On November 8, 2016 Jazz Pharmaceuticals plc (Nasdaq: JAZZ) reported financial results for the third quarter of 2016 and updated financial guidance for 2016 (Press release, Jazz Pharmaceuticals, NOV 8, 2016, View Source;p=RssLanding&cat=news&id=2220711 [SID1234516566]).
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"We have made substantial progress towards achieving our corporate objectives for 2016, delivering solid top-line growth in our commercial business, investing in broadening our hematology/oncology portfolio with the completion of the Celator acquisition and increasing our investments in R&D," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "In the third quarter, we began a rolling NDA submission for Vyxeos for the treatment of acute myeloid leukemia, and we are pleased with the achievement of important clinical milestones, advancement of key R&D programs and expansion of our clinical development portfolio, all of which support our goal of developing and commercializing meaningful therapies for patients while building shareholder value."
GAAP net income attributable to Jazz Pharmaceuticals plc for the third quarter of 2016 was $87.1 million, or $1.41 per diluted share, compared to $88.0 million, or $1.39 per diluted share, for the third quarter of 2015.
Adjusted net income attributable to Jazz Pharmaceuticals plc for the third quarter of 2016 was $158.5 million, or $2.57 per diluted share, compared to $159.3 million, or $2.52 per diluted share, for the third quarter of 2015. Reconciliations of applicable GAAP reported to non-GAAP adjusted information are included in this press release.
Financial Highlights
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except per share amounts and percentages)
2016
2015
Change
2016
2015
Change
Total revenues
$
374,181
$
340,872
9.8
%
$
1,091,352
$
983,922
10.9
%
GAAP net income attributable to Jazz Pharmaceuticals plc
$
87,145
$
87,960
(0.9)
%
$
272,548
$
246,774
10.4
%
Adjusted net income attributable to Jazz Pharmaceuticals plc1
$
158,470
$
159,302
(0.5)
%
$
453,931
$
418,968
8.3
%
GAAP EPS attributable to Jazz Pharmaceuticals plc
$
1.41
$
1.39
1.4
%
$
4.40
$
3.91
12.5
%
Adjusted EPS attributable to Jazz Pharmaceuticals plc1
$
2.57
$
2.52
2.0
%
$
7.32
$
6.64
10.2
%
1.
Commencing with the second quarter of 2016, the company modified the calculation of its non-GAAP income tax provision in connection with the Securities and Exchange Commission’s May 2016 guidance pertaining to non-GAAP financial measures. This modification is reflected in the company’s 2015 and 2016 non-GAAP interim period results and full-year 2016 financial guidance. See "Non-GAAP Financial Measures" below. The modification did not have a material effect on the adjusted net income attributable to Jazz Pharmaceuticals plc or adjusted EPS for the three months ended September 30, 2015. The modification resulted in the reduction of adjusted net income attributable to Jazz Pharmaceuticals plc by $17.6 million, or $0.28 per diluted share, compared to the amount previously reported for the nine months ended September 30, 2015.
Total Revenues
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands)
2016
2015
2016
2015
Xyrem (sodium oxybate) oral solution
$
285,907
$
242,899
$
816,412
$
703,435
Erwinaze / Erwinase (asparaginase Erwinia chrysanthemi)
42,986
56,317
143,907
152,821
Defitelio (defibrotide sodium) / defibrotide
28,137
19,639
79,280
52,259
Prialt (ziconotide) intrathecal infusion
8,783
6,042
23,065
19,944
Psychiatry
3,875
9,910
14,744
28,375
Other
1,933
3,947
7,239
21,061
Product sales, net
371,621
338,754
1,084,647
977,895
Royalties and contract revenues
2,560
2,118
6,705
6,027
Total revenues
$
374,181
$
340,872
$
1,091,352
$
983,922
Net product sales increased 10% in the third quarter of 2016 compared to the same period in 2015 due to higher net product sales of Xyrem and Defitelio.
Xyrem net product sales increased 18% in the third quarter of 2016 compared to the same period in 2015.
Erwinaze/Erwinase net product sales decreased 24% in the third quarter of 2016 compared to the same period in 2015 due to an Erwinaze supply interruption in the U.S. late in the third quarter of 2016. The company expects that it will continue to experience Erwinaze inventory and supply challenges, which have resulted, and are expected to continue to result, in temporary disruptions in the company’s ability to supply certain markets, including the U.S.
Defitelio/defibrotide net product sales increased $8.5 million in the third quarter of 2016 compared to the same period in 2015 primarily due to net sales of $7.1 million in the U.S.
Operating Expenses
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except percentages)
2016
2015
2016
2015
GAAP:
Cost of product sales
$
24,311
$
28,385
$
71,730
$
78,496
Gross margin
93.5
%
91.6
%
93.4
%
92.0
%
Selling, general and administrative
$
124,368
$
104,044
$
375,751
$
323,564
% of total revenues
33.2
%
30.5
%
34.4
%
32.9
%
Research and development
$
47,796
$
50,784
$
118,139
$
105,798
% of total revenues
12.8
%
14.9
%
10.8
%
10.8
%
Acquired in-process research and development
$
15,000
$
—
$
23,750
$
—
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except percentages)
2016
2015
2016
2015
Non-GAAP adjusted:
Cost of product sales
$
22,963
$
27,599
$
68,620
$
76,243
Gross margin
93.8
%
91.9
%
93.7
%
92.2
%
Selling, general and administrative
$
94,534
$
84,502
$
296,633
$
268,013
% of total revenues
25.3
%
24.8
%
27.2
%
27.2
%
Research and development
$
43,323
$
22,998
$
106,847
$
70,661
% of total revenues
11.6
%
6.7
%
9.8
%
7.2
%
Operating expenses changed over the prior year period primarily due to the following:
Selling, general and administrative (SG&A) expenses increased in the third quarter of 2016 compared to the same period in 2015 on a GAAP and on a non-GAAP adjusted basis, primarily due to higher headcount and other expenses resulting from the expansion of the company’s business. The increase on a GAAP basis was also driven by transaction and integration costs related to the Celator acquisition.
Research and development (R&D) expenses on a GAAP basis decreased by $3.0 million in the third quarter of 2016 compared to the same period in 2015. R&D expenses on a non-GAAP adjusted basis increased by $20.3 million primarily due to increased expenses for the development of JZP-110; increasing investments in line extensions for the company’s existing products, including oxybate-related R&D programs and the initiation of a clinical study of defibrotide for the prevention of veno-occlusive disease (VOD); and costs related to the rolling new drug application (NDA) submission for VyxeosTM(cytarabine and daunorubicin liposome injection). The decrease in R&D expenses on a GAAP basis was primarily due to a $25.0 million milestone expense in the third quarter of 2015 in connection with the acceptance for filing by the U.S. Food and Drug Administration (FDA) of the NDA for defibrotide, which was partially offset by the project related costs described above.
Acquired in-process research and development expense in the third quarter of 2016 related to upfront and option payments to Pfenex Inc. under an agreement in which the company was granted worldwide rights to develop and commercialize multiple early-stage hematology product candidates.
Cash Flow and Balance Sheet
As of September 30, 2016, cash, cash equivalents and investments were $426.0 million, and the outstanding principal balance of the company’s long-term debt was $2.3 billion. Cash, cash equivalents and investments decreased from December 31, 2015 primarily due to the acquisition of Celator for approximately $1.5 billion, repurchases under the company’s share repurchase program and a $150.0 million milestone payment triggered by FDA approval of Defitelio on March 30, 2016, partially offset by borrowings of $1.0 billion under the company’s revolving credit facility and cash flows from operations of $409.8 million.
During the nine months ended September 30, 2016, the company repurchased 2.1 million ordinary shares for $259.8 million, at an average cost of $125.65 per ordinary share, under a share repurchase program approved in November 2015. This share repurchase program was completed in September 2016. The company’s board of directors has authorized a new share repurchase program under which the company is authorized to repurchase a number of ordinary shares having an aggregate purchase price of up to $300 million. Under the new program, which has no expiration date, the company may repurchase ordinary shares from time to time on the open market. The timing and amount of repurchases will depend on a variety of factors, including the price of the company’s ordinary shares, alternative investment opportunities, restrictions under the company’s credit agreement, corporate and regulatory requirements and market conditions. The new share repurchase program may be modified, suspended or discontinued at any time without prior notice.
Recent Developments
In September 2016, the company completed patient enrollment for its two Phase 3 studies evaluating JZP-110 in excessive sleepiness associated with obstructive sleep apnea.
In September 2016, the company initiated the rolling NDA submission to the FDA for Vyxeos for the treatment of acute myeloid leukemia. Vyxeos has received FDA orphan drug designation for the treatment of AML and was granted breakthrough therapy designation for treatment of adults with therapy-related AML or AML with myelodysplasia-related changes.
During the third quarter of 2016, the company activated clinical sites in the Phase 3 study of defibrotide for the prevention of VOD in high-risk patients following hematopoietic stem cell transplantation.
In November 2016, the company completed enrollment in the Phase 3 study of Xyrem in pediatric narcolepsy patients with cataplexy.
2016 Financial Guidance
Jazz Pharmaceuticals is updating its full year 2016 financial guidance as follows (in millions, except per share amounts and percentages):
Revenues
$1,485-$1,530
Total net product sales
$1,477-$1,522
-Xyrem net sales*
$1,100-$1,125
-Erwinaze/Erwinase net sales
$190-$215
-Defitelio/defibrotide net sales*
$105-$120
GAAP gross margin %
93%
Non-GAAP adjusted gross margin %1,4
93%
GAAP SG&A expenses*
$492-$517
Non-GAAP adjusted SG&A expenses*,2,4
$395-$405
GAAP R&D expenses*
$159-$171
Non-GAAP adjusted R&D expenses*,3,4
$145-$155
GAAP net income per diluted share
$5.66-$6.56
Non-GAAP adjusted net income per diluted share4
$9.90-$10.30
* Updated November 8, 2016.
1.
Excludes $5 million of share-based compensation expense from estimated GAAP gross margin.
2.
Excludes $78-$86 million of share-based compensation expense, $13-$20 million of transaction and integration related costs and $6 million of expenses related to certain legal proceedings and restructuring from estimated GAAP SG&A expenses.
3.
Excludes $14-$16 million of share-based compensation expense from estimated GAAP R&D expenses.
4.
See "Non-GAAP Financial Measures" below. Reconciliations of non-GAAP adjusted guidance measures are included above and in the table titled "Reconciliation of GAAP to Non-GAAP Adjusted 2016 Net Income Guidance" provided on the last page of this press release.