JAZZ PHARMACEUTICALS PLC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10Q. This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in "Risk Factors" in Part II, Item 1A in this Quarterly Report on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the "Cautionary Note Regarding Forward-Looking Statements" that appears at the end of this discussion. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10Q (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.
Jazz Pharmaceuticals plcis a global biopharmaceutical company whose purpose is to innovate to transform the lives of patients and their families. We are dedicated to developing life-changing medicines for people with serious diseases - often with limited or no therapeutic options. We have a diverse portfolio of marketed medicines and novel product candidates, from early- to late-stage development, in neuroscience and oncology. Within these therapeutic areas, we strive to identify new options for patients by actively exploring small molecules and biologics, and through innovative delivery technologies and cannabinoid science. Our strategy for growth is rooted in executing commercial launches and ongoing commercialization initiatives; advancing robust research and development, or R&D, programs and delivering impactful clinical results; effectively deploying capital to strengthen the prospects of achieving our short- and long-term goals through strategic corporate development; and delivering strong financial performance. We focus on patient populations with high unmet needs. We identify and develop differentiated therapies for these patients that we expect will be long-lived assets and that we can support with an efficient commercialization model. In addition, we leverage our efficient, scalable operating model and integrated capabilities across our global infrastructure to effectively reach patients around the world. At the 40th Annual J.P. Morgan Healthcare Conferencein January 2022, we announced our Vision 2025, which aims to deliver sustainable growth and enhanced value, driving our continued transformation to an innovative, high-growth global pharmaceutical leader. The three core components of our Vision 2025 focus on commercial execution, pipeline productivity and operational excellence.
Our marketed products are approved in countries around the world to improve patient care. Product Indications Initial Approval Date Markets NEUROSCIENCE Treatment of cataplexy or U.S. excessive daytime sleepiness, or July 2020 Xywav® (calcium, magnesium, EDS, in patients seven years of potassium, and sodium age and older with narcolepsy. oxybates) U.S. Treatment of idiopathic August 2021 hypersomnia, or IH, in adults. Treatment of cataplexy or EDS in July 2002 U.S. patients seven years of age and older with narcolepsy. August 2005 Canada For the treatment of cataplexy in
Xyrem® (sodium oxybate) patients with narcolepsy.
Treatment of narcolepsy with EU, Great Britain, other cataplexy in adult patients, October 2005 markets (through adolescents and children from age licensing agreement) of 7 years. 31
Table of Contents Epidiolex® (cannabidiol) Treatment of seizures associated with
June 2018Lennox-Gastaut syndrome, or LGS, U.S.Dravet syndrome, or DS, or tuberous sclerosis complex, or TSC, in patients 1 year of age and older. For adjunctive therapy of seizures September 2019Epidyolex® (cannabidiol) associated with LGS or DS, in
EU, Great Britain, other conjunction with clobazam, for markets patients 2 years of age and older.* April 2021 For adjunctive therapy of seizures EU, Great Britain, other associated with TSC for patients 2 markets years of age and older.** Improve wakefulness and reduce EDS in EU, Great Britain, other adult patients with narcolepsy (with markets or without cataplexy) or adult January 2020 patients with obstructive sleep apnea, or OSA, whose EDS has not been Sunosi® (solriamfetol)*** satisfactorily treated by primary OSA therapy, such as continuous positive Canada airway pressure, or CPAP. May 2021 Treatment of EDS in adult patients with narcolepsy or OSA. Treatment for adult patients with moderate to severe spasticity due to multiple sclerosis, or MS, who have not responded adequately to other U.K. (other markets through Sativex® (nabiximols) anti-spasticity medication and who June 2010 licensing agreements with demonstrate clinically significant partners) improvement in spasticity related symptoms during an initial trial of therapy. ONCOLOGY Treatment of adult patients with metastatic small cell lung cancer, or June 2020 U.S. (licensed from SCLC, with disease progression on or PharmaMar)**** Zepzelca® (lurbinectedin) after platinum-based chemotherapy. Treatment of adults with Stage III or September 2021 Canada (licensed from metastatic SCLC who have progressed on PharmaMar)***** or after platinum-containing therapy. A component of a multi-agent chemotherapeutic regimen for the Rylaze® (asparaginase erwinia treatment of acute lymphoblastic chrysanthemi (recombinant)- leukemia, or ALL, and lymphoblastic June 2021 U.S. rywn) lymphoma, or LBL, in adult and pediatric patients 1 month or older who have developed hypersensitivity to E. coli-derived asparaginase. 32
Vyxeos® (daunorubicin and Treatment of newly-diagnosed August 2017 U.S. cytarabine) liposome for therapy-related acute myeloid leukemia, or injection t-AML or AML with myelodysplasia-related changes (AML-MRC) in adults and pediatric patients one year and older. August 2018 EU, Great Britain, Treatment of adults with newly-diagnosed other markets
Vyxeos® liposomal 44 mg/100 mg LAM-t or LAM-MRC. powder for concentrate for solution for infusion
Vyxeos® Daunorubicin and Treatment of Newly Diagnosed Adults
Canada cytarabine liposome for therapy-related t-AML or AML with AML-MRC. injection Powder, 44 mg daunorubicin and 100 mg cytarabine per vial, intravenous infusion Defitelio® (defibrotide sodium) Treatment of adult and pediatric patients March 2016 U.S. with hepatic veno-occlusive disease, or VOD, also known as SOS, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation, or HSCT. October 2013 EU, Great Britain, Defitelio® (defibrotide) other markets Treatment of severe hepatic VOD, also known as SOS, following HSCT therapy.
*Clobazam restriction limited to EU and
**TSC approval pending in some markets
****Expedited approval received from
*****Conditional approval received from
We are the global leader in the development and commercialization of oxybate therapy for patients with sleep disorders. Xyrem was approved by FDA in 2002, and has become a standard of care for treating EDS and cataplexy in narcolepsy. In 2020, we received FDA approval for Xywav for the treatment of cataplexy or EDS, in patients seven years of age and older with narcolepsy. In
August 2021, Xywav became the first and only therapy approved by FDA for the treatment of IH in adults. Xywav is an oxybate therapy that contains 92% less sodium than Xyrem. Since there is no cure for narcolepsy and long-term disease management is needed, we believe that Xywav represents an important new therapeutic option for patients with this sleep disorder. Our commercial efforts are focused on educating patients and physicians about the lifelong impact of high sodium intake, and how the use of Xywav enables them to address what is a modifiable risk factor. In June 2021, FDA recognized seven years of Orphan Drug Exclusivity, or ODE, for Xywav in narcolepsy. ODE extends through July 2027. In connection with granting ODE, FDA stated that "Xywav is clinically superior to Xyrem by means of greater safety because Xywav provides a greatly reduced chronic sodium burden compared to Xyrem. " FDA'ssummary also stated that "the differences in the sodium content of the two products at the recommended doses will be clinically meaningful in reducing cardiovascular morbidity in a substantial proportion of patients for whom the drug is indicated."
We view the adoption of Xywav in narcolepsy as a positive indication that physicians and patients appreciate the benefits of a low sodium oxybate option. We continue to see adoption of Xywav among existing Xyrem patients, as well as the majority of new patients with oxybate narcolepsy.
August 12, 2021, FDA approved Xywav for the treatment of IH in adults. Xywav is the first and only FDA-approved therapy to treat IH. We initiated the U.S.commercial launch of Xywav for the treatment of IH in adults on November 1, 2021. In January 2022, FDA recognized seven years of ODE for Xywav in IH that extends through August 2028. IH is a debilitating neurologic sleep disorder characterized by chronic EDS, the inability to stay awake and alert during the day resulting in the irrepressible need to sleep or unplanned lapses into sleep or drowsiness. An estimated 37,000 people in the U.S.have been diagnosed with IH and are actively seeking healthcare. We now have agreements in place for Xywav with all three major pharmacy benefit managers, or PBMs, in the U.S.To date, we have entered into agreements with various entities and have achieved benefit coverage for Xywav in both narcolepsy and IH indications for approximately 90% of commercial lives. We have seen strong adoption of Xywav in narcolepsy since its launch in November 2020, and increasing adoption in IH since its launch in November 2021. Exiting the second quarter of 2022, there were approximately 8,700 patients taking Xywav, including approximately 7,550 patients with narcolepsy and approximately 1,150 patients with IH. With respect to Xywav and Xyrem in the aggregate, the average number of active oxybate patients on therapy was approximately 17,100 in the second quarter of 2022. We acquired Epidiolex (Epidyolex outside the U.S.) in May 2021as part of the acquisition of GW Pharmaceuticals plc, or GW, which we refer to as the GW Acquisition, which expanded our growing neuroscience business with a global, high-growth childhood-onset epilepsy franchise. Epidiolex was approved in the U.S.in June 2018for the treatment of seizures associated with two rare and severe forms of epilepsy, LGS and DS, in patients two years of age and older, and subsequently approved in July 2020for the treatment of seizures associated with TSC in patients one year of age and older. FDA also approved the expansion of all existing indications, LGS and DS, to patients one year of age and older. The rolling European launch of Epidyolex is also underway following European Commissionapproval in September 2019for use as adjunctive therapy of seizures associated with LGS or DS, in conjunction with clobazam, for patients two years of age and older. The clobazam restriction is limited to EU and Great Britain. Epidyolex was also approved for adjunctive therapy of seizures associated with TSC for patients 2 years of age and older in the EU in April 2021and Great Britainin August 2021, and is approved or under review for this indication in other markets. Outside the U.S.and Europe, Epidiolex/Epidyolex is approved in Israeland Australia. Sativex (nabiximols) is approved in more than 29 countries outside the U.S.for the treatment of adult patients with moderate to severe spasticity due to MS who have not responded adequately to other anti-spasticity medication. We market Sativex directly in the U.K.and through licensing agreements with partners in other countries. We are working toward potential approval of nabiximols in the U.S.with multiple Phase 3 clinical trials in progress. In addition to our currently-marketed products, we previously marketed Sunosi® (solriamfetol) in the U.S.and, pending the completion of the ex- U.S.divestiture of Sunosi to Axsome Therapeutics, or Axsome, we continue to market Sunosi in Europeand Canada. In this regard, in March 2022, we entered into a definitive agreement to divest Sunosi to Axsome. In May 2022, we completed the U.S.divestiture of Sunosi to Axsome and we expect to complete the ex- U.S.divestiture to Axsome later this year. Under the terms of the sale agreement with Axsome, Axsome received the rights to Sunosi in all of the existing territories available to us. We received an upfront payment of $53.0 million, and will receive a high single-digit royalty on Axsome's U.S.net sales of Sunosi in current indications and a mid-single-digit royalty on Axsome's U.S.net sales of Sunosi in future indications. The divestiture of Sunosi to Axsome is intended to enable us to sharpen our focus on our highest strategic priorities designed to deliver sustainable growth and enhanced shareholder value. In assessing the positioning of Sunosi in the overall treatment landscape, we believe that Axsome is well positioned to deliver access to this important medicine and to maximize the value of Sunosi to us through future growth.
U.S.development and commercialization rights to Zepzelca in early 2020, and launched six months thereafter, with an indication for treatment of patients with SCLC with disease progression on or after platinum-based chemotherapy. Our education and promotional efforts are focused on SCLC-treating physicians. We are continuing to raise awareness of Zepzelca across academic and community cancer centers, and see continued opportunities for growth in second-line share and overall demand, reflecting the significant unmet need and favorable Zepzelca product profile. In collaboration with F. Hoffmann-La Roche Ltd(Roche), we have initiated a Phase 3 pivotal clinical trial in first-line extensive stage SCLC of Zepzelca in combination with Tecentriq® (atezolizumab). We are also developing Zepzelca in additional indications. 34
Rylaze was approved by FDA in
June 2021under the Real-Time Oncology Review, or RTOR, program, and was launched in the U.S.in July 2021for use as a component of a multi-agent chemotherapeutic regimen for the treatment of patients with ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli-derived asparaginase. Rylaze is the only recombinant erwinia asparaginase manufactured product that maintains a clinically meaningful level of asparaginase activity throughout the entire duration of treatment. We developed Rylaze to address the needs of patients and health care providers for an innovative, high-quality erwinia asparaginase with reliable supply. The current indication is for an intramuscular, or IM, dosing regimen of 25 mg/m2 every 48 hours. We submitted a supplemental Biologics License Application, or sBLA, with additional data in support of a Monday/Wednesday/Friday, or M/W/F, IM dosing schedule in January 2022and submitted a separate sBLA for intravenous, or IV, administration in April 2022, both of which have been granted review under the RTOR program with Prescription Drug User Fee Act, or PDUFA, action dates in 2022 and 2023, respectively. We also completed a Marketing Authorization Application, or MAA, submission to the European Medicines Agency, or EMA, in May 2022for M/W/F and every 48-hour dosing schedules and IV and IM administration, with potential for approval in 2023. In addition, we submitted a New Drug Submission, or NDS, to Health Canadain September 2021. We are also advancing the program for potential submission, approval and launch in Japan, as well as planning additional submissions in other markets. Vyxeos is a treatment for adults with newly-diagnosed t-AML, or AML-MRC. In March 2021, FDA approved a revised label to include a new indication to treat newly-diagnosed t-AML, or AML with myelodysplasia-related changes in pediatric patients aged one year and older. We have a number of ongoing development activities and continue to expand into new markets internationally. Despite an ongoing trend in the U.S.towards lower-intensity treatments and away from Vyxeos that accelerated due to the COVID-19 pandemic, we continue to see recovery in demand for Vyxeos and expect future demand for appropriate secondary AML patients to remain steady. In Europe, we continue to expect a negative impact on demand for and utilization of Vyxeos compared to historical periods due to COVID-19. Defitelio is the first and only approved treatment for patients with VOD following HSCT. There was a significant decline in the number of patients receiving HSCT due to the effects of the COVID-19 pandemic. We anticipate the use of Defitelio will increase to the extent that hospital systems globally are able to continue moving forward with HSCT procedures.
Research and development progress
Our research and development activities encompass all stages of development and currently include clinical testing of new product candidates and activities related to clinical improvements of, or additional indications or new clinical data for, our existing marketed products. We also have active preclinical programs for novel therapies, including precision medicines in hematology and oncology and the GW cannabinoid platform. We are increasingly leveraging our growing internal research and development function, and we have also entered into collaborations with third parties for the research and development of innovative early-stage product candidates and have supported additional investigator-sponsored trials, or ISTs, that are anticipated to generate additional data related to our products. We also seek out investment opportunities in support of the development of early- and mid-stage technologies in our therapeutic areas and adjacencies. We have a number of licensing and collaboration agreements with third parties, including biotechnology companies, academic institutions and research-based companies and institutions, related to preclinical and clinical research and development activities in hematology and in precision oncology, as well as in neuroscience. With the approvals and launches of Rylaze for the treatment ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli-derived asparaginase and Xywav for IH in 2021, we accomplished our goal to deliver five product launches through 2020 and 2021. We have taken both Rylaze and Xywav from concept to commercialization. Our neuroscience R&D efforts include the planned initiation of a pivotal Phase 3 clinical trial of Epidiolex for the treatment of Epilepsy with Myoclonic-Atonic Seizures, or EMAS, also known as Doose syndrome. This trial is expected to evaluate Epidiolex in a fourth childhood-onset epileptic encephalopathy with high unmet need. EMAS is characterized by generalized myoclonic-atonic seizures, and this trial is designed to provide the first randomized, controlled clinical data with Epidiolex in this syndrome type. Seizure types including atonic, tonic, clonic, tonic-clonic and partial onset seizures are seen in LGS, DS, and TSC. For nabiximols, we have multiple Phase 3 clinical trials in MS-related spasticity in progress. Spasticity occurs in up to 84% of MS patients, and approximately one-third of those who experience spasticity live with uncontrolled symptoms. In
June 2022, we announced top-line results from the first and smallest trial, which evaluated the safety and efficacy of nabiximols in 68 patients with MS spasticity. The trial did not meet the primary endpoint of change in Lower Limb Muscle Tone-6, or LLMT-6, between baseline and Day 21, as measured by the Modified Ashworth Scale, or MAS. The safety profile of nabiximols in this trial was consistent with previously reported adverse events, with no new safety signals attributable to 35
buccal spraying of nabiximols observed in this population. We continue to evaluate the results of the trial, which will be presented at an upcoming medical meeting.
December 2021we initiated Phase 2 clinical trials for suvecaltamide, or JZP385, for essential tremor, or ET, and for JZP150 for post-traumatic stress disorder, or PTSD. These are both patient populations that suffer significant impacts to their quality of life and for whom there are limited current treatment options. We are also pursuing early-stage activities related to the development of JZP324, an extended-release low sodium, oxybate formulation that we believe could provide a clinically meaningful option for narcolepsy patients. Within our oncology R&D program, there is a robust development plan being executed for Zepzelca. We are collaborating with Roche on a pivotal Phase 3 clinical trial evaluating Zepzelca in combination with Tecentriq in first-line extensive stage SCLC. In December 2021, our licensor PharmaMar initiated a confirmatory trial in second-line SCLC. This is a three-arm trial comparing Zepzelca as either monotherapy or in combination with irinotecan to investigator's choice of irinotecan or topotecan. Data from this trial could confirm the benefit of Zepzelca in the treatment of SCLC when patients progress following first-line treatment with a platinum-based regimen. In 2022, we initiated a Phase 2 basket trial to explore Zepzelca monotherapy in patients with select advanced or metastatic solid tumors. Cohorts will include advanced urothelial cancer, large cell neuroendocrine tumor of the lung and homologous recombination deficient, or HRD, cancers. In addition, we have initiated a Phase 4 observational study to collect real world safety and outcome data in adult Zepzelca monotherapy patients with SCLC who progress on or after prior platinum-containing chemotherapy. For Rylaze, in January 2022we submitted an sBLA with data in support of a M/W/F IM dosing schedule and submitted a separate sBLA for intravenous administration in April 2022, both of which have been granted review under the RTOR program. We completed a MAA submission to the EMA in May 2022. In June 2022, we announced the FDA had cleared our Investigational New Drug, or IND, application for JZP815. JZP815 is an investigational, pre-clinical stage pan-RAF kinase inhibitor that targets specific components of the mitogen-activated protein kinase, or MAPK, pathway that, when activated by oncogenic mutations, can be a frequent driver of human cancer. In the second quarter of 2022, we acquired development and commercialization rights to two early-stage molecules, consistent with our objective to expand our pipeline. In April 2022, we announced that we had entered into a licensing agreement with Werewolf Therapeutics, Inc., or Werewolf, to acquire exclusive global development and commercialization rights to Werewolf's investigational WTX-613, now referred to as JZP898. JZP898 is a differentiated, conditionally-activated interferon alpha, or IFN?, INDUKINE™ molecule. Under the terms of the agreement, we made an upfront payment of $15.0 millionto Werewolf, and Werewolf is eligible to receive development, regulatory and commercial milestone payments of up to $1.26 billion. If approved, Werewolf is eligible to receive a tiered, mid-single-digit percentage royalty on net sales of JZP898. This transaction underscores our commitment to enhancing our pipeline to deliver novel oncology therapies to patients, and also provides us with an opportunity to expand into immuno-oncology. In May 2022, we announced that we had entered into a licensing agreement with Sumitomo Pharma Co., Ltd, or Sumitomo, to acquire exclusive development and commercialization rights in the United States, Europeand other territories for DSP-0187, now referred to as JZP441, a potent, highly selective oral orexin-2 receptor agonist with potential application for the treatment of narcolepsy, IH and other sleep disorders. Under the terms of the agreement, we made an upfront payment of $50 millionto Sumitomo, and Sumitomo is eligible to receive development, regulatory and commercial milestone payments of up to $1.09 billion. If approved, Sumitomo is eligible to receive a tiered, low double-digit royalty on Jazz's net sales of JZP441. Below is a summary of our key ongoing and planned development projects related to our products and pipeline and their corresponding current stages of development: Product Candidates Description NEUROSCIENCE Phase 3 Epidiolex EMAS, also known as Doose syndrome (planned study) Nabiximols MS Spasticity (multiple studies ongoing) Spinal cord injury spasticity (planned study) Phase 2b Suvecaltamide (JZP385) ET (ongoing study) Phase 2 JZP150 PTSD (ongoing study) 36
Table of Contents Product Candidates Description Additional cannabinoids Autism spectrum disorders (ongoing study) Phase 1 JZP324 Oxybate extended-release formulation (planned study) JZP441 (DSP-0187) Potent, highly selective oral orexin-2 receptor agonist (
Japan) Additional cannabinoids Neonatal hypoxic-ischemic
encephalopathy (study in progress)
Neuropsychiatry targets (ongoing study) Preclinical Undisclosed targets Neuroscience Cannabinoids ONCOLOGY Regulatory Review Rylaze ALL/LBL FDA approval in
submitted sBLA in
seeking approval for M/W/F IM
dosing schedule; submitted
separate sBLA seeking approval
for intravenous administration;
completed MAA submission to EMA in
May 2022Phase 3 Zepzelca First-line extensive stage SCLC in combination with Tecentriq (collaboration with Roche) (ongoing study) Confirmatory Study (PharmaMar study) (ongoing study) Vyxeos AML or high-risk Myelodysplastic Syndrome, or MDS (AML18) (cooperative group studies)
(ongoing study) Newly diagnosed
adults with standard- and
High-risk AML (
cooperative group study)
(ongoing study) Newly diagnosed
pediatric patients with AML (
Children's Oncology Groupcooperative group study) (ongoing study) Phase 2 Zepzelca Basket trial including
large cell urothelial cancer
neuroendocrine tumor of the
lung cancers and HRD (ongoing
study) Vyxeos High-risk MDS (European
Myelodysplastic syndromes (cooperative
group study) (ongoing study) Newly diagnosed older adults
with high-risk AML (cooperative
group study) (planned study) Vyxeos + venetoclax De novo or relapsed/refractory, or R/R, AML (MD Anderson collaboration study) (ongoing study) Phase 1 Vyxeos Low intensity dosing for higher risk MDS (MD Anderson collaboration study) (ongoing study) Vyxeos + other approved therapies R/R AML or hypomethylating agent failure MDS (MD Anderson collaboration study) (ongoing study) First-line, fit AML (Phase 1b study) (ongoing study) Low intensity therapy for
First line AML, unfit (Phase 1b
study) (ongoing study)
CombiPlex® Hematology/oncology exploratory
JZP341 (Erwinia asparaginase long-acting) ALL and other hematological malignancies (collaboration with
Ligand) JZP815/Pan-Raf inhibitor program Raf and Ras mutant tumors (acquired from Redx) JZP898 Conditionally-activated
interferon alpha (IFN?) INDUKINE™
molecule Undisclosed target Ras/Raf/MAPK pathway
(collaboration with Redx)
Oncology Exosome targets (up to 3 targets) Hematological malignancies/solid tumors (collaboration with Codiak BioSciences, Inc., or Codiak) Undisclosed targets Oncology 37
We remain focused on continuing to build excellence in areas that we believe will give us a competitive advantage, including building an increasingly agile and adaptable commercialization engine and strengthening our customer-focused market expertise across patients, providers and payors. We are refining our approach to engaging our customers by strengthening alignment and integration across functions and across regions. This includes a more integrated approach to brand planning, a heightened focus on launch and operational excellence and multichannel customer engagement. We have fully adapted to virtual scientific congresses designed to ensure we can continue to provide promotional and non-promotional interactions and have supported our field-based teams with virtual customer interaction tools, training and content. These initiatives mark a significant operational evolution that is directly linked to our corporate strategy and are designed to better enable our teams to work collaboratively on an aligned and shared agenda through both virtual and in-person interactions. In most geographies, our teams are increasing the frequency of in-person interactions as medical congresses and healthcare practices begin to resume in-person activities, taking into account applicable public health authority and local government guidelines which are designed to ensure community and employee safety. COVID-19 Business Update We have implemented a comprehensive response strategy designed to manage the impact of the COVID-19 pandemic on our employees, patients and our business. The prolonged nature of the pandemic is negatively impacting our business in a varied manner due to the emergence of variants with increased transmissibility, even in vaccinated people, including limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment or change existing treatments. We expect that our business, financial condition, results of operations and growth prospects may continue to be negatively impacted by the pandemic on a limited basis that may vary depending on the context. However, we have begun to observe, and expect to continue to observe, a gradual normalization in patient and health care provider practices, as providers and patients have adapted their behaviors and procedures to the evolving circumstances and as COVID-19 vaccines continue to be administered.
Workplace and employees
We support broad public health strategies designed to prevent the spread of COVID-19 and are focused on the health and welfare of our employees. Our global organization has mobilized to enable our employees to accomplish our most critical goals through a combination of virtual and in-person work. In addition to rolling out new technologies and collaboration tools, we have implemented processes and resources to support our employees in the event an employee receives a positive COVID-19 diagnosis. We have reopened our sites to enable our employees to return to our global offices, which takes into account applicable public health authority and local government guidelines, and which is designed to ensure community and employee safety. We have moved to a more flexible mix of virtual and in-person working designed to advance our culture, drive innovation and agility and enable greater balance and well-being for our workforce. This should also enable us to reconfigure our physical workspaces to optimize the footprint of our company-owned or leased office spaces.
There continues to be some negative impact on demand, new patient starts and treatments for our products arising from the pandemic, primarily due to the inherent limitations of telemedicine and a reprioritization of healthcare resources toward COVID-19. As healthcare systems have adapted to cope with the ongoing situation, we have seen improvements. We are utilizing technology to continue to engage healthcare professionals and other customers virtually to support patient care. As more clinics and institutions begin to allow in-person interactions pursuant to local health authority and government guidelines, our field teams continue to resume in-person interactions with healthcare professionals and clinics combined with virtual engagement. The level of renewed in-person engagement varies by account, region and country and may be adversely impacted in the future as a result of the continuing impact of the COVID-19 pandemic. The lack of access to health care providers has caused, and may continue to cause, delays in appropriate diagnosis, treatment and ongoing care for some patients, which has negatively impacted, and could continue to impact, prescribing and use of our products.
Our manufacturing facilities in Athlone,
Ireland, which produces Xywav and Xyrem, Villa Guardia, Italy, which produces defibrotide, and Kent Science Park, U.K., which produces Epidiolex/Epidyolex and Sativex, are operational with essential staff onsite and office-based staff working onsite and virtually as business needs require. We currently expect to have adequate global supply of all of our products for 2022. Research and Development With respect to our clinical trial activities, we have taken measures to implement remote and virtual approaches, including remote data monitoring where possible, to maintain patient safety and trial continuity and to preserve study integrity. 38
We have seen some COVID-19-related impact to our mid- and late-stage clinical trial activity. We rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will perform their contractual duties in a timely and satisfactory manner as a result of the evolving effects of the COVID-19 pandemic. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as health care providers, have heightened exposure to COVID-19, is adversely impacting our clinical trial operations. Supply chain disruptions related to the pandemic have also impacted our ability to initiate clinical trials as originally planned.
The COVID-19 pandemic has caused a significant burden on health systems globally and has highlighted the need for companies to evaluate existing therapies to assess if they can be utilized beyond their current indications to treat COVID-19 as well as consider developing new therapies. To this end, we have granted requests for several ISTs to evaluate the use of defibrotide in COVID-19 patients experiencing respiratory distress. In addition, we are supporting our local communities and patient-focused organizations in COVID-19 relief efforts including through corporate donations to charitable organizations providing food and medical relief to communities in which we operate, and other localities where the needs related to the impact of COVID-19 are greatest. We are engaging with patient advocacy organizations to better understand the impact of COVID-19 and working to enable patients living with sleep disorders, epilepsies and oncology conditions with access to treatments and that their other needs are addressed given the impact of COVID-19 on the healthcare system. We are committed to enabling our employees to give back, including allowing licensed healthcare practitioners employed by us to support local response efforts.
Other challenges, risks and trends related to our business
Our business has been substantially dependent on Xyrem. Our future plans assume that Xywav, with 92% lower sodium compared to Xyrem, depending on the dose, absence of a sodium warning and dosing titration option, will become the treatment of choice for patients who can benefit from oxybate treatment, including current Xyrem patients and patients who previously were not prescribed Xyrem for whom sodium content is a concern. In
June 2021, FDA recognized seven years of ODE for Xywav in narcolepsy through July 21, 2027stating that Xywav is clinically superior to Xyrem by means of greater safety due to reduced chronic sodium burden. While we expect that our business will continue to be substantially dependent on oxybate product sales from both Xywav and Xyrem, there is no guarantee that we can maintain oxybate sales at or near historical levels, or that oxybate sales will continue to grow. Our ability to successfully commercialize Xywav will depend on, among other things, our ability to maintain adequate coverage and reimbursement for Xywav and acceptance of Xywav by payors, physicians and patients, including of Xywav for the treatment of IH in adults. In an effort to support strong adoption of Xywav, we are focused on providing robust patient copay and savings programs and facilitating payor coverage for Xywav. Moreover, we have increasingly experienced pressure from third party payors to agree to discounts, rebates or restrictive pricing terms, and we cannot guarantee we will be able to agree to commercially reasonable terms with PBMs and other third party payors, or that we will be able to ensure patient access and acceptance on institutional formularies. Entering into agreements with PBMs and payors to ensure patient access has and will likely continue to result in higher gross to net deductions. In addition to the COVID-19-related impacts described above, we expect our oxybate products to face near-term competition from generic and authorized generic versions of sodium oxybate pursuant to the settlement agreements we have entered into with multiple abbreviated new drug application, or ANDA, filers. Generic competition can decrease the prices at which Xywav and Xyrem are sold and the number of prescriptions written for Xywav and Xyrem. Xywav and Xyrem may also face increased competition from new branded products for treatment of cataplexy and/or EDS in narcolepsy in the U.S. market. Our financial condition, results of operations and growth prospects are also dependent on our ability to maintain or increase sales of Epidiolex/Epidyolex in the U.S.and Europe, which is subject to many risks and there is no guarantee that we will be able to continue to successfully commercialize Epidiolex/Epidyolex for its approved indications. The commercial success of Epidiolex depends on the extent to which patients and physicians accept and adopt Epidiolex as a treatment for seizures associated with LGS, DS and TSC, and we do not know whether our or others' estimates in this regard will be accurate. Physicians may not prescribe Epidiolex and patients may be unwilling to use Epidiolex if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, any negative development for Epidiolex in the market, in clinical development for additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Epidiolex. Thus, significant uncertainty remains regarding the commercial potential of Epidiolex. In addition to our neuroscience products and product candidates, we are commercializing a portfolio of oncology products, including Defitelio, Vyxeos, Rylaze and Zepzelca. An inability to effectively commercialize Defitelio, Vyxeos, Rylaze and Zepzelca and to maximize their potential where possible through successful research and development activities could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 39
A key aspect of our growth strategy is our continued investment in our evolving and expanding research and development activities. If we are not successful in the clinical development of these or other product candidates, if we are unable to obtain regulatory approval for our product candidates in a timely manner, or at all, or if sales of an approved product do not reach the levels we expect, our anticipated revenue from our product candidates would be negatively affected, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition to continued investment in our R&D pipeline, we intend to continue to grow our business by acquiring or in-licensing, and developing, including with collaboration partners, additional products and product candidates that we believe are highly differentiated and have significant commercial potential. Failure to identify and acquire, in-license or develop additional products or product candidates, successfully manage the risks associated with integrating any products or product candidates into our portfolio or the risks arising from anticipated and unanticipated problems in connection with an acquisition or in-licensing, such as the
GW Acquisition, could have a material adverse effect on our business, results of operations and financial condition. The success of the GW Acquisitionwill depend, in part, on our ability to realize the anticipated benefits from our and GW's businesses. Nonetheless, Epidiolex and the other products and technologies acquired may not be successful or continue to grow at the same rate as if our companies operated independently or they may require significantly greater resources and investments than originally anticipated. As a result, the anticipated benefits of the GW Acquisitionmay not be realized fully within the expected timeframe or at all or may take longer to realize or cost more than expected, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. Our industry has been, and is expected to continue to be, subject to healthcare cost containment and drug pricing scrutiny by regulatory agencies in the U.S.and internationally. If healthcare policies or reforms intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical drugs generally, the prices that we charge for our products may be affected, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted. We are also subject to increasing pricing pressure and restrictions on reimbursement imposed by payors. If we fail to obtain and maintain adequate formulary positions and institutional access for our products and future approved products, we will not be able to achieve a return on our investment and our business, financial condition, results of operations and growth prospects would be materially adversely affected. While certain preparations of cannabis remain Schedule I controlled substances, if such products are approved by FDA for medical use in the U.S.they are rescheduled to Schedules II-V, since approval by FDA satisfies the "accepted medical use" requirement; or may be removed from control under the Controlled Substances Act entirely. If any of our product candidates receive FDA approval, the U.S. Drug Enforcement Administration, or DEA, will make a scheduling determination. If any foreign regulatory authority determines that Epidyolex may have potential for abuse, or if DEA makes a similar determination for nabiximols, it may require us to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse potential, which could increase the cost, delay the approval and/or delay the launch of that product. In addition, there are non-FDA approved cannabidiol preparations being made available from companies through the state-enabled medical marijuana industry, which might attempt to compete with Epidiolex and, if approved by FDA, nabiximols. If we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial conditions may be materially harmed. Finally, business practices by pharmaceutical companies, including product formulation improvements, patent litigation settlements, and risk evaluation and mitigation strategy, or REMS, programs, have increasingly drawn public scrutiny from legislators and regulatory agencies, with allegations that such programs are used as a means of improperly blocking or delaying competition. If we become the subject of any future government investigation with respect to our business practices, including as they relate to the Xywav and Xyrem REMS, the launch of Xywav, our Xyrem patent litigation settlement agreements or otherwise, we could incur significant expense and could be distracted from operation of our business and execution of our strategy. From June 2020to May 2022, a number of lawsuits were filed on behalf of purported direct and indirect Xyrem purchasers, alleging that the patent litigation settlement agreements we entered with certain generic companies violate state and federal antitrust and consumer protection laws. For additional information on these lawsuits, see Note 10, Commitments and Contingencies-Legal Proceedings of the Notes to Condensed Consolidated Financial Statements, included in Part I of this Quarterly Report on Form 10Q. It is possible that additional lawsuits will be filed against us making similar or related allegations. We cannot predict the outcome of these or potential additional lawsuits or government action; however, if the plaintiffs were to be successful in their claims, they may be entitled to injunctive relief or we may be required to pay significant monetary damages. Any of the foregoing risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, to the extent the COVID-19 pandemic continues to adversely affect our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described above. All of these risks and uncertainties are discussed in greater detail, along with other risks and uncertainties, in "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. 40 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table presents our revenues and expenses (in thousands, except percentages): Three Months Ended Six Months Ended June 30, Increase/ June 30, Increase/ 2022 2021(1) (Decrease) 2022 2021 (1) (Decrease) Product sales, net $ 928,300 $ 748,34024 % $ 1,738,137 $ 1,351,87129 % Royalties and contract revenues 4,578 3,471 32 % 8,462 7,521 13 % Cost of product sales (excluding amortization of acquired developed technologies) 124,208 119,194 4 % 239,492 159,383 50 % Selling, general and administrative 366,473 429,031 (15) % 675,286 689,539 (2) % Research and development 139,047 132,696 5 % 269,028 209,269 29 % Intangible asset amortization 148,456 140,480 6 % 320,550 208,672 54 % Acquired in-process research and development 69,148 - N/A(2) 69,148 - N/A(2) Interest expense, net 63,189 69,420 (9) % 133,873 96,796 38 % Foreign exchange loss (gain) 1,343 (2,950) N/A(2) 11,883 (3,893) N/A(2) Income tax expense (benefit) (16,112) 228,621 N/A(3) (15,576) 246,640 N/A(3) Equity in loss (gain) of investees 2,461 (1,365) (280) % 6,603 (5,530) (219) % ____________________________ (1)The results of operations of the GW business have been included from the closing of the acquisition of GW on May 5, 2021. (2)Comparison to prior period not meaningful. (3)The fluctuations in the income tax expense (benefit) for the three and six months ended June 30, 2022and 2021 are as a result of changes in the mix of pre-tax income and losses across our jurisdictions and the impact of the change in the statutory tax rate in the U.K.on the 2021 periods.
The following table shows our net product sales, royalties and contract revenues, as well as total revenues (in thousands, except percentages):
Three Months Ended Six Months Ended June 30, Increase/ June 30, Increase/ 2022 2021(1) (Decrease) 2022 2021(1) (Decrease) Xyrem
$ 269,421 $ 334,182(19) % $ 516,918 $ 669,732(23) % Xywav 235,025 124,164 89 % 421,105 199,580 111 % Total Oxybate 504,446 458,346 10 % 938,023 869,312 8 % Epidiolex/Epidyolex 175,289 109,481 N/A(3) 333,182 109,481 N/A(3) Sunosi2 12,966 12,124 7 % 28,844 23,730 22 % Sativex 4,142 1,961 N/A(3) 8,884 1,961 N/A(3) Total Neuroscience 696,843 581,912 20 % 1,308,933 1,004,484 30 % Zepzelca 68,285 55,924 22 % 127,623 110,258 16 % Rylaze 72,954 - N/A(3) 127,174 - N/A(3) Vyxeos 33,890 31,453 8 % 67,647 64,608 5 % Defitelio/defibrotide 54,696 48,096 14 % 104,185 97,715 7 % Erwinaze/Erwinase - 28,314 N/A(3) - 69,382 N/A(3) Total Oncology 229,825 163,787 40 % 426,629 341,963 25 % Other 1,632 2,641 (38) % 2,575 5,424 (53) % Product sales, net 928,300 748,340 24 % 1,738,137 1,351,871 29 % Royalties and contract revenues 4,578 3,471 32 % 8,462 7,521 13 % Total revenues $ 932,878 $ 751,81124 % $ 1,746,599 $ 1,359,39228 % 41
-------------------------------------------------------------------------------- Table of Contents _____________________________ (1)The results of operations of the GW business have been included from the closing of the acquisition of GW on
May 5, 2021. (2)Net product sales for Sunosi U.S.are included until the date of divestment to Axsome of May 9, 2022. (3)Comparison to prior period not meaningful.
Product sales, net
Total oxybate product sales increased by
$46.1 millionand $68.7 millionin the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. Total oxybate revenue bottle volume increased by 5% and 4% in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. Average active oxybate patients on therapy were approximately 17,100 in the second quarter of 2022, an increase of approximately 8% compared to the same period in 2021. Xyrem product sales decreased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to a decrease in sales volume, reflecting the continued adoption of Xywav by existing Xyrem patients, partially offset by a higher average net selling price. Price increases were instituted in January 2021and January 2022. Xywav product sales increased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to higher sales volume, with bottle volume increasing by 81% and 106%, respectively. Xywav product sales were positively impacted by the launch of Xywav for IH and continued strong adoption in narcolepsy driven by educational initiatives around the benefit of lowering sodium intake. Epidiolex/Epidyolex product sales in the three and six months ended June 30, 2022were $175.3 millionand $333.2 million, respectively. On a pro forma basis, Epidiolex/Epidyolex product sales increased by 12% and 10% in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, primarily due to an increase in commercial sales volume and a higher average net selling price, partially offset by higher gross to net deductions. Price increases were instituted in January 2021and January 2022. We completed the U.Sdivestiture of Sunosi in May 2022. Sunosi product sales increased in the three months ended June 30, 2022compared to the same period in 2021 primarily due to lower gross to net deductions, driven by the release of the product returns reserve upon completion of the U.S.divestment, partially offset by lower sales volume, and increased in the six months ended June 30, 2022compared to the same period in 2021 primarily due to lower gross to net deductions. Zepzelca product sales increased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to an increase in sales volume resulting from continued adoption of Zepzelca in the treatment of second-line SCLC and a higher average net selling price. Price increases were instituted in July 2021and January 2022. Rylaze product sales were $73.0 millionand $127.2 millionin the three and six months ended June 30, 2022, respectively, following its U.S.launch in July 2021. Vyxeos product sales increased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to an increase in sales volume, partially offset by the negative impact of foreign exchange rates. Defitelio/defibrotide product sales increased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to a higher average net selling price and an increase in sales volume, partially offset by the negative impact of foreign exchange rates. We distributed our final Erwinaze inventory in June 2021following expiration of our license and supply agreement. We expect total product sales, net will increase in 2022 over 2021, primarily due to an increase in product sales of Xywav partially offset by a decrease in Xyrem, as patients continue to transition to Xywav, expected growth in, and the inclusion of a full year sales of, Epidiolex and Rylaze and expected growth in Zepzelca, partially offset by a reduction in Erwinaze following expiration of our license and supply agreement and a reduction in Sunosi following completion of the sale to Axsome. Cost of Product Sales Cost of product sales increased in the three and six months ended June 30, 2022compared to the same periods in 2021 primarily due to the cost of product sales acquired in the acquisition of GW, including increases in the acquisition accounting inventory fair value step-up expense, or fair value step-up expense, of $2.3 millionand $66.3 millionin the three and six months ended June 30, 2022, respectively. Gross margin as a percentage of net product sales was 86.6% and 86.2% for the three and six months ended June 30, 2022compared to 84.1% and 88.2% for the same periods in 2021. The increase in our gross margin percentage in the three months ended June 30, 2022was primarily due to a change in product mix. The decrease in our gross margin percentage in the six months ended June 30, 2022was primarily due to the impact of the fair value step-up expense. We expect our cost of product sales to increase in 2022 compared to 2021 primarily driven by the inclusion of a full year of fair value step-up expense.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased in the three and six months ended
June 30, 2022compared to the same periods in 2021, primarily due to lower transaction and integration expenses related to the acquisition of GW and lower Sunosi U.S.marketing related costs in the 2022 periods, offset by the loss on disposal of Sunosi and an increase in compensation related expenses driven by the inclusion of GW related headcount costs for the full periods in 2022. We expect 42
selling, general and administrative expenses in 2022 to decrease compared to 2021, primarily due to a reduction in transaction and integration expenses, together with synergies expected to be realized in connection with the acquisition of GW, partially offset by the inclusion of a full year of expense related to the acquired GW business.
Research and development costs
Research and development expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, and other research and development costs. Clinical study and outside services costs relate primarily to services performed by clinical research organizations, materials and supplies, and other third party fees. Personnel expenses relate primarily to salaries, benefits and share-based compensation. Other research and development expenses primarily include overhead allocations consisting of various support and facilities-related costs. We do not track fully-burdened research and development expenses on a project-by-project basis. We manage our research and development expenses by identifying the research and development activities that we anticipate will be performed during a given period and then prioritizing efforts based on our assessment of which development activities are important to our business and have a reasonable probability of success, and by dynamically allocating resources accordingly. We also continually review our development pipeline projects and the status of their development and, as necessary, reallocate resources among our development pipeline projects that we believe will best support the future growth of our business.
The following table provides a breakdown of our research and development expenses by major expense category (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Clinical studies and outside services
$ 57,150 $ 67,165 $ 113,579 $ 98,211Personnel expenses 56,304 47,929 111,605 84,155 Milestone expense 5,500 2,000 5,500 2,000 Other 20,093 15,602 38,344 24,903 Total $ 139,047 $ 132,696 $ 269,028 $ 209,269Research and development expenses increased by $6.4 millionand $59.8 millionin the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. Clinical studies and outside services costs decreased in the three months ended June 30, 2022compared to the same period in 2021 primarily due to a reduction in costs related to JZP458 (Rylaze) and JZP385 and increased in the six months ended June 30, 2022compared to the same period in 2021 primarily due to the addition of costs related to clinical programs for Epidiolex, nabiximols and cannabinoids and an increase in costs related to JZP150. Personnel expenses increased in the three and six months ended June 30, 2022, compared to the same periods in 2021 due to the inclusion of GW-related headcount costs for the full periods in 2022. For 2022, we expect that our research and development expenses will continue to increase from previous levels due to the inclusion of a full year of expense with respect to the acquired GW business and as we prepare for anticipated data read-outs from clinical trials, initiate and undertake additional clinical trials and related development work and potentially acquire rights to additional product candidates.
Amortization of intangible assets
Intangible asset amortization increased by
$8.0 millionand $111.9 millionin the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 primarily due to the inclusion of the amortization of the intangible assets arising from the acquisition of GW, primarily related to Epidiolex, offset by a decrease relating to the Erwinaze intangible asset that was fully amortized in June 2021. Intangible asset amortization is expected to increase in 2022 compared to 2021 primarily as a result of the inclusion of a full years amortization on the intangible assets acquired in the acquisition of GW.
Acquired in-process research and development, or IPR&D, expense in the three and six months ended
June 30, 2022primarily related to the upfront payments made in connection with our licensing agreements with Sumitomo and Werewolf of $50.0 millionand $15.0 million, respectively. 43
Interest expense, net
Interest expense, net in the three months ended
June 30, 2022, was in line with the same period in 2021. Interest expense, net, increased by $37.1 millionin the six months ended June 30, 2022, compared to the same periods in 2021, primarily due to higher interest expense from the seven-year $3.1 billionterm loan B facility, or the Dollar Term Loan, the seven-year €625.0 million term loan B facility, or the Euro Term Loan, together with the Dollar Term Loan known as the Term Loan, and the 4.375% senior secured notes, due 2029, or the Secured Notes. We expect interest expense, net for 2022 to be broadly in line with 2021.
Exchange loss (gain)
The foreign exchange loss (gain) is mainly related to the translation of net monetary liabilities denominated in pounds sterling and euros, mainly intercompany balances, held by subsidiaries having a
Income tax expense (benefit)
Our income tax benefit was
$16.1 millionand $15.6 millionfor the three and six months ended June 30, 2022, respectively, compared to an income tax expense of $228.6 millionand $246.6 millionfor the same periods in 2021. Our income tax expense for the three and six months ended June 30, 2021included an expense of $251.4 millionarising on the remeasurement of our U.K.net deferred tax liability, which arose primarily in relation to the GW Acquisition, due to a change in the statutory rate in the U.K.following enactment of the U.K.Finance Act 2021. Excluding this impact, the increase in the income tax benefit resulted primarily from the mix of pre-tax income and losses incurred across tax jurisdictions. We do not provide for Irish income taxes on undistributed earnings of our foreign operations that are intended to be indefinitely reinvested in our foreign subsidiaries.
Cash and capital resources
June 30, 2022, we had cash, cash equivalents and investments of $771.3 million, borrowing availability under our revolving credit facility of $500.0 millionand long-term debt principal balance of $6.1 billion. Our long-term debt included $3.1 billionin aggregate principal amount of the Dollar Term Loan, $1.5 billionin aggregate principal amount of the Secured Notes, $1.0 billionprincipal amount of the 2.00% exchangeable senior notes due 2026, or the 2026 Notes and $575.0 millionprincipal amount of the 1.50% exchangeable senior notes due 2024, or the 2024 Notes. We generated cash flows from operations of $512.0 millionduring the six months ended June 30, 2022, and we expect to continue to generate positive cash flows from operations which will enable us to operate our business and de-lever our balance sheet over time. In the first quarter of 2022, we repaid €208.3 million, or $251.0 millionwhich represents the remaining principal amount of the Euro Term Loan. We have made voluntary repayments of €625.0 million, or $753.0 million, relating to Euro Term Loan and mandatory repayments of $31.0 millionrelating to the Dollar Term Loan since the closing of the acquisition of GW in May 2021. We have a significant amount of debt outstanding on a consolidated basis. For a more detailed description of our debt arrangements, including information relating to our scheduled maturities with respect to our long-term debt, see Note 9, Debt, of the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10Q. This substantial level of debt could have important consequences to our business, including, but not limited to the factors set forth in "Risk Factors" of this Quarterly Report on Form 10-Q under the heading "We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position, and our business would be adversely affected if we are unable to service our debt obligations." We believe that our existing cash, cash equivalents and investments balances, cash we expect to generate from operations and funds available under our Revolving Credit Facility will be sufficient to fund our operations and to meet our existing obligations for the foreseeable future. The adequacy of our cash resources depends on many assumptions, including primarily our assumptions with respect to product sales and expenses, as well as the other factors set forth in in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q under the headings "Risks Related to our Lead Products and Product Candidates" and "To continue to grow our business, we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate and grow our business." Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash resources, and we may not be able to generate sufficient cash to service our debt obligations which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business. 44
To continue to grow our business over the longer term, we plan to commit substantial resources to product acquisition and in-licensing, product development, clinical trials of product candidates and expansion of our commercial, development, manufacturing and other operations. In this regard, we have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our strategy to acquire or in-license and develop additional products and product candidates. Acquisition opportunities that we pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. We regularly evaluate the performance of our products and product candidates to ensure fit within our portfolio and support efficient allocation of capital. In addition, we may pursue new operations or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations or for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt or equity financings, collaborations or partnering arrangements. However, global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in the
U.S.and worldwide resulting from the effects of COVID-19 and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments. In addition, under Irish law we must have authority from our shareholders to issue any ordinary shares, including ordinary shares that are part of our authorized but unissued share capital. Moreover, as a matter of Irish law, when an Irish public limited company issues ordinary shares to new shareholders for cash, the company must first offer those shares on the same or more favorable terms to existing shareholders on a pro-rata basis, unless this statutory pre-emption obligation is dis-applied, or opted-out of, by approval of its shareholders. At our recent annual general meeting of shareholders in July 2022, our shareholders voted to approve our proposal to dis-apply the statutory pre-emption obligation on terms that are substantially more limited than our general pre-emption opt-out authority that had been in effect prior to August 4, 2021. This current pre-emption opt-out authority is due to expire in December 2023. If we are unable to obtain further pre-emption authorities from our shareholders in the future, or otherwise continue to be limited by the terms of new pre-emption authorities approved by our shareholders in the future, our ability to effectively use our unissued share capital to fund in-licensing, acquisition or other business opportunities, or to otherwise raise capital, could be adversely affected. In any event, an inability to borrow or raise additional capital in a timely manner and on attractive terms could prevent us from expanding our business or taking advantage of acquisition opportunities, and could otherwise have a material adverse effect on our business and growth prospects. In addition, if we use a substantial amount of our funds to acquire or in-license products or product candidates, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose. Furthermore, any equity financing would be dilutive to our shareholders, and could require the consent of the lenders under the Credit Agreement and the indenture for the Secured Notes for certain financings. The following table presents a summary of our cash flows for the periods indicated (in thousands): Six Months Ended June 30, 2022 2021 Net cash provided by operating activities $ 512,015$
Net cash used in investing activities (126,454)
Net cash (used) provided by financing activities (260,034) 4,682,312 Effect of exchange rates on cash and cash equivalents (5,710)
Net increase (decrease) in cash and cash equivalents
Operating activities Net cash provided by operating activities increased by
$185.3 millionin the six months ended June 30, 2022compared to the same period in 2021, primarily due to decreased transaction and integration-related costs associated with the GW Acquisition.
Net cash used in investing activities decreased by
$5,048.8 millionin the six months ended June 30, 2022compared to the same period in 2021, primarily due to the following:
•Disbursements of $6,234.8 million related to the net cash paid for
• Upfront payment of $53.0 million from Axsome regarding Sunosi
disposal during the six months ended
•Decrease of $1,129.6 million in net proceeds from maturing investments, primarily term deposits during the six months ended
•$69.1 million in upfront payments for acquired IPR&D primarily driven by the
$50.0 millionand $15.0 millionpayments to Sumitomo and Werewolf, respectively, in connection with our licensing agreements in the six months ended June 30, 2022; and
• $25.0 million milestone payment to PharmaMar in connection with our first sales-based milestone for Zepzelca during the six months ended
Net cash (used in) provided by financing activities decreased by
• Net proceeds from the issuance of loans under the credit agreement of
•A decrease of
• An augmentation of
• Repayment of the long-term debt of
The summary of our outstanding indebtedness under our financing arrangements is included in Note 9, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-
Q. Duringthe six months ended June 30, 2022, there were no changes to the credit agreement, as set forth in Note 12, Debt, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
During the six months ended
June 30, 2022, there were no material changes to our contractual obligations as set forth in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Critical accounting estimates
To understand our financial statements, it is important to understand our critical accounting estimates. The preparation of our financial statements in conformity with
U.S.generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in determining the amounts to be deducted from gross revenues and also with respect to the acquisition and valuation of intangibles and income taxes. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. Although we believe our estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10K for the year ended December 31, 2021. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10K for the year ended December 31, 2021.
Caution Regarding Forward-Looking Statements
This Quarterly Report on Form 10Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's current plans, objectives, estimates, expectations and intentions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "propose," "intend," "continue," "potential," "possible," "foreseeable," "likely," "unforeseen" and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, time frames or 46
achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other risk factors in greater detail under Part II, Item 1A of this Quarterly Report on Form 10-
Q. Giventhese risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our plans, objectives, estimates, expectations and intentions only as of the date of this filing. You should read this Quarterly Report on Form 10Q completely and with the understanding that our actual future results and the timing of events may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we undertake no obligation to update or supplement any forward-looking statements publicly, or to update or supplement the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
© Edgar Online, source