Jazz Pharmaceuticals Plc annual report, FY2022

Jazz Pharmaceuticals plc — FY2022 Form 10-K

Business context and reporting period: Global biopharmaceutical company focused on neuroscience and oncology, with marketed medicines and development programs. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone quarterly report. Comparisons are primarily with FY2021. The filing was signed March 1, 2023.

Financial performance and position

Metric	FY2022	FY2021
Total revenue	$3.659 billion	$3.094 billion
Net product sales	$3.641 billion	$3.079 billion
Operating income (loss)	$(65.5) million	$170.3 million
Net income (loss)	$(224.1) million; $(3.58) per diluted share	$(329.7) million; $(5.52) per diluted share
Operating cash flow	$1.272 billion	$778.5 million
Gross margin on product sales	85.2%	85.7%
Cash and cash equivalents at year-end	$881.5 million	$591.4 million
Total debt principal at year-end	Approximately $5.8 billion	Approximately $6.4 billion

Cash used in investing activities was $446.2 million and cash used in financing activities was $529.5 million; cash increased by $290.0 million during the year. Current assets were $2.606 billion versus current liabilities of $933.2 million. The company reported $500 million available under its undrawn revolving credit facility. The Dollar Term Loan balance was $2.8 billion, with a stated interest rate of 7.88% at year-end; management expected interest expense to rise in 2023 as rates increased.

Material changes versus FY2021

Revenue increased 18%. Neuroscience revenue rose 18% to $2.761 billion; oncology revenue rose 19% to $873.8 million.
Total oxybate sales grew 10% to $1.979 billion: Xywav increased 79% to $958.4 million, while Xyrem fell 19% to $1.020 billion as patients transitioned to Xywav. Average active oxybate patients were about 18,000 in Q4 2022, up approximately 11% year over year.
Epidiolex/Epidyolex sales increased 59% to $736.4 million, including a full year of ownership. On a pro forma basis, sales increased 12%, mainly from volume growth.
Rylaze sales rose to $281.7 million from $85.6 million, reflecting its 2021 launch and increased volume. Zepzelca sales rose 9% to $269.9 million. Vyxeos sales declined 5% to $128.0 million and Defitelio/defibrotide declined 2% to $194.3 million.
Operating loss reflected elevated amortization, acquired in-process R&D expense and an impairment charge. FY2022 included $444.1 million of acquired in-process R&D expense and a $133.6 million impairment charge after discontinuing the nabiximols program. Sunosi’s disposition also generated a $40.8 million loss.
Operating cash flow increased by $493.5 million, mainly due to higher product cash receipts and lower GW acquisition integration costs. Debt principal declined through repayments, including a $300 million voluntary Dollar Term Loan repayment and repayment of the remaining Euro Term Loan.

Outlook, commentary and key risks

Management expected 2023 product sales to increase, driven by Xywav growth, Epidiolex and oncology products—particularly Rylaze—partly offset by lower Xyrem sales and authorized-generic competition. The filing excerpt provides no numerical 2023 revenue guidance.
Management expected 2023 SG&A to decrease, cost of product sales to decrease as acquisition-related inventory step-up expense falls, and R&D and net interest expense to increase.
An authorized generic version of sodium oxybate launched in January 2023; additional authorized generics and generic products are expected under settlement agreements. Generic competition could pressure oxybate volumes and net pricing. Ten companies had filed ANDAs for generic Epidiolex; Jazz filed patent suits in January 2023 and expected a potential FDA approval stay of up to 30 months.
Zepzelca remains under accelerated approval pending confirmatory clinical evidence. Failure to confirm clinical benefit could threaten continued U.S. approval. Rylaze’s approved intramuscular schedule remained in effect, but FDA requested additional clinical data for the proposed intravenous administration in a February 2023 complete response letter.
Important legal and regulatory exposures include purchaser antitrust litigation over Xyrem patent settlements and a July 2022 U.S. Attorney’s Office subpoena concerning Xyrem, a patent, labeling, agency communications and pricing. The filing does not provide a clear estimate of potential losses for these matters.
Supply risk is elevated because the company relies on single-source suppliers for many products. Vyxeos is made by a sole-source supplier at one site, and the filing describes manufacturing complexity and past batch failures. Oxybate distribution is subject to a REMS and controlled-substance requirements.
Other risks include pricing and reimbursement pressure, Medicare and Medicaid policy changes, clinical trial and regulatory uncertainty, foreign exchange exposure, and substantial indebtedness. In February 2023, Jazz settled Epidiolex royalty litigation with Otsuka; the agreement provides for royalties on Epidiolex sales from launch through 2032 and potentially on certain future cannabidiol products.

Most important facts for investors to verify

Whether Xywav growth and patient transitions can offset Xyrem erosion and authorized-generic or generic competition, including the resulting effect on net pricing and rebates.
Whether Epidiolex/Epidyolex growth persists and how the Epidiolex ANDA patent litigation affects the timing and extent of generic entry.
Progress and results of Zepzelca confirmatory trials, the status of accelerated approval, and Rylaze’s IV regulatory pathway.
Actual 2023 sales, margin, R&D and interest-expense trends against management’s qualitative outlook.
Debt repayment capacity and sensitivity to variable interest rates; year-end debt was about $5.8 billion against $881.5 million of cash.
Developments in Xyrem antitrust litigation and the government investigation, as well as any material liability or settlement disclosures.
Reliability of key suppliers and execution of manufacturing plans, especially for Vyxeos and products with single-source supply.