Jazz Pharmaceuticals plc — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The filing was signed November 9, 2021. Jazz is a biopharmaceutical company focused on neuroscience and oncology. Results include GW Pharmaceuticals from its acquisition closing on May 5, 2021, so comparisons with 2020 are not fully like-for-like.
Key financial results
Amounts are in millions of U.S. dollars except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $838.1 | $600.9 | $2,197.5 | $1,698.1 |
| Operating income | $28.4 | $196.2 | $120.9 | $204.7 |
| Net income (loss) | $(52.8) | $148.2 | $(294.3) | $105.2 |
| Diluted earnings (loss) per share | $(0.86) | $2.64 | $(4.98) | $1.87 |
| Net cash from operating activities | — | $600.8 | $713.4 |
- Q3 revenue grew 39%; nine-month revenue grew 29%. Product sales were $834.2 million in Q3 and $2,186.1 million for the nine months.
- Q3 gross margin was 82.6%, versus 92.9%; nine-month gross margin was 86.1%, versus 94.1%. The decline primarily reflected the acquisition-accounting inventory fair-value step-up for GW products.
- Operating expenses increased substantially, including higher selling, general and administrative costs, R&D and acquired-intangible amortization. Q3 interest expense was $93.4 million, versus $27.4 million; nine-month expense was $190.2 million, versus $72.1 million.
- Nine-month operating cash flow fell by $112.6 million year over year, primarily due to GW transaction and integration costs. Investing cash outflow was $5,202.1 million, including $6,234.8 million paid net for GW; financing cash inflow was $4,217.1 million.
Business developments and changes versus prior period
- GW was acquired for total consideration of approximately $7.2 billion. Its results contributed $277.9 million of revenue from closing through September 30; the acquired business recorded a $552.7 million net loss over that period. The purchase accounting and partial-period consolidation affect comparisons.
- Neuroscience revenue increased 41% in Q3 and 25% for the nine months. Oxybate revenue rose 3% in Q3 and 2% year to date: Xywav contributed $153.1 million in Q3, while Xyrem sales fell 31% year over year as patients moved to Xywav. Epidiolex/Epidyolex sales were $160.4 million in Q3; its nine-month figure includes only the post-acquisition period.
- Oncology revenue rose 34% in Q3 and 47% for the nine months. Q3 Zepzelca sales were $71.7 million, up 94%; Rylaze, launched in July, contributed $20.7 million. Erwinaze supply ended, with final inventory distributed in June.
- Q3 net loss included elevated acquisition-related costs and amortization. The nine-month tax provision of $228.6 million included a $250.6 million charge to remeasure the U.K. net deferred tax liability following a tax-rate change.
Liquidity, debt and balance sheet
- At September 30, cash and cash equivalents were $671.8 million; there were no short-term investments. Current assets were $2,628.2 million and current liabilities $735.1 million.
- Debt principal was approximately $6.6 billion; the balance-sheet carrying amount was $6,278.3 million. Debt included term loans, $1.5 billion of 4.375% secured notes due 2029, and exchangeable notes. The $500 million revolving facility was undrawn.
- Jazz made a voluntary €208.3 million ($251.0 million) Euro Term Loan prepayment and repurchased the remaining $218.8 million of 2021 exchangeable notes during Q3. Management said it expects positive operating cash flow to support operations and deleveraging and believes available cash, operating cash flow and the revolver are sufficient for foreseeable needs.
- Inventories were $1,137.9 million, including $884.0 million of GW acquisition-related fair-value step-up inventory. Intangible assets were $7,282.6 million and goodwill $1,849.5 million at period-end.
Outlook, commentary and principal risks
- Management expected 2021 product sales, operating expenses and interest expense to be higher than in 2020, reflecting GW consolidation, acquisition-related debt and continued business growth. The filing does not provide a clear numeric full-year revenue or earnings guidance range.
- Management reported strong Xywav adoption, broad U.S. payor coverage and FDA approval for adult idiopathic hypersomnia; the U.S. launch for that indication began November 1, after quarter-end. It also cited planned development activity for Epidiolex, nabiximols, Zepzelca and Rylaze.
- COVID-19 continued to constrain access to healthcare providers and affect new patient starts and utilization, particularly for Epidiolex, Vyxeos and Defitelio. Management reported adequate product supply expected for the remainder of 2021 and well into 2022, while noting potential pandemic-related supply, trial and commercial disruptions.
- Key business risks include reliance on oxybate sales, generic and branded competition, reimbursement and pricing pressure, single-source suppliers, uncertain clinical and regulatory outcomes, and the challenge of integrating GW and realizing expected benefits. Debt increases interest-rate exposure and may limit financial flexibility.
- Material legal matters include purchaser class actions alleging antitrust violations related to Xyrem patent settlements, with trial scheduled for February 2023; patent disputes involving Avadel, Lupin and Canopy; and an Otsuka claim alleging entitlement to Epidiolex royalties. Outcomes and potential financial effects are uncertain; the filing does not provide a clear quantified loss estimate for these matters.
Most important facts for investors to verify
- Whether Xywav growth can offset continued Xyrem erosion, and how future generic or competing oxybate launches affect the franchise.
- GW integration progress, Epidiolex growth and margins after acquisition inventory step-up costs and other purchase-accounting effects subside.
- Debt repayment and cash-generation progress, including variable-rate interest exposure and the capacity to deleverage.
- The drivers and potential recurrence of the large U.K. deferred-tax remeasurement charge.
- Developments in Xyrem antitrust and product-patent litigation, and the potential effects of other disclosed legal claims.
- Whether COVID-related access constraints, product supply risks and clinical-development timelines improve or worsen.