Jazz Pharmaceuticals plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Jazz is a global biopharmaceutical company focused on neuroscience and oncology. Figures below are in U.S. dollars; financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $607.6 million | $534.7 million | +14% |
| Operating income (loss) | $162.1 million | $(189.7) million | Turned profitable |
| Net income (loss) | $121.8 million | $(157.8) million | Turned profitable |
| Diluted earnings (loss) per share | $2.09 | $(2.82) | Turned positive |
| Cash from operations | $285.0 million | $273.0 million | +4% |
Gross margin on product sales was 93.3%, versus 94.6% a year earlier. Operating margin was approximately 26.7% and net margin approximately 20.0%, calculated from reported GAAP results. Interest expense, net, rose 48% to $27.4 million.
At March 31, cash and cash equivalents were $2.10 billion and investments were $335.0 million, totaling $2.43 billion. Debt carrying value was $2.10 billion; principal debt was approximately $2.37 billion. The company reported $1.6 billion of availability under its existing revolving credit facility. Current assets were $3.17 billion and current liabilities $752.1 million.
Cash increased by $1.04 billion during the quarter, primarily reflecting $760.0 million of investment maturities and other investing cash flows, rather than operating cash generation alone. Operating cash flow less capital expenditures was approximately $282.8 million.
Revenue mix and changes versus prior year
- Oxybate revenue was $411.0 million, up 1% overall: Xyrem fell 18% to $335.6 million while newly launched Xywav contributed $75.4 million. Xyrem volume declines reflected patient transitions to Xywav; total oxybate bottle volume declined 3%.
- Oncology revenue rose 51% to $178.2 million, including $54.3 million from Zepzelca, launched in July 2020. Vyxeos was broadly flat at $33.2 million; Defitelio/defibrotide increased 5% to $49.6 million; Erwinaze/Erwinase increased 9% to $41.1 million.
- Sunosi sales increased to $11.6 million from $1.9 million as U.S. and European launches progressed.
- SG&A increased 25% to $260.5 million, reflecting launch and marketing spending, business expansion and proposed GW acquisition costs. Cost of product sales rose 40% to $40.2 million, mainly due to product mix. R&D declined 11% to $76.6 million, largely due to lower clinical-study and outside-service costs.
- Q1 2020 included a $202.3 million acquired in-process R&D expense, primarily the $200.0 million Zepzelca upfront payment, and a $136.1 million impairment charge related to discontinuing enrollment in a defibrotide prevention trial. These items materially affected the prior-year comparison.
Outlook, transactions and notable items
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management expected positive operating cash flow in 2021 and said product sales, operating expenses and interest expense would be significantly higher in 2021 than in 2020 following the expected GW acquisition and higher associated debt.
- The pending GW Pharmaceuticals acquisition was valued at approximately $7.2 billion, with closing expected in the first half of May 2021, subject to customary conditions. The proposed consideration includes cash and Jazz shares. Management cited portfolio diversification and growth in neuroscience as strategic aims.
- After quarter-end, Jazz issued $1.5 billion of 4.375% senior secured notes due 2029. It expected new senior secured facilities, including approximately $3.85 billion of term-loan borrowing and a $500 million revolver, alongside cash on hand and note proceeds, to fund the acquisition. The notes include mandatory redemption provisions in specified circumstances, including failure to complete the acquisition within the contractual timeframe.
- Management reported strong Xywav adoption: 3,900 active Xywav patients at quarter-end, up from 1,900 at year-end 2020, and approximately 80% commercial payer coverage. The company also reported positive Phase 3 results for Xywav in idiopathic hypersomnia; FDA Priority Review had an August 12, 2021 action date, with a potential launch planned for Q4 2021. JZP458’s U.S. launch was targeted for mid-2021, subject to FDA approval.
- Erwinaze supply remains a concern: the supply agreement expired December 31, 2020, and the company expected to distribute available inventory through the first half of 2021. JZP458 was being prepared as a potential replacement, subject to approval.
- COVID-19 continued to affect healthcare access, patient starts and some clinical activities. Management described limited impacts and improving conditions in its business update, while warning that renewed disruption could affect demand, launches, trials and supply. The filing also highlights dependence on Xyrem/Xywav, generic and branded competition, payer pricing and coverage pressure, and reliance on single-source suppliers.
- Multiple class actions allege antitrust and consumer-protection violations concerning Xyrem patent settlements; the consolidated matter was scheduled for trial in February 2023. Jazz also faced litigation related to the proposed GW transaction and stated it considered the claims meritless. A French tax audit settlement resulted in $18.6 million of taxes, interest and penalties paid during the quarter.
Most important facts for investors to verify
- Whether the GW acquisition closed on the expected timeline and the final financing, share issuance, debt balance and interest burden.
- Whether Xywav growth offsets continued Xyrem declines, and how payer coverage, rebates and generic competition affect total oxybate revenue and margins.
- Whether Zepzelca, Sunosi and other newer products sustain growth, and whether Erwinaze sales can be replaced by JZP458 if approved.
- Progress and potential exposure in the Xyrem antitrust litigation and GW transaction litigation, as well as remaining tax matters.
- Operating cash generation and liquidity after acquisition financing, given higher leverage and the company’s stated investment and debt-service needs.