’s counterclaims. On June 29, 2023, we filed a motion seeking leave to supplement our motion to dismiss, as well as a motion to stay discovery pending resolution of the motion to dismiss. The Court has not yet ruled on these motions. As noted above, on March 3, 2023, we and Avadel stipulated to the dismissal without prejudice of the claims and counterclaims related to infringement and validity of the delisted patent.
On November 1, 2023, the Court held a claim construction hearing relating to disputed terms in the asserted patents. On December 15, 2023, the Court issued a written opinion and order resolving the parties’ remaining claim construction disputes. On November 20, 2023, we and Avadel each filed motions for summary judgment. On February 14, 2024, the Court issued a written opinion and order denying both parties’ motions for summary judgment.
Trial regarding our patent infringement claims against Avadel began on February 26, 2024 and concluded on March 4, 2024, with the jury finding both of our asserted patents valid, and awarding us damages for infringement for Avadel’s
past sales of Lumryz. On April 12, 2024, we filed a motion for a permanent injunction and ongoing royalties. The Court scheduled a hearing on that motion for June 4, 2024.
The Court scheduled a trial regarding Avadel’s counterclaims for unlawful monopolization for November 3, 2025 and a trial regarding Avadel’s trade secret misappropriation claims for December 15, 2025. On March 13, 2024 and March 19, 2024, we filed motions to stay Avadel’s unlawful monopolization counterclaim and trade secret claims, respectively, pending resolution of post-trial motions and potential appeals in the patent infringement suit. Both motions to stay remain pending.
On July 21, 2022, Avadel filed a lawsuit against FDA in the United States District Court for the District of Columbia, challenging FDA’s determination that Avadel was required to file a paragraph IV certification regarding one of our Orange Book listed patents. Avadel filed a motion for preliminary injunction, or in the alternative, summary judgment, seeking relief including a declaration that FDA’s decision requiring patent certification was unlawful, an order setting aside that decision, an injunction prohibiting FDA from requiring such certification as a precondition to approval of its application for FT218, and an order requiring FDA to take final action on Avadel’s application for approval of FT218 within 14 days of the Court’s ruling. On July 27, 2022, we filed a motion to intervene in that case, which the Court granted. The Court held a hearing on the parties’ respective motions for summary judgment on October 7, 2022. On November 3, 2022, the Court granted our and FDA’s motions for summary judgment and denied Avadel’s motion.
Xywav Patent Litigation
In June 2021, we received notice from Lupin Inc., or Lupin, that it has filed with FDA an ANDA, for a generic version of Xywav. The notice from Lupin included a paragraph IV certification with respect to ten of our patents listed in FDA’s Orange Book for Xywav on the date of our receipt of the notice. The asserted patents relate generally to the composition and method of use of Xywav, and methods of treatment when Xywav is administered concomitantly with certain other medications.
In July 2021, we filed a patent infringement suit against Lupin in the United States District Court for the District of New Jersey. The complaint alleges that by filing its ANDA, Lupin has infringed ten of our Orange Book listed patents. We are seeking a permanent injunction to prevent Lupin from introducing a generic version of Xywav that would infringe our patents. As a result of this lawsuit, we expect that a stay of approval of up to 30 months will be imposed by FDA on Lupin's ANDA. In June 2021, FDA recognized seven years of Orphan Drug Exclusivity for Xywav through July 21, 2027. On October 4, 2021, Lupin filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product, if approved, will not infringe our patents.
In April 2022, we received notice from Lupin that it had filed a paragraph IV certification regarding a newly-issued patent listed in the Orange Book for Xywav. On May 11, 2022, we filed an additional lawsuit against Lupin in the United States District Court for the District of New Jersey alleging that by filing its ANDA, Lupin infringed the newly-issued patent related to a method of treatment when Xywav is administered concomitantly with certain other medications. The suit seeks a permanent injunction to prevent Lupin from introducing a generic version of Xywav that would infringe our patent. On June 22, 2022, the Court consolidated the two lawsuits we filed against Lupin.
In November 2022, we received notice from Lupin that it had filed a paragraph IV certification regarding a newly-issued patent listed in the Orange Book for Xywav. On January 19, 2023, we filed an additional lawsuit against Lupin in the United States District Court for the District of New Jersey alleging that by filing its ANDA, Lupin infringed the newly-issued patent referenced in its November 2022 paragraph IV certification, as well as another patent that issued in January 2023. The suit seeks a permanent injunction to prevent Lupin from introducing a generic version of Xywav that would infringe the two patents in suit. On February 15, 2023, the Court consolidated the new lawsuit with the two suits we previously filed against Lupin. No trial date has been set in the consolidated case against Lupin.
In February 2023, we received notice from Teva Pharmaceuticals, Inc., or Teva, that it had filed with FDA an ANDA for a generic version of Xywav. The notice from Teva included a paragraph IV certification with respect to thirteen of our patents listed in FDA’s Orange Book for Xywav on the date of the receipt of the notice. The asserted patents relate generally to the composition and method of use of Xywav, and methods of treatment when Xywav is administered concomitantly with certain other medications.
In March 2023, we filed a patent infringement suit against Teva in the United States District Court for the District of New Jersey. The complaint alleges that by filing its ANDA, Teva has infringed thirteen of our Orange Book listed patents. We are seeking a permanent injunction to prevent Teva from introducing a generic version of Xywav that would infringe our patents. As a result of this lawsuit, we expect that a stay of approval of up to 30 months will be imposed by FDA on Teva’s ANDA. On May 23, 2023, Teva filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product, if approved, will not infringe our patents.
On December 15, 2023, based on a stipulation between all parties, the Court consolidated the Lupin lawsuits and the Teva lawsuit for all purposes. No trial date has been set in the consolidated case.
Alkem Patent Litigation
In April 2023, we received notice from Alkem Laboratories Ltd., or Alkem, that it has filed with FDA an ANDA, for a generic version of Xyrem. The notice from Alkem included a paragraph IV certification with respect to six of our patents listed in FDA’s Orange Book for Xyrem on the date of our receipt of the notice. The asserted patents relate generally to methods of treatment when Xyrem is administered concomitantly with certain other medications.
In June 2023, we filed a patent infringement suit against Alkem in the United States District Court for the District of New Jersey. The complaint alleges that by filing its ANDA, Alkem has infringed six of our Orange Book listed patents. We are seeking a permanent injunction to prevent Alkem from introducing a generic version of Xyrem that would infringe our patents. As a result of this lawsuit, we expect that a stay of approval of up to 30 months will be imposed by FDA on Alkem’s ANDA.
On October 4, 2023, we entered into a settlement agreement with Alkem that resolves our patent litigation. Under the settlement agreement, we granted Alkem a license to manufacture, market, and sell its generic version of Xyrem on or after December 31, 2025, or earlier under certain circumstances, including circumstances where Hikma launches its own generic sodium oxybate product.
Epidiolex Patent Litigation
In November and December 2022, we received notices from Teva Pharmaceuticals, Inc.; Padagis US LLC; Apotex Inc.; API Pharma Tech LLC and InvaGen Pharmaceuticals, Inc.; Lupin Limited; Taro Pharmaceutical Industries Ltd.; Zenara Pharma Private Limited and Biophore Pharma, Inc.; MSN Laboratories Pvt. Ltd. and MSN Pharmaceuticals, Inc.; Alkem Laboratories Ltd.; and Ascent Pharmaceuticals, Inc. (hereinafter referred to as the “Epidiolex ANDA Filers”), that they have each filed with FDA an ANDA for a generic version of Epidiolex (cannabidiol) oral solution. As of the date of this filing, we are not aware of other ANDA filers. The notices from the Epidiolex ANDA Filers each included a “paragraph IV certification” with respect to certain of our patents listed in FDA’s Orange Book for Epidiolex on the date of the receipt of the notice. The listed patents relate generally to the composition and method of use of Epidiolex, and methods of treatment using Epidiolex. A paragraph IV certification is a certification by a generic applicant that alleges that patents covering the branded product are invalid, unenforceable, and/or will not be infringed by the manufacture, use or sale of the generic product.
On January 3, 2023, we filed a patent infringement suit against the Epidiolex ANDA Filers in the United States District Court for the District of New Jersey. The complaint alleges that by filing their ANDAs, the Epidiolex ANDA Filers have infringed certain of our Orange Book listed patents, and seeks an order that the effective date of FDA approval of the ANDAs shall be a date no earlier than the expiration of the last to expire of the asserted patents. As a result of this lawsuit, we expect that a stay of approval of up to 30 months will be imposed by FDA on the Epidiolex ANDA Filers’ ANDAs.
From March 2023 through May 2023, we received the Epidiolex ANDA Filers’ answers to the complaint. The answers include defenses and counterclaims asserting that the Epidiolex ANDA Filers’ products, if launched, would not infringe our patents, that our patents are invalid and, in one instance, counterclaims related to allegations of inequitable conduct and improper listing of patents in the Orange Book. On May 25, 2023, we filed a motion to dismiss certain of the counterclaims. On January 11, 2024, the Court issued an order granting in part and denying in part our motion to dismiss.
The Court in the Epidiolex Patent Litigation scheduled trial for September 2025.
In June and July 2023, we received notice from certain of the Epidiolex ANDA Filers that they had each filed a paragraph IV certification regarding a newly-issued patent listed in the Orange Book for Epidiolex. On July 21, 2023, we filed an additional lawsuit against all of the Epidiolex ANDA Filers in the United States District Court for the District of New Jersey alleging that, by filing its ANDA, each Epidiolex ANDA Filer infringed the newly-issued patent related to a method of treatment using Epidiolex. The suit seeks an order that the effective date of FDA approval of each Epidiolex ANDA Filer’s application shall be a date no earlier than the expiration of the newly-issued patent.
On October 24, 2023, we entered into a settlement agreement with Padagis US LLC, or Padagis, that resolved our patent litigation with Padagis related to Epidiolex. Under the settlement agreement, we granted Padagis a license to manufacture, market, and sell its generic version of Epidiolex on a date that depends on the occurrence of certain other events. The specific terms of the Padagis settlement agreement are confidential.
On November 20, 2023, we entered into a settlement agreement with Teva Pharmaceuticals, Inc., or Teva, that resolved our patent litigation with Teva related to Epidiolex. Under the settlement agreement, we granted Teva a license to manufacture, market and sell its generic version of Epidiolex on a date which remains confidential. The specific terms of the Teva settlement agreement are confidential.
On December 4, 2023, we entered into a settlement agreement with Alkem Laboratories Ltd., or Alkem, that resolved our patent litigation with Alkem related to Epidiolex. Under the settlement agreement, we granted Alkem a license to manufacture, market, and sell its generic version of Epidiolex on a date which remains confidential. The specific terms of the Alkem settlement are confidential.
The settlements with Padagis, Teva and Alkem do not resolve the litigation against the other seven Epidiolex ANDA Filers, which is ongoing. We cannot predict the specific timing or outcome of events in these matters with respect to the remaining defendants or the impact of developments involving any specific parties or patents on other ongoing proceedings with any specific Epidiolex ANDA Filer.
In September and October 2023, we received notice from certain of the Epidiolex ANDA filers that they had each filed a paragraph IV certification regarding one or more newly-issued patents listed in the Orange Book for Epidiolex. On December 15, 2023, we filed an additional lawsuit against seven of the original Epidiolex ANDA Filers with whom we have not previously settled. We filed this lawsuit in the United States District Court for the District of New Jersey alleging that, by filing its ANDA, each Epidiolex ANDA Filer infringed the newly-issued patents related to methods of treatment using Epidiolex. The suit seeks an order that the effective date of FDA approval of each Epidiolex ANDA Filer’s application shall be a date no earlier than the expiration of the newly-issued patents.
Epidiolex also has orphan drug exclusivity, or ODE, for the treatment of seizures associated with LGS or DS in patients 2 years of age and older through September 28, 2025, and for the treatment of seizures associated with LGS or DS in patients between 1 and 2 years of age and for the treatment of seizures associated with TSC through July 31, 2027.
The Company vigorously enforces its intellectual property rights but cannot predict the outcome of these matters.
MSP Litigation
On April 3, 2023, MSP Recovery Claims, Series LLC, or MSP, filed a class action lawsuit on behalf itself and others similarly situated against Jazz Pharmaceuticals plc, Jazz Pharmaceuticals, Inc., and Jazz Pharmaceuticals Ireland Limited, (collectively, the Company Defendants), Express Scripts, Inc., Express Scripts Holding Company, Express Scripts Specialty Distribution Services, Inc., Curascript, Inc. d/b/a Curascript, S.D., Priority Healthcare Distribution, Inc. d/b/a Curascript SD and Curascript Specialty Distribution SD, Caring Voice Coalition, and Adira Foundation (collectively with the Company Defendants, referred to as the Defendants) in the United States District Court for the Northern District of California. The MSP complaint alleges that the Defendants conspired to increase the price and quantity dispensed of Xyrem and Prialt, in violation of the Racketeer Influenced and Corrupt Organizations Act and several state laws. The allegations relate generally to the conduct at issue in the investigation conducted by the United States Department of Justice from 2016-2019, involving the Company’s contributions to certain charitable foundations. MSP seeks monetary damages, restitution, disgorgement, and a declaration that the conduct alleged is unlawful.
On July 25, 2023, we and certain other defendants filed motions to dismiss MSP's complaint, which the Court granted on December 12, 2023. On January 5, 2024, the MSP filed an amended complaint. On February 20, 2024, we filed a motion to dismiss MSP’s amended complaint. The Court scheduled a hearing on the motion for June 13, 2024. No trial date has been set for this matter.
FDA Litigation
On June 22, 2023, we filed a complaint in the United States District Court for the District of Columbia seeking a declaration that FDA’s approval on May 1, 2023 of the New Drug Application, or NDA, for Avadel's Lumryz was unlawful. In the complaint, we allege that FDA acted outside its authority under the Orphan Drug Act, when, despite ODE protecting Jazz’s low-sodium oxybate product Xywav, FDA approved the Lumryz NDA and granted Lumryz ODE based on FDA’s finding that Lumryz makes a major contribution to patient care and is therefore clinically superior to Xywav and Xyrem. Jazz further alleges that in doing so, FDA failed to follow its own regulations, failed to follow established agency policy without providing a reasoned explanation for the departure, reversed prior decisions by its own staff and experts without a reasoned explanation, and disregarded the relevant scientific literature and data. The complaint, filed pursuant to the Administrative Procedure Act, seeks to have the Court vacate and set aside FDA’s approval of the Lumryz NDA and seeks a declaration that FDA’s approval of the Lumryz NDA was arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law; and that approval of the Lumryz NDA was in excess of FDA’s statutory authority and was made without observance of procedure required by law.
On September 15, 2023, we filed a motion for summary judgment. On October 20, 2023, Avadel and FDA filed cross motions for summary judgment. Oral argument on these motions is currently scheduled for May 10, 2024.
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition.
10. Shareholders’ Equity
Share Repurchase Program
In November 2016, our board of directors authorized a share repurchase program and, as of March 31, 2024, had authorized the repurchase of ordinary shares having an aggregate purchase price of up to $1.5 billion, exclusive of any brokerage commissions. Under this program, which has no expiration date, we may repurchase ordinary shares from time to time on the open market. The timing and amount of repurchases will depend on a variety of factors, including the price of our ordinary shares, alternative investment opportunities, restrictions under the May 2021 credit agreement, corporate and regulatory requirements and market conditions. The share repurchase program may be modified, suspended or discontinued at any time without prior notice. During the three months ended March 31, 2024, no shares were repurchased. As of March 31, 2024, the remaining amount authorized under the share repurchase program was $161.4 million, exclusive of any brokerage commissions.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss as of March 31, 2024 and December 31, 2023 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Net Unrealized Gain From Hedging Activities | | Foreign Currency Translation Adjustments | | Total Accumulated Other Comprehensive Loss |
Balance at December 31, 2023 | $ | 235 | | | $ | (842,382) | | | $ | (842,147) | |
| | | | | |
| | | | | |
Other comprehensive income (loss) before reclassifications | 5,177 | | | (44,068) | | | (38,891) | |
Amounts reclassified from accumulated other comprehensive income (loss) | (1,356) | | | — | | | (1,356) | |
Other comprehensive income (loss), net | 3,821 | | | (44,068) | | | (40,247) | |
Balance at March 31, 2024 | $ | 4,056 | | | $ | (886,450) | | | $ | (882,394) | |
During the three months ended March 31, 2024, other comprehensive income (loss) primarily reflects foreign currency translation adjustments, primarily due to the weakening of sterling and the euro against the U.S. dollar.
11. Net Income (Loss) per Ordinary Share
Basic net income (loss) per ordinary share is based on the weighted-average number of ordinary shares outstanding. Diluted net income (loss) per ordinary share is based on the weighted-average number of ordinary shares outstanding and potentially dilutive ordinary shares outstanding.
Basic and diluted net income (loss) per ordinary share were computed as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income (loss) | $ | (14,618) | | | $ | 69,420 | | | | | |
Effect of interest on assumed conversions of Exchangeable Senior Notes, net of tax | — | | | 6,963 | | | | | |
Net income (loss) for dilutive net income (loss) per ordinary share | $ | (14,618) | | | $ | 76,383 | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average ordinary shares used in per share calculations - basic | 62,537 | | | 63,494 | | | | | |
Dilutive effect of Exchangeable Senior Notes | — | | | 9,044 | | | | | |
Dilutive effect of employee equity incentive and purchase plans | — | | | 1,233 | | | | | |
Weighted-average ordinary shares used in per share calculations - diluted | 62,537 | | | 73,771 | | | | | |
| | | | | | | |
Net income (loss) per ordinary share: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic | $ | (0.23) | | | $ | 1.09 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted | $ | (0.23) | | | $ | 1.04 | | | | | |
Potentially dilutive ordinary shares from our employee equity incentive and purchase plans are determined by applying the treasury stock method to the assumed vesting of outstanding restricted stock units, or RSUs, and performance-based restricted stock units, or PRSUs, the assumed exercise of share options and the assumed issuance of ordinary shares under our employee stock purchase plan, or ESPP. Potentially dilutive ordinary shares from the Exchangeable Senior Notes are determined by applying the if-converted method to the assumed issuance of ordinary shares upon exchange of the Exchangeable Senior Notes. In August 2023, we made an irrevocable election to fix the settlement method for exchanges of the 2024 Notes to a combination of cash and ordinary shares of the Company with a specified cash amount per $1,000 principal amount of the 2024 Notes of $1,000. As a result, the assumed issuance of ordinary shares upon exchange of the 2024 Notes has only been included in the calculation of diluted net income per ordinary share in the three months ended March 31, 2023. The potential issue of ordinary shares upon exchange of the 2026 Notes was anti-dilutive and had no impact on diluted net loss per ordinary share for the three months ended March 31, 2024.
The following table represents the weighted-average ordinary shares that were excluded from the calculation of diluted net income (loss) per ordinary share for the periods presented because including them would have an anti-dilutive effect (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Exchangeable Senior Notes | 6,418 | | | — | | | | | |
Employee equity incentive and purchase plans | 3,500 | | | 1,072 | | | | | |
12. Revenues
The following table presents a summary of total revenues (in thousands):
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
Xywav | $ | 315,300 | | | $ | 277,761 | | | | | | | | | |
Xyrem | 64,232 | | | 178,130 | | | | | | | | | |
| | | | | | | | | | | |
Epidiolex/Epidyolex | 198,716 | | | 188,909 | | | | | | | | | |
Sativex | 2,735 | | | 7,098 | | | | | | | | | |
| | | | | | | | | | | |
Total Neuroscience | 580,983 | | | 651,898 | | | | | | | | | |
Rylaze/Enrylaze | 102,750 | | | 85,927 | | | | | | | | | |
Zepzelca | 75,100 | | | 67,181 | | | | | | | | | |
Defitelio/defibrotide | 47,676 | | | 39,079 | | | | | | | | | |
Vyxeos | 32,023 | | | 36,700 | | | | | | | | | |
| | | | | | | | | | | |
Total Oncology | 257,549 | | | 228,887 | | | | | | | | | |
Other | 3,570 | | | 3,434 | | | | | | | | | |
Product sales, net | 842,102 | | | 884,219 | | | | | | | | | |
High-sodium oxybate AG royalty revenue | 49,947 | | | 2,096 | | | | | | | | | |
Other royalty and contract revenues | 9,934 | | | 6,497 | | | | | | | | | |
Total revenues | $ | 901,983 | | | $ | 892,812 | | | | | | | | | |
The following table presents a summary of total revenues attributed to geographic sources (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
United States | $ | 808,214 | | | $ | 810,116 | | | | | |
Europe | 71,355 | | | 65,900 | | | | | |
All other | 22,414 | | | 16,796 | | | | | |
Total revenues | $ | 901,983 | | | $ | 892,812 | | | | | |
The following table presents a summary of the percentage of total revenues from customers that represented more than 10% of our total revenues:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
ESSDS | 42 | % | | 51 | % | | | | |
McKesson | 12 | % | | 12 | % | | | | |
Cardinal Health, Inc. | 8 | % | | 10 | % | | | | |
| | | | | | | |
Financing and payment
Our payment terms vary by the type and location of our customer but payment is generally required in a term ranging from 30 to 65 days.
13. Share-Based Compensation
Share-based compensation expense related to RSUs, PRSUs, grants under our ESPP and share options was as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Selling, general and administrative | $ | 40,213 | | | $ | 37,402 | | | | | |
Research and development | 18,831 | | | 15,492 | | | | | |
Cost of product sales | 2,397 | | | 3,458 | | | | | |
Total share-based compensation expense, pre-tax | 61,441 | | | 56,352 | | | | | |
Income tax benefit from share-based compensation expense | (3,399) | | | |