On August 9, 2016 Jazz Pharmaceuticals plc (Nasdaq: JAZZ) reported financial results for the second quarter of 2016 and updated financial guidance for 2016 (Press release, Jazz Pharmaceuticals, AUG 9, 2016, View Source;p=RssLanding&cat=news&id=2194317 [SID:1234514477]).
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"We have made significant progress in 2016, as we continue to build the foundation for future growth by further diversifying and strengthening our hematology/oncology portfolio with the addition of Vyxeos, a late-stage product candidate for the treatment of acute myeloid leukemia, through the acquisition of Celator Pharmaceuticals," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "We achieved strong organic sales growth of our key products, including a significant contribution from the U.S. launch of Defitelio, received FDA approval of our manufacturing facility in Athlone, Ireland and entered into additional corporate development transactions with the potential to bring innovative treatment options to patients."
GAAP net income attributable to Jazz Pharmaceuticals plc for the second quarter of 2016 was $111.3 million, or $1.80 per diluted share, compared to $88.1 million, or $1.40 per diluted share, for the second quarter of 2015.
The company has modified the calculation of its non-GAAP income tax provision and has reflected this modification in its 2015 and 2016 non-GAAP interim period results and full-year 2016 financial guidance in connection with the Securities and Exchange Commission’s May 2016 guidance pertaining to non-GAAP financial measures. The company’s modified calculation no longer includes the cash tax benefits the company realizes during the year from net operating losses and credits and deductible share-based compensation and now includes other deferred taxes and changes in unrecognized tax benefits. This modification does not change the amount of cash taxes that the company expects to pay in 2016 or in the future, and therefore has no impact on the company’s future expected cash flows. This modification does not reflect a change in the amount of cash taxes that the company expects to pay in 2016, or in the future, or a change to the company’s expected future cash flows.
Adjusted net income attributable to Jazz Pharmaceuticals plc for the second quarter of 2016 was $162.6 million, or $2.63 per diluted share. Without giving effect to the modification described above, adjusted net income attributable to Jazz Pharmaceuticals plc for the second quarter of 2016 would have been $174.3 million, or $2.82 per diluted share. Adjusted net income attributable to Jazz Pharmaceuticals plc for the second quarter of 2015 was $144.2 million, or $2.28 per diluted share. Without giving effect to the modification described above, adjusted net income attributable to Jazz Pharmaceuticals plc for the second quarter of 2015 was previously reported as $152.2 million, or $2.41 per diluted share. Reconciliations of applicable GAAP reported to non-GAAP adjusted information are included in this press release.
Financial Highlights
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands, except per share amounts and percentages)
2016
2015
Change
2016
2015
Change
Total revenues
$
381,161
$
333,747
14.2
%
$
717,171
$
643,050
11.5
%
GAAP net income attributable to Jazz Pharmaceuticals plc
$
111,282
$
88,114
26.3
%
$
185,403
$
158,814
16.7
%
Adjusted net income attributable to Jazz Pharmaceuticals plc1
$
162,584
$
144,151
12.8
%
$
295,461
$
259,666
13.8
%
GAAP EPS attributable to Jazz Pharmaceuticals plc
$
1.80
$
1.40
28.6
%
$
2.98
$
2.52
18.3
%
Adjusted EPS attributable to Jazz Pharmaceuticals plc1
$
2.63
$
2.28
15.4
%
$
4.75
$
4.12
15.3
%
____________________________
1.
Without giving effect to the modification of the calculation of non-GAAP income tax provision described above, adjusted net income attributable to Jazz Pharmaceuticals plc would have been $174.3 million, or $2.82 per diluted share, and was previously reported as $152.2 million, or $2.41 per diluted share, for the three months ended June 30, 2016 and 2015, respectively. Without giving effect to the modification described above, adjusted net income attributable to Jazz Pharmaceuticals plc would have been $315.3 million, or $5.07 per diluted share, and was previously reported as $277.2 million, or $4.40 per diluted share, for the six months ended June 30, 2016 and 2015, respectively.
Total Revenues
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)
2016
2015
2016
2015
Xyrem (sodium oxybate) oral solution
$
280,968
$
247,846
$
530,505
$
460,536
Erwinaze / Erwinase (asparaginase Erwinia chrysanthemi)
49,748
46,151
100,921
96,504
Defitelio (defibrotide sodium) / defibrotide
33,246
15,257
51,143
32,620
Prialt (ziconotide) intrathecal infusion
8,073
7,138
14,282
13,902
Psychiatry
3,867
9,372
10,869
18,465
Other
3,208
6,342
5,306
17,114
Product sales, net
379,110
332,106
713,026
639,141
Royalties and contract revenues
2,051
1,641
4,145
3,909
Total revenues
$
381,161
$
333,747
$
717,171
$
643,050
Net product sales increased 14% in the second quarter of 2016 compared to the same period in 2015 due to higher net product sales of Xyrem, Erwinaze and Defitelio.
Xyrem net product sales increased 13% in the second quarter of 2016 compared to the same period in 2015.
Erwinaze/Erwinase net product sales increased 8% in the second quarter of 2016 compared to the same period in 2015. While Erwinaze net product sales increased, the company expects to continue to experience inventory and supply challenges, which may result in temporary disruptions in the company’s ability to supply certain markets, including the U.S., from time to time. The company continues to work with distributors to prioritize delivery of drug to institutions for the treatment of patients who have been prescribed Erwinaze.
Defitelio/defibrotide net product sales increased $18.0 million in the second quarter of 2016 compared to the same period in 2015. The increase in net product sales was due to net sales of $9.5 million following the April 2016 launch of Defitelio in the U.S. and a significant increase in net product sales outside of the U.S.
Operating Expenses
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands, except percentages)
2016
2015
2016
2015
GAAP:
Cost of product sales
$
23,980
$
21,813
$
47,419
$
50,111
Gross margin
93.7
%
93.4
%
93.3
%
92.2
%
Selling, general and administrative
$
122,618
$
107,132
$
251,383
$
219,520
% of total revenues
32.2
%
32.1
%
35.1
%
34.1
%
Research and development
$
39,091
$
27,833
$
70,343
$
55,014
% of total revenues
10.3
%
8.3
%
9.8
%
8.6
%
Acquired in-process research and development
$
—
$
—
$
8,750
$
—
Non-GAAP adjusted:
Cost of product sales
$
23,017
$
21,041
$
45,657
$
48,644
Gross margin
93.9
%
93.7
%
93.6
%
92.4
%
Selling, general and administrative
$
99,488
$
88,470
$
202,099
$
183,511
% of total revenues
26.1
%
26.5
%
28.2
%
28.5
%
Research and development
$
35,562
$
23,967
$
63,524
$
47,663
% of total revenues
9.3
%
7.2
%
8.9
%
7.4
%
Operating expenses changed over the prior year period primarily due to the following:
Selling, general and administrative (SG&A) expenses increased in the second 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.
Research and development (R&D) expenses increased in the second quarter of 2016 compared to the same period in 2015, on a GAAP and on a non-GAAP adjusted basis, primarily due to higher costs for clinical studies and outside services for the development of JZP-110 and line extensions for the company’s existing products.
Cash Flow and Balance Sheet
As of June 30, 2016, cash, cash equivalents and investments were $916.4 million, and the outstanding principal balance of the company’s long-term debt was $1.3 billion. Cash, cash equivalents and investments decreased from December 31, 2015 primarily due to repurchases under the company’s share repurchase program and a $150.0 million milestone payment triggered by the U.S. Food and Drug Administration (FDA) approval of Defitelio on March 30, 2016, partially offset by cash generated by the business. During the six months ended June 30, 2016, the company repurchased 1.3 million ordinary shares for $163.2 million, at an average cost of $126.74 per ordinary share.
Recent Developments
In June 2016, the company received FDA approval for its manufacturing facility in Athlone, Ireland. Xyrem and certain development product candidates will be manufactured in this facility.
On July 12, 2016, the company completed its acquisition of Celator Pharmaceuticals, Inc. for approximately $1.5 billion.
On July 12, 2016, the company amended its existing credit agreement by increasing the revolving credit facility to $1.25 billion from $750 million and extending the maturity date of the term loan facility and revolving credit facility to July 2021 from June 2020. The company used borrowings of $1.0 billion under the company’s revolving credit facility, together with cash on hand, to fund the Celator acquisition, resulting in an increase of the outstanding principal balance of long-term debt to approximately $2.3 billion.
On August 2, 2016, the U.S. Centers for Medicare and Medicaid Services approved a New Technology Add-on Payment (NTAP) for Defitelio after determining that Defitelio met the NTAP criteria for newness, substantial clinical improvement relative to existing therapies and specific cost thresholds. Beginning October 1, 2016, NTAP will provide incremental reimbursement to the standard diagnosis-related group based reimbursement for Defitelio, which should support Medicare beneficiaries’ access to Defitelio when treated in certain inpatient hospital settings.
2016 Financial Guidance*
Jazz Pharmaceuticals is updating its full year 2016 financial guidance primarily due to the acquisition of Celator Pharmaceuticals and modification of the calculation of non-GAAP income tax provision, as follows (in millions, except per share amounts and percentage):
Revenues
$1,485-$1,530
Total net product sales
$1,477-$1,522
-Xyrem net sales
$1,095-$1,130
-Erwinaze/Erwinase net sales
$190-$215
-Defitelio/defibrotide net sales
$105-$125
GAAP gross margin %
93%
Non-GAAP adjusted gross margin %1,4
93%
GAAP SG&A expenses
$499-$529
Non-GAAP adjusted SG&A expenses2,4
$400-$415
GAAP R&D expenses
$149-$161
Non-GAAP adjusted R&D expenses3,4
$135-$145
GAAP net income per diluted share
$5.66-$6.56
Non-GAAP adjusted net income per diluted share4
$9.90-$10.30
____________________________
*
Updated August 9, 2016. The company’s 2016 financial guidance remains subject to final acquisition accounting adjustments for the acquisition of Celator Pharmaceuticals.
1.
Excludes $5 million of share-based compensation expense from estimated GAAP gross margin.
2.
Excludes $78-$86 million of share-based compensation expense, $15-$22 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.