Business context and reporting period
Jazz Pharmaceuticals plc is a global biopharmaceutical company focused on neuroscience and oncology. This unaudited Form 10-Q covers the three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 or prior balance-sheet date |
|---|---|---|
| Total revenue | $892.8 million | $813.7 million; up 10% |
| Net income | $69.4 million | $1.6 million |
| Diluted earnings per share | $1.04 | $0.03 |
| Cash from operating activities | $320.7 million | $209.0 million |
| Cash and cash equivalents | $1,167.9 million | $881.5 million at December 31, 2022 |
| Debt principal | Approximately $5.8 billion | Debt carrying value was $5,720.7 million, versus $5,724.3 million at December 31, 2022 |
Product sales were $884.2 million, up 9%; royalties and contract revenue was $8.6 million. Gross margin on product sales was 85.5%, in line with Q1 2022. Operating income was $126.1 million, equivalent to an approximately 14.1% operating margin; net margin was approximately 7.8%.
Net income benefited from a $15.3 million income tax benefit, compared with $0.5 million of tax expense a year earlier, and a $3.2 million foreign-exchange gain versus a $10.5 million loss. These items, along with higher operating income, contributed to the earnings increase. Interest expense, net, rose 5% to $74.1 million, primarily reflecting higher rates on term-loan borrowings.
Cash flow from operations increased $111.7 million, mainly due to changes in operating assets and liabilities. Investing used $4.8 million and financing used $29.8 million; financing outflow was substantially lower than the prior-year period, when debt repayments were $258.8 million. The company reported $500 million of availability under its revolving credit facility and said existing cash, expected operating cash flow, and revolver availability should fund operations and existing obligations for the foreseeable future.
Material changes versus Q1 2022
- Xywav revenue rose 49% to $277.8 million, while Xyrem fell 28% to $178.1 million. Total oxybate revenue increased 5% to $455.9 million.
- Epidiolex/Epidyolex sales increased 20% to $188.9 million; Rylaze rose 58% to $85.9 million and Zepzelca rose 13% to $67.2 million. Defitelio/defibrotide declined 21% to $39.1 million. Sunosi U.S. sales were absent following its May 2022 divestiture.
- Research and development expense increased 46% to $189.4 million, mainly reflecting higher clinical-study and outside-service costs, including work on zanidatamab, JZP815, JZP898 and JZP441. Selling, general and administrative expense declined 4% to $297.9 million; intangible amortization declined 13% to $149.8 million.
- Cash increased $286.4 million during the quarter. Debt carrying value remained broadly stable; the company repaid $7.8 million of long-term debt.
Outlook, management commentary, risks and contingencies
Management expects 2023 product sales to exceed 2022, driven by Xywav, Epidiolex and oncology products, particularly Rylaze and Zepzelca, partly offset by declining Xyrem sales. It expects royalties and contract revenue to increase, cost of product sales to decrease with lower acquisition-accounting inventory step-up expense, and SG&A to decrease. R&D expense is expected to rise as trials and development work expand; net interest expense is expected to increase with higher term-loan rates. No numerical full-year revenue or earnings guidance is provided in the filing text.
Key commercial exposure remains oxybate: the high-sodium oxybate authorized generic launched in January 2023; additional authorized generics are expected from July 2023 under settlements, and the company anticipates generic high-sodium oxybate competition under settlement terms from late 2025 or earlier in specified circumstances. FDA approved Avadel’s high-sodium, once-nightly Lumryz on May 1, 2023, with competition expected in the coming months. The company also faces Xywav generic challenges, pricing and reimbursement pressure, and possible future generic competition for Epidiolex.
Other risks include clinical and regulatory uncertainty, dependence on single-source suppliers, substantial debt, and the possibility that acquired or licensed programs will not deliver anticipated benefits. FDA issued a complete response letter in February 2023 requesting additional clinical data for Rylaze intravenous administration; its approved intramuscular labeling was unaffected. The filing describes ongoing Xyrem antitrust and patent disputes, a U.S. Attorney’s Office subpoena concerning Xyrem matters, and a new MSP class action filed April 3, 2023. Otsuka and Jazz agreed in February 2023 to settle Epidiolex royalty disputes, including royalties to Otsuka on net sales through 2032 and potentially on certain future cannabidiol products; the filing does not state the expected financial amount.
Luxembourg tax authorities proposed approximately $24.4 million of additional income tax assessments for years under examination. Jazz disputes and is contesting the assessments; the filing does not provide a final outcome. Management reported disclosure controls were effective as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Xywav growth and IH adoption can offset Xyrem erosion as authorized generic and Lumryz competition develops.
- Product-level sales trends, payer coverage and gross-to-net deductions, particularly for oxybate products and oncology medicines.
- R&D spending trajectory, clinical readouts and regulatory outcomes, including Rylaze IV and Zepzelca trials.
- Debt maturities and interest-rate exposure: scheduled principal maturities include $606 million in 2024 and $1.031 billion in 2026; verify refinancing and deleveraging progress.
- Potential financial exposure and developments in Xyrem-related litigation and investigations, the Otsuka settlement, and Luxembourg tax assessments.