Jazz Pharmaceuticals plc — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; unaudited Q4 results are also summarized below. Amounts are in U.S. dollars.
Business context
Jazz is a global biopharmaceutical company focused on neuroscience and oncology. Its marketed portfolio included Xyrem, newly launched Xywav, Sunosi, Defitelio, Erwinaze, Vyxeos and Zepzelca. Xyrem remained the principal product, contributing $1.742 billion, or 74% of net product sales. Xywav launched in November and Zepzelca in July 2020.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $2.364 billion | $2.162 billion | +9% |
| Net product sales | $2.347 billion | $2.136 billion | +10% |
| Income from operations | $378.1 million | $532.4 million | -29% |
| Net income | $238.6 million | $523.4 million | -54% |
| Diluted EPS | $4.22 | $9.09 | -54% |
| Cash from operations | $899.6 million | $776.4 million | +16% |
- Gross margin, excluding acquired-technology amortization, was 93.7%, versus 94.0% in 2019. Operating margin was approximately 16.0% and net margin approximately 10.1%.
- Cash, cash equivalents and investments totaled $2.133 billion at year-end; working capital was $2.186 billion. The $1.6 billion revolving credit facility was undrawn.
- Debt principal was approximately $2.4 billion; the balance-sheet carrying amount was $2.095 billion. Debt included a $584.3 million term loan and exchangeable notes, including $1.0 billion of 2.00% notes due 2026. The term loan and revolver mature in 2023.
- Q4 revenue was $665.5 million versus $581.7 million in Q4 2019. Q4 net income was $133.4 million versus $74.0 million.
Material changes versus 2019
- Neuroscience sales rose 8% to $1.785 billion; oncology sales increased 18% to $554.5 million. New contributions came from Xywav ($15.3 million), Sunosi ($28.3 million) and Zepzelca ($90.4 million).
- Xyrem sales increased 6% to $1.742 billion, principally from higher average selling price and modest volume growth. Total oxybate volume rose 4%; COVID-19 reduced new narcolepsy diagnoses and patient starts.
- Defitelio sales rose 13% to $195.8 million. Erwinaze sales fell 17% to $147.1 million due to constrained supply. Vyxeos sales were essentially flat at $121.1 million.
- Net income fell despite revenue growth, reflecting higher operating expenses and unusual charges: a $136.1 million impairment after stopping enrollment in the defibrotide VOD-prevention trial, and $251.3 million of acquired in-process R&D expense, including the $200 million Zepzelca license payment. The prior-year comparison included a $112.3 million tax benefit from an intra-entity IP transfer.
- Operating cash flow increased to $899.6 million. Investing cash outflow rose to $1.008 billion, including investment purchases and product-rights payments. Financing cash flow was positive $528.1 million, including the 2026 note issuance and related repurchases of 2021 notes.
Outlook, risks and unusual items
- Management expected 2021 product sales, operating expenses and interest expense to be higher than in 2020, reflecting organizational growth and, if completed, GW Pharmaceuticals. R&D expenses were also expected to increase. The filing does not provide a clear numerical 2021 earnings or revenue forecast.
- On February 3, 2021, Jazz agreed to acquire GW for approximately $7.2 billion, with consideration per GW ADS of $200 cash and $20 in Jazz shares. Closing was expected in Q2 2021, subject to approvals and other conditions. Committed financing included up to $3.15 billion in term loans, $2.2 billion in bridge financing and a $500 million revolver. Management warned that combined-company debt would be substantially higher.
- COVID-19 adversely affected demand, new patient starts, in-person commercial activity and some clinical and reimbursement timelines. Management said supply was expected to be adequate for key products in 2021, while noting renewed pandemic-related disruption remained possible.
- Xyrem and Xywav face REMS and controlled-substance requirements, reimbursement pressure, competition and expected generic or authorized-generic entry under settlements beginning as early as 2023 in certain circumstances. Xyrem’s concentration in sales heightens the impact of disruption.
- Erwinaze’s supply and marketing agreement with sole supplier PBL expired December 31, 2020. Jazz could sell certain inventory for 12 months; distribution depended on receipt, release and FDA approval of available batches.
- Zepzelca received accelerated FDA approval based on Phase 2 data and requires confirmatory evidence. The ATLANTIS Phase 3 combination study did not meet its prespecified primary-endpoint significance criteria; the filing says further trials are needed to confirm clinical benefit, with potential implications for approval.
- Multiple Xyrem purchaser class actions allege antitrust and consumer-protection violations relating to generic settlement agreements. The cases were consolidated; a February 2023 trial was scheduled. Outcomes and potential damages were uncertain.
- KPMG issued an unqualified opinion on the financial statements and internal controls; management reported effective controls and no material weakness.
Most important facts for investors to verify
- Progress and final financing terms for the GW acquisition, including resulting leverage, interest burden and integration plans.
- Xyrem/Xywav sales, payer coverage and patient conversion, and any acceleration or change to generic-entry timelines.
- Erwinaze inventory availability and replacement supply, and whether JZP-458 receives approval and launches as anticipated.
- Zepzelca confirmatory-trial plans and results following the ATLANTIS primary-endpoint miss.
- Ongoing COVID-19 effects on diagnoses, launches, clinical activity and demand for Defitelio and Vyxeos.
- Developments in the Xyrem litigation and any material changes in rebate deductions, product returns or tax exposures.