On November 7, 2017 Jazz Pharmaceuticals plc (Nasdaq: JAZZ) reported financial results for the third quarter of 2017 and updated financial guidance for 2017 (Press release, Jazz Pharmaceuticals, NOV 7, 2017, View Source;p=RssLanding&cat=news&id=2315108 [SID1234521680]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
"The third quarter of 2017 was highlighted by the approval and strong launch of Vyxeos in the U.S. for the treatment of adult patients with newly-diagnosed high-risk AML, leading to our increase in 2017 Vyxeos sales guidance," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "While Xyrem has experienced lower than expected growth in 2017, and we are slightly decreasing our annual sales guidance accordingly, we remain confident in our ability to address the key drivers impacting Xyrem to position the product for solid future growth."
GAAP net income for the third quarter of 2017 was $63.5 million, or $1.03 per diluted share, compared to $89.8 million, or $1.45 per diluted share, for the third quarter of 2016. GAAP net income for the third quarter of 2017 included an upfront payment of $75.0 million to ImmunoGen, Inc. related to a collaboration and option agreement.
Adjusted net income for the third quarter of 2017 was $197.6 million, or $3.22 per diluted share, compared to $161.2 million, or $2.61 per diluted share, for the third quarter of 2016.
The tax provision and the effective tax rate for the third quarter of 2017 on both a GAAP and non-GAAP basis were favorably impacted by certain tax benefits. For further information, see "Operating Expenses and Income Tax Provision" below. Reconciliations of applicable GAAP reported to non-GAAP adjusted information are included at the end of this press release.
Financial Highlights
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except per share amounts and percentages)
2017
2016
Change
2017
2016
Change
Total revenues
$
411,855
$
374,181
10
%
$
1,182,294
$
1,091,352
8
%
GAAP net income
$
63,526
$
89,828
(29)
%
$
255,641
$
280,142
(9)
%
Adjusted net income
$
197,649
$
161,153
23
%
$
496,225
$
461,525
8
%
GAAP EPS
$
1.03
$
1.45
(29)
%
$
4.17
$
4.51
(8)
%
Adjusted EPS
$
3.22
$
2.61
23
%
$
8.09
$
7.43
9
%
Total Revenues
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands)
2017
2016
2017
2016
Xyrem (sodium oxybate) oral solution
$
303,870
$
285,907
$
874,222
$
816,412
Erwinaze / Erwinase (asparaginase Erwinia chrysanthemi)
49,173
42,986
149,585
143,907
Defitelio (defibrotide sodium) / defibrotide
31,213
28,137
97,351
79,280
VyxeosTM (daunorubicin and cytarabine) liposome for injection
9,719
—
9,719
—
Prialt (ziconotide) intrathecal infusion
7,930
8,783
21,303
23,065
Other
6,066
5,808
19,124
21,983
Product sales, net
407,971
371,621
1,171,304
1,084,647
Royalties and contract revenues
3,884
2,560
10,990
6,705
Total revenues
$
411,855
$
374,181
$
1,182,294
$
1,091,352
Net product sales increased 10% in the third quarter of 2017 compared to the same period in 2016 primarily due to an increase in net product sales of our lead marketed products.
Xyrem net product sales increased 6% in the third quarter of 2017 compared to the same period in 2016. Xyrem net product sales growth in the 2017 period was negatively impacted by payer mix, one fewer shipping day, and operational changes that delayed some prescription fulfillment.
Erwinaze/Erwinase net product sales increased 14% in the third quarter of 2017 compared to the same period in 2016. The company experienced supply disruptions during both periods; however, net product sales were higher in the third quarter of 2017 compared to the same period in 2016 due to the timing of product availability. The company expects that additional supply disruptions may occur in 2017 and into 2018.
Defitelio/defibrotide net product sales increased 11% in the third quarter of 2017 compared to the same period in 2016 primarily due to an increase in U.S. net product sales. The company expects continued inter-quarter variability in Defitelio net sales given that veno-occlusive disease is an ultra-rare disease.
Vyxeos net product sales in the third quarter of 2017 were $9.7 million. Vyxeos launched in the U.S. on August 11, 2017.
Operating Expenses and Income Tax Provision
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except percentages)
2017
2016
2017
2016
GAAP:
Cost of product sales
$
31,203
$
24,311
$
84,940
$
71,730
Gross margin
92.4
%
93.5
%
92.7
%
93.4
%
Selling, general and administrative
$
124,523
$
124,368
$
401,106
$
375,751
% of total revenues
30.2
%
33.2
%
33.9
%
34.4
%
Research and development
$
47,362
$
47,796
$
132,447
$
118,139
% of total revenues
11.5
%
12.8
%
11.2
%
10.8
%
Acquired in-process research and development
$
75,000
$
15,000
$
77,000
$
23,750
Income tax provision
$
1,239
$
26,437
$
65,914
$
100,888
Effective tax rate
1.9
%
22.7
%
20.5
%
26.5
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except percentages)
2017
2016
2017
2016
Non-GAAP adjusted:
Cost of product sales
$
29,630
$
22,963
$
80,594
$
68,620
Gross margin
92.7
%
93.8
%
93.1
%
93.7
%
Selling, general and administrative
$
103,620
$
94,534
$
333,524
$
296,633
% of total revenues
25.2
%
25.3
%
28.2
%
27.2
%
Research and development
$
42,712
$
43,323
$
118,796
$
106,847
% of total revenues
10.4
%
11.6
%
10.0
%
9.8
%
Income tax provision
$
24,410
$
38,500
$
104,307
$
129,663
Effective tax rate
11.0
%
19.3
%
17.4
%
21.9
%
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 2017 compared to the same period in 2016 on a GAAP and on a non-GAAP adjusted basis due to higher headcount and other expenses resulting from the expansion of the company’s business, including the launch of Vyxeos in the U.S. SG&A expenses in the third quarter of 2016 on a GAAP basis included transaction and integration costs of $10.3 million.
Research and development (R&D) expenses were consistent on a GAAP and on a non-GAAP adjusted basis in the third quarter of 2017 compared to the same period in 2016. R&D expenses in the third quarter of 2017 reflected an increase in expenses related to the company’s ongoing clinical development programs and regulatory activities, including an increase in headcount, and a decrease in JZP-110 costs following the completion of three Phase 3 studies this year.
The tax provision and the effective tax rate for the third quarter of 2017 on both a GAAP and non-GAAP basis were favorably impacted by the release of a valuation allowance held against certain foreign net operating losses and the release of reserves related to uncertain tax positions upon the expiration of a statute of limitation.
Cash Flow and Balance Sheet
As of September 30, 2017, cash, cash equivalents and investments were $452.6 million, and the outstanding principal balance of the company’s long-term debt was $1.8 billion. In the third quarter of 2017, the company sold $575.0 million aggregate principal amount of 1.50% exchangeable senior notes due 2024 and used the net proceeds to repay $500.0 million of outstanding borrowings under the company’s revolving credit facility. During the nine months ended September 30, 2017, the company repaid a total of $850.0 million of borrowings under the company’s revolving credit facility, made an upfront payment of $75.0 million to ImmunoGen, Inc. and used $56.4 million to repurchase approximately 398,000 ordinary shares under the company’s share repurchase program at an average cost of $141.73 per ordinary share.
Recent Developments
In August 2017, the company and ImmunoGen, Inc. entered into a collaboration and option agreement granting the company rights to opt into exclusive, worldwide licenses to develop and commercialize two early-stage, hematology-related antibody-drug conjugate (ADC) programs, as well as an additional program to be designated during the term of the agreement. The programs covered under the agreement include IMGN779, a CD33-targeted ADC for the treatment of acute myeloid leukemia (AML) in Phase 1 testing, and IMGN632, a CD123-targeted ADC for hematological malignancies expected to enter clinical testing before the end of the year.
In November 2017, the company submitted a Marketing Authorization Application (MAA) for Vyxeos to the European Medicines Authority (EMA) for the treatment of high-risk AML patients. Separately, the EMA granted Vyxeos an accelerated assessment review and the UK Medicines and Healthcare Products Regulatory Agency granted Vyxeos the Promising Innovative Medicine designation.
2017 Financial Guidance
Jazz Pharmaceuticals is updating its full year 2017 financial guidance as follows (in millions, except per share amounts and percentages):
Revenues
$1,600-$1,650
Total net product sales
$1,590-$1,630
-Xyrem net sales
$1,180-$1,200
-Erwinaze/Erwinase net sales
$200-$215
-Defitelio/defibrotide net sales
$130-$150
-Vyxeos net sales
$20-$30
GAAP gross margin %
93%
Non-GAAP adjusted gross margin %1,4
93%
GAAP SG&A expenses
$521-$551
Non-GAAP adjusted SG&A expenses2,4
$440-$460
GAAP R&D expenses
$180-$200
Non-GAAP adjusted R&D expenses3,4
$165-$180
GAAP net income per diluted share
$5.30-$6.30
Non-GAAP adjusted net income per diluted share4
$10.70-$11.20
1.
Excludes $5 million of share-based compensation expense from estimated GAAP gross margin.
2.
Excludes $75-$85 million of share-based compensation expense and $6 million of expenses related to certain legal proceedings and restructuring from estimated GAAP SG&A expenses.
3.
Excludes $15-$20 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 2017 Net Income Guidance" at the end of this press release.
Conference Call Details
Jazz Pharmaceuticals will host an investor conference call and live audio webcast today at 4:30 p.m. EST (9:30 p.m. GMT) to provide a business and financial update and discuss its 2017 third quarter results. The live webcast may be accessed from the Investors section of the company’s website at www.jazzpharmaceuticals.com. Please connect to the website prior to the start of the conference call to ensure adequate time for any software downloads that may be necessary. Investors may participate in the conference call by dialing +1 855 353 7924 in the U.S., or +1 503 343 6056 outside the U.S., and entering passcode 95499424.
A replay of the conference call will be available through November 14, 2017 by dialing +1 855 859 2056 in the U.S., or +1 404 537 3406 outside the U.S., and entering passcode 95499424. An archived version of the webcast will be available for at least one week in the Investors section of the company’s website at www.jazzpharmaceuticals.com.