Jazz Pharmaceuticals plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Jazz is a global biopharmaceutical company focused on neuroscience and oncology. Q1 2022 results include GW Pharmaceuticals from its May 2021 acquisition, so several year-over-year comparisons are not like-for-like.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / note |
|---|---|---|---|
| Total revenue | $813.7 million | $607.6 million | Up 34% |
| Operating income | $87.5 million | $162.1 million | Operating margin 10.8%, down from 26.7% |
| Net income | $1.6 million | $121.8 million | Diluted EPS $0.03 vs. $2.09 |
| Operating cash flow | $209.0 million | $285.0 million | Down $76.0 million |
| Cash and cash equivalents | $490.8 million | $591.4 million at Dec. 31, 2021 | Quarter-end balance |
| Debt | $6.15 billion principal; $6.02 billion carrying value | $6.05 billion carrying value at Dec. 31, 2021 | $258.8 million of debt repayments during Q1 |
Product sales were $809.8 million. Gross margin on product sales was 85.8%, compared with 93.3%; the decline primarily reflected a $63.9 million acquisition-accounting inventory fair-value step-up expense. Operating expenses rose to $726.2 million from $445.5 million, including higher amortization, R&D, and costs associated with GW. Net results also reflected higher interest expense ($70.7 million versus $27.4 million), a $10.5 million foreign-exchange loss, and $4.1 million of equity in losses of investees.
Cash and cash equivalents plus the undrawn $500 million revolving facility provided reported liquidity of approximately $990.8 million. Current assets were $2.50 billion and current liabilities $737.4 million. Management said existing cash, expected operating cash flows, and revolver availability should fund operations and existing obligations for the foreseeable future, and expects to deleverage over time. Net cash declined $100.6 million; financing outflows included the Euro Term Loan repayment, while Q1 2021 investing cash flow had benefited from investment maturities.
Revenue mix and material changes
- Oxybate: Combined Xyrem and Xywav sales rose 6% to $433.6 million. Xywav sales increased 147% to $186.1 million, while Xyrem fell 26% to $247.5 million, mainly as patients transitioned to Xywav and gross-to-net deductions increased. Average active oxybate patients were approximately 16,650, up about 6%.
- Acquired neuroscience products: Epidiolex/Epidyolex contributed $157.9 million; on a pro forma basis sales increased 6%. Sativex contributed $4.7 million. GW products were not included in Q1 2021 reported revenue.
- Oncology: Revenue increased 10% to $196.8 million. Rylaze contributed $54.2 million following its 2021 U.S. launch; Zepzelca rose 9% to $59.3 million. Vyxeos and Defitelio were broadly flat. Erwinaze sales ended after the company distributed its final inventory in June 2021.
- Geography and customer concentration: U.S. revenue was $740.6 million. ESSDS accounted for 55% of revenue and McKesson 12%; three customers represented 74% of gross receivables at quarter-end.
Outlook, developments, and risks
- No numerical full-year revenue or earnings guidance is provided. Management expects 2022 product sales to increase versus 2021, led by Xywav, a full year of Epidiolex and Rylaze, and expected Zepzelca growth; Xyrem declines and the Sunosi divestiture are expected offsets.
- Management expects 2022 cost of product sales to increase, including a full year of GW-related inventory step-up expense; R&D to rise with the acquired business and pipeline activity; and net interest expense to be broadly in line with 2021. SG&A is expected to decline versus 2021, primarily reflecting lower transaction/integration and Sunosi costs and anticipated GW synergies, partly offset by a full year of acquired-business expenses.
- In March, Jazz agreed to sell Sunosi rights to Axsome for $53 million upfront plus U.S. royalties. The U.S. closing was expected in Q2 2022, with the ex-U.S. closing to follow; closing conditions applied. Jazz expected to record an approximately $40 million disposal loss at closing. The sale was not classified as a discontinued operation.
- Q1 included adoption of ASU 2020-06 for exchangeable notes. The change increased debt carrying value and reduced Q1 interest expense by approximately $12 million, increasing net income by about $12 million and EPS by approximately $0.19; it did not affect cash flows or debt-covenant compliance.
- Key risks include oxybate competition, Xywav adoption and reimbursement, pricing and payer pressure, COVID-related effects on patient access and clinical activity, GW integration and synergy execution, product supply reliance on single-source suppliers, and substantial debt. Management reported adequate expected product supply for 2022, while noting pandemic-related uncertainty.
- Material legal matters include Xyrem purchaser antitrust litigation seeking monetary and injunctive relief (class-certification hearing scheduled for November 2022; a trial had been scheduled for February 2023), patent disputes involving oxybate products, and Otsuka’s claim for royalties on Epidiolex sales. Canopy appealed a judgment in favor of GW in its patent dispute. Outcomes and potential financial exposure are uncertain.
- Pipeline and regulatory items include Rylaze supplemental applications for a Monday/Wednesday/Friday dosing schedule and intravenous administration, plus planned European filings; Jazz also described ongoing development programs for Epidiolex, nabiximols, and Zepzelca. Subsequent to quarter-end, it licensed two preclinical candidates, with upfront payments of $15 million and $50 million and potential milestone payments of up to $1.26 billion and $1.09 billion, respectively.
Important facts for investors to verify
- Whether Xywav growth and patient transitions can offset continued Xyrem declines while maintaining combined oxybate sales and access.
- The realized economics and timing of the Sunosi divestiture, including closing, royalties, and the expected disposal loss.
- How quickly acquisition-related inventory step-up costs and intangible amortization normalize, and whether GW integration synergies materialize.
- Debt repayment pace, interest burden, and liquidity under the company’s product-sales and cash-flow assumptions.
- Developments in Xyrem antitrust and oxybate patent litigation, Otsuka’s royalty claim, and other legal contingencies.
- Commercial performance and regulatory progress for acquired products, Rylaze, and the broader development pipeline.