Jazz Pharmaceuticals plc — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Jazz is a global biopharmaceutical company focused on neuroscience and oncology; it reports as one operating segment. Results include GW Pharmaceuticals only from its May 5, 2021 acquisition close, so reported year-over-year comparisons are not fully like-for-like.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $751.8 million | $562.4 million | $1,359.4 million | $1,097.2 million |
| Operating income (loss) | $(69.6) million | $198.1 million | $92.5 million | $8.5 million |
| Net income (loss) | $(363.3) million | $114.8 million | $(241.5) million | $(43.0) million |
| Diluted EPS | $(6.11) | $2.06 | $(4.17) | $(0.77) |
| Operating cash flow | Not separately presented | Not separately presented | $326.7 million | $455.5 million |
- Q2 revenue rose 34%; six-month revenue rose 24%. Product sales were $748.3 million in Q2 and $1,351.9 million for the six months. Growth reflects new and acquired products as well as existing portfolio performance.
- Q2 revenue included $111.4 million from GW after acquisition; the acquired business recorded a $134.4 million net loss over that post-close period. Epidiolex/Epidyolex contributed $109.5 million in reported Q2 sales.
- Oxybate sales totaled $458.3 million in Q2, up 3%: Xywav contributed $124.2 million, while Xyrem fell 25% to $334.2 million as patients shifted to Xywav. Oncology sales rose 61% to $163.8 million, including Zepzelca sales of $55.9 million.
- Q2 gross margin was 84.1% of net product sales versus 95.0% a year earlier; the six-month margin was 88.2% versus 94.8%. The decline primarily reflects the acquisition-accounting inventory fair-value step-up.
- Q2 net loss included a $251.4 million tax expense from remeasurement of the U.K. deferred tax liability after a statutory tax-rate change. Management said the 2021 effective tax rates are not meaningful because of this charge. Acquisition and integration costs also increased SG&A; Q2 SG&A was $429.0 million versus $191.4 million.
- Cash and cash equivalents were $891.4 million at June 30, down from $1,057.8 million at year-end; no investments remained, compared with $1,075.0 million at year-end. Current assets were $2,954.0 million and current liabilities $880.6 million.
- Debt carrying value was $6,737.9 million; principal debt was approximately $7.1 billion. The $500 million revolving facility was undrawn. Six-month investing cash outflow was $5,175.2 million, chiefly reflecting $6,234.8 million paid net of cash acquired for GW; financing provided $4,682.3 million.
Material changes, outlook and risks
- Jazz acquired GW for total consideration of approximately $7.2 billion, funded with cash, shares and new borrowings. It issued $1.5 billion of 4.375% secured notes due 2029 and borrowed under new seven-year dollar and euro term loans. The acquisition added substantial intangible assets and goodwill, and increased interest expense and amortization.
- Management expects 2021 product sales, operating expenses and interest expense to be significantly higher than in 2020, reflecting GW, higher debt and organizational growth. It expects positive operating cash flows and to delever over time; the filing provides no specific numeric earnings or revenue guidance.
- Management reported strong Xywav adoption: 5,100 active patients at quarter-end, up from 3,900 at the end of Q1, and commercial payor coverage above 80% of covered lives. FDA recognized seven years of Xywav orphan drug exclusivity through July 2027. The Xywav IH application had a PDUFA date of August 12, 2021, with a potential Q4 launch planned.
- Rylaze was approved June 30 and launched in July 2021. Management reported adequate global supply expected for the remainder of 2021, while noting reliance on single-source suppliers for many products and specific manufacturing risks.
- Key risks include oxybate competition and generic entry, payor pricing and reimbursement pressure, integrating GW and realizing expected benefits, substantial debt and variable-rate exposure, clinical and regulatory uncertainty, and COVID-19 effects on diagnosis, demand, clinical activity and healthcare procedures. COVID-19 had limited but continuing negative effects; management noted reduced HSCT activity affecting Defitelio demand.
- Legal matters include Xyrem purchaser antitrust class actions, with trial scheduled for February 2023; patent disputes involving Avadel and Canopy; and Lupin’s Xywav generic application. The company filed suit against Lupin in July and expected a possible FDA approval stay of up to 30 months. These outcomes are uncertain.
- The July 29 shareholder meeting failed to renew the general authority to issue shares for cash without first offering them pro rata to existing shareholders; that pre-emption opt-out authority expired August 4. This could make cash equity fundraising more costly or constrained. Disclosure controls were reported effective as of June 30; integration of GW financial controls was ongoing.
Investor verification priorities
- Separate underlying product growth from the short post-close GW contribution and acquisition-related accounting effects, especially the inventory step-up, amortization and tax charge.
- Track Xywav conversion and growth against declining Xyrem sales, reimbursement terms, and the timing and consequences of generic or competing oxybate launches.
- Assess debt service, variable-rate exposure, cash generation and the planned deleveraging path after the GW financing; verify repayment of the 2021 notes due in August.
- Monitor GW integration costs and benefits, Epidiolex performance, Rylaze supply and launch execution, and the milestones and regulatory outcomes for key pipeline programs.
- Follow the Xyrem antitrust and patent litigation, including the Xywav generic challenge, and evaluate the implications of the expired pre-emption opt-out for future financing.