On February 28, 2017 Jazz Pharmaceuticals plc (Nasdaq: JAZZ) reported financial results for the full year and the fourth quarter of 2016 and provided financial guidance for 2017 (Press release, Jazz Pharmaceuticals, FEB 28, 2017, View Source [SID1234517889]). Schedule your 30 min Free 1stOncology Demo! "In 2016, we delivered solid growth for two of our key products, Xyrem and Defitelio, completed multiple corporate development transactions, including the Celator acquisition, received NDA approval and launched Defitelio in the U.S., began the rolling NDA submission for Vyxeos, and advanced and expanded our development pipeline, including two new oxybate product candidates that may offer new therapeutic options for narcolepsy patients," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "We are looking forward to a busy and productive 2017, building on our investments in internal and acquired R&D programs over the last few years. We believe that 2017 will be an exciting year for Jazz as we remain focused on delivering new and improved therapeutic options for patients and value to shareholders through expansion of our business."
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GAAP net income attributable to Jazz Pharmaceuticals plc for 2016 was $396.8 million, or $6.41 per diluted share, compared to $329.5 million, or $5.23 per diluted share, for 2015. GAAP net income attributable to Jazz Pharmaceuticals plc for the fourth quarter of 2016 was $116.7 million, or $1.91 per diluted share, compared to $82.8 million, or $1.32 per diluted share, for the fourth quarter of 2015.
Adjusted net income attributable to Jazz Pharmaceuticals plc for 2016 was $627.2 million, or $10.14 per diluted share, compared to $595.5 million, or $9.45 per diluted share, for 2015. Adjusted net income attributable to Jazz Pharmaceuticals plc for the fourth quarter of 2016 was $165.6 million, or $2.71 per diluted share, compared to $176.5 million, or $2.81 per diluted share, for the fourth quarter of 2015. Reconciliations of applicable GAAP reported to non-GAAP adjusted information are included at the end of this press release.
Financial Highlights
Three Months Ended
December 31,
Year Ended
December 31,
(In thousands, except per share amounts and percentages)
2016
2015
Change
2016
2015
Change
Total revenues
$
396,621
$
340,881
16.4
%
$
1,487,973
$
1,324,803
12.3
%
GAAP net income attributable to Jazz Pharmaceuticals plc1
$
116,689
$
82,761
41.0
%
$
396,831
$
329,535
20.4
%
Adjusted net income attributable to Jazz Pharmaceuticals plc1,2
$
165,637
$
176,516
(6.2)
%
$
627,162
$
595,484
5.3
%
GAAP EPS attributable to Jazz Pharmaceuticals plc1
$
1.91
$
1.32
44.7
%
$
6.41
$
5.23
22.6
%
Adjusted EPS attributable to Jazz Pharmaceuticals plc1,2
$
2.71
$
2.81
(3.6)
%
$
10.14
$
9.45
7.3
%
1.
In the fourth quarter of 2016, the company adopted Accounting Standards Update (ASU) No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" effective as of January 1, 2016. See footnote 1 to the table titled "Reconciliations of GAAP Reported to Non-GAAP Adjusted Information" at the end of this press release.
2.
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 period results in the table above. See "Non-GAAP Financial Measures" below.
Total Revenues
Three Months Ended
December 31,
Year Ended
December 31,
(In thousands)
2016
2015
2016
2015
Xyrem (sodium oxybate) oral solution
$
291,204
$
251,752
$
1,107,616
$
955,187
Erwinaze / Erwinase (asparaginase Erwinia chrysanthemi)
56,771
50,440
200,678
203,261
Defitelio (defibrotide sodium) / defibrotide
29,672
18,472
108,952
70,731
Prialt (ziconotide) intrathecal infusion
6,055
6,496
29,120
26,440
Psychiatry
2,909
8,760
17,653
37,135
Other
6,003
3,004
13,242
24,065
Product sales, net
392,614
338,924
1,477,261
1,316,819
Royalties and contract revenues
4,007
1,957
10,712
7,984
Total revenues
$
396,621
$
340,881
$
1,487,973
$
1,324,803
Net product sales increased 12% in 2016 and 16% in the fourth quarter of 2016 compared to the same periods in 2015 primarily due to higher net product sales of Xyrem and Defitelio.
Xyrem net product sales increased 16% in both 2016 and in the fourth quarter of 2016 compared to the same periods in 2015.
Erwinaze/Erwinase net product sales decreased 1% in 2016 and increased 13% in the fourth quarter of 2016 compared to the same periods in 2015. In 2016, the company continued to experience supply challenges, which resulted in fluctuations in inventory levels and temporary disruptions to the company’s ability to supply certain markets, including the U.S. The company expects that these temporary supply interruptions will continue in 2017.
Defitelio/defibrotide net product sales increased 54% in 2016 and 61% in the fourth quarter of 2016 compared to the same periods in 2015 primarily due to the U.S. launch of Defitelio in April 2016. Net sales in the U.S. were $26.3 million in 2016 and $9.7 million in the fourth quarter of 2016.
Operating Expenses
Three Months Ended
December 31,
Year Ended
December 31,
(In thousands, except percentages)
2016
2015
2016
2015
GAAP:
Cost of product sales
$
33,656
$
24,030
$
105,386
$
102,526
Gross margin
91.4
%
92.9
%
92.9
%
92.2
%
Selling, general and administrative
$
127,141
$
125,555
$
502,892
$
449,119
% of total revenues
32.1
%
36.8
%
33.8
%
33.9
%
Research and development
$
44,158
$
29,455
$
162,297
$
135,253
% of total revenues
11.1
%
8.6
%
10.9
%
10.2
%
Acquired in-process research and development
$
—
$
—
$
23,750
$
—
Impairment charges
$
—
$
31,523
$
—
$
31,523
Three Months Ended
December 31,
Year Ended
December 31,
(In thousands, except percentages)
2016
2015
2016
2015
Non-GAAP adjusted:
Cost of product sales
$
32,177
$
22,209
$
100,797
$
98,452
Gross margin
91.8
%
93.4
%
93.2
%
92.5
%
Selling, general and administrative
$
108,204
$
87,409
$
404,837
$
355,422
% of total revenues
27.3
%
25.6
%
27.2
%
26.8
%
Research and development
$
39,619
$
26,017
$
146,466
$
96,678
% of total revenues
10.0
%
7.6
%
9.8
%
7.3
%
Operating expenses changed over the prior year periods primarily due to the following:
Selling, general and administrative (SG&A) expenses increased in 2016 and in the fourth quarter of 2016 compared to the same periods 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, and included a one-time contract termination fee of $11.6 million to eliminate potential future royalty payments related to VyxeosTM (cytarabine and daunorubicin liposome injection).
Research and development (R&D) expenses increased in 2016 and in the fourth quarter of 2016 compared to the same periods in 2015 on a GAAP and on a non-GAAP adjusted basis primarily due to increased expenses for the development of JZP-110; increased investments in oxybate-related R&D programs; the initiation of a clinical study of defibrotide for the prevention of veno-occlusive disease (VOD); costs related to the rolling new drug application (NDA) submission for Vyxeos; and an increase in headcount required to support these activities. GAAP R&D expenses for 2015 included a $25.0 million milestone in connection with the acceptance for filing by the U.S. Food and Drug Administration (FDA) of the NDA for defibrotide.
Acquired in-process research and development expense in 2016 related to upfront and option payments totaling $15.0 million to Pfenex Inc. under an agreement in which the company was granted worldwide rights to develop and commercialize multiple early-stage hematology product candidates and an upfront payment of $8.8 million that the company made in connection with its acquisition of intellectual property and know-how related to recombinant crisantaspase.
Impairment charges of $31.5 million in 2015 resulted from the termination of the JZP-416 study.
Cash Flow and Balance Sheet
As of December 31, 2016, cash, cash equivalents and investments were $426.0 million, and the outstanding principal balance of the company’s long-term debt was $2.1 billion. Cash, cash equivalents and investments decreased from December 31, 2015 primarily due to the acquisition of Celator for approximately $1.5 billion, repurchases of $278.3 million 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 net borrowings of $850.0 million under the company’s revolving credit facility and cash flows from operations of $590.5 million. During 2016, the company repurchased 2.2 million ordinary shares at an average cost of $124.09 per ordinary share.
Recent Developments
In January 2017, the company enrolled the first patient in a Phase 3 clinical study comparing the efficacy and safety of defibrotide versus best supportive care in the prevention of VOD in adult and pediatric patients undergoing hematopoietic stem cell transplant who are at high risk or at very high risk of developing VOD.
In February 2017, the company enrolled the first patient in a Phase 2 clinical study evaluating the safety and efficacy of JZP-110 for the treatment of excessive sleepiness associated with Parkinson’s disease.
2017 Financial Guidance
Jazz Pharmaceuticals’ full year 2017 financial guidance is as follows (in millions, except per share amounts and percentages):
Revenues
$1,625-$1,700
Total net product sales
$1,617-$1,692
-Xyrem net sales
$1,220-$1,250
-Erwinaze/Erwinase net sales
$205-$225
-Defitelio/defibrotide net sales
$130-$150
-Vyxeos (CPX-351) net sales1
$10-$20
GAAP gross margin %
93%
Non-GAAP adjusted gross margin %2,5
93%
GAAP SG&A expenses
$515-$550
Non-GAAP adjusted SG&A expenses3,5
$440-$460
GAAP R&D expenses
$195-$220
Non-GAAP adjusted R&D expenses4,5
$165-$180
GAAP net income per diluted share
$6.55-$7.55
Non-GAAP adjusted net income per diluted share5
$10.70-$11.30
1.
Guidance assumes FDA approval and launch of Vyxeos (CPX-351) in the U.S. in 2017.
2.
Excludes $5 million of share-based compensation expense from estimated GAAP gross margin.
3.
Excludes $75-$90 million of share-based compensation expense from estimated GAAP SG&A expenses.
4.
Excludes $20-$25 million of share-based compensation expense and $10-$15 million of milestone payments from estimated GAAP R&D expenses.
5.
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 2017 Net Income Guidance" at the end of this press release.