Jazz Pharmaceuticals plc — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. The filing was signed May 2, 2024. Jazz is a global biopharmaceutical company focused on neuroscience and oncology medicines.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $902.0 million | $892.8 million | +1% |
| Product sales, net | $842.1 million | $884.2 million | -5% |
| Operating income | $66.2 million | $126.1 million | -47% |
| Net income (loss) | $(14.6) million | $69.4 million | Declined to a loss |
| Diluted earnings (loss) per share | $(0.23) | $1.04 | Declined |
| Operating cash flow | $267.2 million | $320.7 million | -17% |
Product gross margin was 88.7%, compared with 85.5%, primarily reflecting lower acquisition-accounting inventory step-up expense. SG&A rose 18% to $351.7 million and R&D rose 18% to $222.8 million. Net interest expense fell 11% to $66.1 million, mainly because of higher interest income on investments. Q1 2024 included $10.0 million of acquired in-process R&D expense related to the Redx KRAS inhibitor program.
Revenue mix and notable movements
- Neuroscience revenue declined 11% to $581.0 million; oncology revenue increased 13% to $257.5 million.
- Xywav sales increased 14% to $315.3 million, while Xyrem sales fell 64% to $64.2 million, reflecting patient shifts to Xywav, competition, formulary changes and higher gross-to-net deductions.
- Epidiolex/Epidyolex revenue grew 5% to $198.7 million. Rylaze/Enrylaze increased 20% to $102.8 million; Zepzelca increased 12% to $75.1 million; Defitelio increased 22% to $47.7 million. Vyxeos fell 13% to $32.0 million.
- High-sodium oxybate authorized-generic royalties were $49.9 million, compared with $2.1 million a year earlier, primarily reflecting Hikma royalties and higher royalty rates in 2024.
Cash, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $1.443 billion and investments were $375.0 million, totaling $1.818 billion in cash, equivalents and investments.
- Debt principal was approximately $5.8 billion; balance-sheet debt carrying value was $5.710 billion. The company also had $500 million available under its undrawn revolving credit facility.
- Cash and cash equivalents decreased $62.9 million during the quarter. Investing activities used $271.9 million, substantially reflecting purchases of time deposits; financing activities used $56.6 million.
- In January 2024, Jazz repriced its approximately $2.723 billion dollar term loan, reducing the SOFR borrowing margin by 50 basis points. The term loan’s stated interest rate was 8.44% at quarter-end. Quarterly scheduled debt repayments were $7.75 million.
Outlook, commentary and risks
- Management expects 2024 product sales to exceed 2023, led by Xywav, Epidiolex and Rylaze, partly offset by lower Xyrem sales. Royalties and contract revenues are also expected to increase, primarily because of high-sodium oxybate royalties. The filing does not provide numerical full-year revenue or earnings guidance in the supplied text.
- Management expects 2024 SG&A and R&D expenses to increase year over year, including continued investment in growth products and zanidatamab development. Interest expense is expected to decline following the term-loan repricing.
- Jazz reported approximately 12,950 patients taking Xywav at quarter-end, including 9,900 with narcolepsy and 3,050 with idiopathic hypersomnia. It cited continued growth in both indications.
- Key commercial risks include generic and branded competition, pricing and reimbursement pressure, and dependence on oxybate revenues. The company also identifies reliance on single-source suppliers and manufacturing or regulatory disruptions as material risks.
- Legal matters include Xyrem antitrust litigation, ongoing patent and other disputes with Avadel, and generic challenges involving Xywav and Epidiolex. In the Avadel patent trial, the jury found two asserted patents valid and awarded Jazz damages for past Lumryz sales; Jazz sought an injunction and ongoing royalties. The filing states that potential outcomes of other proceedings are uncertain and could be material.
- Jazz reported a proposed Luxembourg tax assessment of approximately $24.2 million, which it disputes. It expects the impact of Ireland’s Pillar Two minimum-tax rules in 2024 to be not significant.
Important facts for investors to verify
- Whether Xywav growth and high-sodium oxybate royalties can offset the continued decline in Xyrem sales and competition-related pressure.
- Progress and regulatory outcomes for zanidatamab, including the completed rolling BLA submission for accelerated approval in second-line biliary tract cancer.
- Debt reduction, cash generation and the impact of variable interest rates despite the term-loan repricing.
- Developments in Xyrem antitrust claims, Avadel litigation, and generic challenges to Xywav and Epidiolex, including potential effects on exclusivity and sales.
- Supply continuity, particularly for products or candidates dependent on single-source manufacturers, including zanidatamab supply from WuXi Biologics.