Jazz Pharmaceuticals plc — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. All financial amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
Business context and reporting period
Jazz is a global biopharmaceutical company focused on neuroscience and oncology. Its key franchises include oxybate products Xywav and Xyrem, Epidiolex/Epidyolex, and oncology medicines including Zepzelca, Rylaze, Vyxeos and Defitelio. The results include GW Pharmaceuticals from its May 5, 2021 acquisition, making some year-over-year comparisons—particularly Epidiolex/Epidyolex—non-comparable.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $940.7 million | $838.1 million | $2,687.3 million | $2,197.5 million |
| Operating income | $24.8 million | $28.4 million | $197.9 million | $120.9 million |
| Net income (loss) | $(19.6) million | $(52.8) million | $16.7 million | $(294.3) million |
| Diluted earnings (loss) per share | $(0.31) | $(0.86) | $0.26 | $(4.98) |
| Cash from operations | Not separately presented for the quarter | $930.0 million | $600.8 million |
- Q3 product gross margin was 85.7%, versus 82.6% a year earlier; nine-month gross margin was 86.0%, broadly in line with 2021.
- Q3 operating income included a $133.6 million impairment charge related to discontinuing the nabiximols development program. Nine-month results also included $69.1 million of acquired in-process R&D expense.
- Cash and cash equivalents were $839.4 million, with $60.0 million of investments, at September 30. Total current assets were $2,571.5 million and current liabilities $813.0 million.
- Debt carrying value was $5,726.8 million, including $31.0 million current debt; the company reported approximately $5.8 billion of debt principal and $500 million available under its revolving credit facility. It repaid $574.3 million of debt during the first nine months, including a $300 million voluntary Dollar Term Loan payment and repayment of the remaining Euro Term Loan.
- Operating cash flow increased $329.3 million year over year, primarily from higher cash receipts on product sales and lower GW acquisition integration costs. Cash and cash equivalents increased $247.9 million during the nine months.
Material changes versus comparable periods
- Q3 revenue rose 12%; nine-month revenue rose 22%. Growth reflected Xywav, Epidiolex/Epidyolex and Rylaze, partly offset by declining Xyrem sales and the Sunosi divestiture.
- Q3 oxybate revenue increased 11% to $512.0 million: Xywav sales grew 67% to $255.9 million while Xyrem declined 17% to $256.0 million. Average active oxybate patients were about 17,600, up approximately 10% year over year.
- Q3 Epidiolex/Epidyolex revenue increased 22% to $196.2 million. Rylaze revenue was $73.5 million following its 2021 launch; oncology revenue rose 21% overall. Zepzelca, Vyxeos and Defitelio/defibrotide sales declined in Q3.
- Nine-month net income improved from a $294.3 million loss to $16.7 million of income. The 2021 period included a $250.6 million U.K. deferred-tax remeasurement expense; 2022 included the nabiximols impairment and licensing-related R&D expense.
- Foreign currency translation losses were $1.22 billion for the first nine months, primarily reflecting weaker sterling and euro against the U.S. dollar. Accumulated other comprehensive loss reached $1.62 billion.
- Sunosi’s U.S. rights were divested in May for $53 million upfront; Jazz recorded a $40.8 million loss on disposal and is entitled to U.S. sales royalties. The ex-U.S. divestiture was expected to complete later in 2022.
Outlook, commentary, risks and contingencies
- Management expected 2022 total product sales to increase versus 2021, driven mainly by Xywav, a full year of Epidiolex and Rylaze, and growth in Zepzelca; expected reductions in Xyrem, Erwinaze and Sunosi were offsets. It expected R&D expense to rise, SG&A to fall, cost of product sales to rise, and net interest expense to be broadly in line with 2021. No specific numerical full-year revenue or earnings guidance is provided in the filing text.
- Management believed existing cash, expected operating cash flows and revolver availability would fund operations and existing obligations for the foreseeable future and support debt reduction over time. It also cautioned that debt service, product performance and other assumptions could weaken liquidity.
- Key commercial risks include upcoming authorized-generic and generic sodium oxybate competition, Xywav adoption and reimbursement, pricing and rebate pressure, and continued dependence on oxybate sales. The filing identifies COVID-19-related effects on patient access, new starts, healthcare staffing and clinical trials, although management reported gradual normalization and expected adequate product supply for 2022.
- Material legal and regulatory matters include purchaser antitrust class actions concerning Xyrem patent settlements; a July 2022 U.S. Attorney’s Office subpoena concerning Xyrem, patents, labeling, communications and pricing; and ongoing Avadel, Lupin and Otsuka disputes. The company stated outcomes could not be predicted. It also disclosed that the court denied Avadel’s challenge to FDA’s patent-certification requirement in November 2022.
- Pipeline and transaction items: the Phase 3 nabiximols study missed its primary endpoint and the program was discontinued, producing the impairment charge. Werewolf and Sumitomo licensing agreements generated $65 million in upfront payments and carry potential milestone and royalty obligations. A Zymeworks zanidatamab agreement announced after quarter-end could involve $50 million upfront after clearance, a possible further $325 million payment and up to $1.4 billion in milestones, plus royalties.
- ASU 2020-06 adoption changed accounting for exchangeable notes to liability-only accounting and reduced interest expense by approximately $12 million in Q3 and $36 million for nine months, increasing reported EPS; adoption did not affect cash flows or debt covenant compliance.
Most important facts for investors to verify
- Whether Xywav growth can offset continued Xyrem declines and the expected entry of authorized or other generic sodium oxybate products.
- Underlying performance and comparability of Epidiolex/Epidyolex and newer oncology products, accounting for the GW acquisition timing and product launches.
- Debt repayment capacity, variable-rate exposure, refinancing needs and the company’s ability to sustain operating cash flow.
- Potential financial and commercial consequences of Xyrem antitrust litigation, the government investigation, and patent disputes involving Avadel, Lupin and Otsuka.
- Progress and outcomes for confirmatory Zepzelca trials, Rylaze regulatory submissions, and other pipeline programs, as well as the cost and terms of new licensing deals.