The Company and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2013 |
Accounting Policies [Abstract] | ' |
The Company and Summary of Significant Accounting Policies | ' |
The Company and Summary of Significant Accounting Policies |
Jazz Pharmaceuticals plc, a public limited company formed under the laws of Ireland, is a specialty biopharmaceutical company focused on improving patients’ lives by identifying, developing and commercializing innovative products that address unmet medical needs. Our strategy is to continue to create shareholder value by: |
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• | Growing sales of the existing products in our portfolio, including by identifying new growth opportunities; | | | | | | | | | | | | | | |
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• | Acquiring additional marketed specialty products or products close to regulatory approval to leverage our existing expertise and infrastructure; and | | | | | | | | | | | | | | |
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• | Pursuing targeted development of a pipeline of post-discovery specialty product candidates. | | | | | | | | | | | | | | |
On January 18, 2012, the businesses of Jazz Pharmaceuticals, Inc. and Azur Pharma Public Limited Company, or Azur Pharma, were combined in a merger transaction, or the Azur Merger, accounted for as a reverse acquisition under the acquisition method of accounting for business combinations, with Jazz Pharmaceuticals, Inc. treated as the acquiring company for accounting purposes. As part of the Azur Merger, a wholly-owned subsidiary of Azur Pharma merged with and into Jazz Pharmaceuticals, Inc., with Jazz Pharmaceuticals, Inc. surviving the Azur Merger as a wholly-owned subsidiary of Jazz Pharmaceuticals plc. Prior to the Azur Merger, Azur Pharma changed its name to Jazz Pharmaceuticals plc. |
On June 12, 2012, we completed the acquisition of EUSA Pharma Inc., or EUSA Pharma, which we refer to as the EUSA Acquisition. |
Throughout this report, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” “we,” “us,” and “our” refer to Jazz Pharmaceuticals plc and its consolidated subsidiaries, including its predecessor Jazz Pharmaceuticals, Inc. All references to “Azur Pharma” are references to Jazz Pharmaceuticals plc (f/k/a Azur Pharma Public Limited Company) and its consolidated subsidiaries prior to the effective time of the Azur Merger on January 18, 2012. All references to “EUSA Pharma” are references to EUSA Pharma Inc. and its consolidated subsidiaries prior to the effective time of the EUSA Acquisition on June 12, 2012. |
Basis of Presentation |
These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles, or GAAP, can be condensed or omitted. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the annual consolidated financial statements and accompanying notes of Jazz Pharmaceuticals plc included in its Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations of the acquired Azur Pharma and EUSA Pharma businesses, along with the estimated fair values of the assets acquired and liabilities assumed in each transaction, have been included in our condensed consolidated financial statements since the effective dates of the Azur Merger and the EUSA Acquisition, respectively. |
In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of our financial position and operating results. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013, for any other interim period or for any future period. |
Certain prior period amounts presented in the accompanying footnotes have been reclassified to conform to current period presentation, as described in Note 2. |
These condensed consolidated financial statements include the accounts of Jazz Pharmaceuticals plc and our wholly-owned subsidiaries and intercompany transactions and balances have been eliminated. |
Significant Risks and Uncertainties |
Our financial results are significantly influenced by sales of Xyrem® (sodium oxybate) oral solution. Maintaining or increasing sales of Xyrem in its approved indications is subject to a number of risks and uncertainties, including the potential introduction of generic competition, changed or increased regulatory restrictions, and continued acceptance of Xyrem as safe and effective by physicians and patients. Two abbreviated new drug applications, or ANDAs, have been filed with the United States Food and Drug Administration, or FDA, by third parties seeking to market generic versions of Xyrem. We have sued both third parties for infringement of our patents, and the litigation proceedings are ongoing. We cannot predict the timing or outcome of these proceedings. We expect that the approval of an ANDA that results in the launch of a generic version of Xyrem would have a material adverse effect on our business, financial condition, results of operations and growth prospects. |
We are continuing our efforts on various regulatory matters, including working with the FDA on updated documents that we have submitted to the FDA on our risk management and controlled distribution system for Xyrem, which we refer to as the Xyrem Risk Management Program, and potential modifications to this program. We are engaged in ongoing communications with the FDA with respect to our risk evaluation and mitigation strategies, or REMS, documents for Xyrem, but we have not reached agreement on certain significant terms. For example, we disagree with the FDA’s current position that, as part of the current REMS process, the Xyrem deemed REMS should be modified to enable the distribution of Xyrem through more than one pharmacy. We expect that final REMS documents for Xyrem will include modifications to, and/or requirements that are not currently implemented in, the Xyrem Risk Management Program. Any such modifications or additional requirements could potentially make it more difficult or expensive for us to distribute Xyrem, make it easier for future generic competitors to enter the market and/or negatively affect sales of Xyrem. We cannot predict whether, or on what terms, we will reach agreement with FDA on final REMS documents for Xyrem, whether we will initiate dispute resolution or other proceedings with FDA prior to finalizing the REMS documents, or, if any such proceedings are initiated, the outcome or timing thereof. |
In addition, the FDA is seeking to schedule an initial meeting with us and ANDA applicants to facilitate the development of a single shared system REMS for Xyrem (sodium oxybate). Also, we may face pressure to license or share our Xyrem Risk Management Program, which is the subject of multiple issued patents, or elements of it, with generic competitors. We cannot predict the outcome or impact on our business of any discussions with the FDA and/or any ANDA applicant with respect to the potential creation of a single shared system REMS for Xyrem, any future action that may be taken by a third party to seek to license or share our REMS, or the FDA’s response to a certification that a third party has been unable to obtain a license. |
Our financial results are increasingly influenced by sales of our second largest product, Erwinaze® (asparaginase Erwinia chrysanthemi), which have continued to grow. We seek to maintain and increase sales of Erwinaze, as well as to make Erwinaze more widely available through ongoing research and development activities. However, our ability to successfully and sustainably grow sales of Erwinaze is subject to a number of risks and uncertainties, including assuring sufficient supply of Erwinaze on a timely basis, the limited population of patients with acute lymphoblastic leukemia, or ALL, and the incidence of hypersensitivity reactions to E. coli-derived asparaginase within that population, and our need to apply for and receive marketing authorizations in certain additional countries so we can launch promotional efforts in those countries. We maintain very limited inventory of Erwinaze and, in 2013, our supply of Erwinaze was nearly completely absorbed by demand for the product. While we have been able to resolve potential supply shortages and meet product demand to date, if our continued efforts to avoid supply shortages are not successful, we could experience Erwinaze supply interruptions in the future, which could have a material adverse effect on our sales of and revenues from Erwinaze and limit our potential future maintenance and growth of the market for this product. |
In addition to risks related specifically to Xyrem and Erwinaze, we are subject to other challenges and risks specific to our business, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including: the challenges of protecting our intellectual property rights; delays or problems in the supply or manufacture of our products, particularly because we maintain limited inventories of certain products, including products for which our supply demands are growing, and we are dependent on single source suppliers to continue to meet our ongoing commercial needs; the need to obtain appropriate pricing and reimbursement for our products in an increasingly challenging environment due to, among other things, the attention being paid to health care cost containment and other austerity measures in the United States and worldwide; the ongoing regulation and oversight by the FDA, the U.S. Drug Enforcement Administration, or DEA, and non-U.S. regulatory agencies, including with respect to product labeling, requirements for distribution, obtaining sufficient DEA quotas where needed, marketing and promotional activities, adverse event reporting and product recalls or withdrawals; the challenges of achieving and maintaining commercial success of our products, such as obtaining sustained acceptance of our products by patients, physicians and payors; and the difficulty and uncertainty of pharmaceutical product development and the uncertainty of clinical success and regulatory approval. Other risks and uncertainties related to our ability to execute on our strategy include: our ability to identify and acquire, in-license or develop additional products or product candidates to grow our business; and possible restrictions on our ability and flexibility to pursue certain future opportunities as a result of our substantial outstanding debt obligations. |
Concentrations of Risk |
Financial instruments that potentially subject us to concentrations of credit risk consist of cash equivalents and marketable securities. Our investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper issued by U.S. corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of U.S. states, agencies and municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and marketable securities and issuers of investments to the extent recorded on the balance sheet. |
We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a reserve against uncollectible accounts receivable as necessary. We extend credit to hospitals, pharmaceutical wholesale distributors and specialty pharmaceutical distribution companies, primarily in the United States, and to other international distributors. Customer creditworthiness is monitored and collateral is not required. We monitor deteriorating economic conditions in certain European countries which may result in variability of the timing of cash receipts and an increase in the average length of time that it takes to collect accounts receivable outstanding. Historically, we have not experienced significant credit losses on our accounts receivable and we do not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on our financial position, liquidity or results of operations. As of September 30, 2013, five customers accounted for 88% of gross accounts receivable, including Express Scripts Specialty Distribution Services, Inc. and its affiliate CuraScript, Inc., or Express Scripts, which accounted for 73% of gross accounts receivable, and Accredo Health Group, Inc., or Accredo, which accounted for 7% of gross accounts receivable. As of December 31, 2012, five customers accounted for 78% of gross accounts receivable, including Express Scripts, which accounted for 51% of gross accounts receivable, and Accredo, which accounted for 11% of gross accounts receivable. |
We depend on single source suppliers and manufacturers for each of our products, product candidates and their active pharmaceutical ingredients. |
Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates. |
Net Income per Ordinary Share |
Basic net income per ordinary share is based on the weighted-average number of ordinary shares outstanding. Diluted net income per ordinary share is based on the weighted-average number of ordinary shares outstanding and potentially dilutive ordinary shares outstanding. Basic and diluted net income per ordinary share were computed as follows (in thousands, except per share amounts): |
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| Three Months Ended | | Nine Months Ended |
September 30, | September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Numerator: | | | | | | | |
Income from continuing operations | $ | 75,409 | | | $ | 33,595 | | | $ | 161,019 | | | $ | 94,943 | |
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Loss from discontinued operations | — | | | (386 | ) | | — | | | (6,908 | ) |
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Net income | $ | 75,409 | | | $ | 33,209 | | | $ | 161,019 | | | $ | 88,035 | |
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Denominator: | | | | | | | |
Weighted-average ordinary shares - basic | 58,217 | | | 57,703 | | | 58,437 | | | 56,198 | |
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Dilutive effect of employee equity incentive and purchase plans | 1,852 | | | 1,404 | | | 1,587 | | | 1,557 | |
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Dilutive effect of warrants | 1,450 | | | 1,776 | | | 1,508 | | | 2,091 | |
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Weighted-average ordinary shares - diluted | 61,519 | | | 60,883 | | | 61,532 | | | 59,846 | |
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Basic income (loss) per ordinary share: | | | | | | | |
Income from continuing operations | $ | 1.3 | | | $ | 0.59 | | | $ | 2.76 | | | $ | 1.69 | |
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Loss from discontinued operations | — | | | (0.01 | ) | | — | | | (0.12 | ) |
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Net income | $ | 1.3 | | | $ | 0.58 | | | $ | 2.76 | | | $ | 1.57 | |
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Diluted income (loss) per ordinary share: | | | | | | | |
Income from continuing operations | $ | 1.23 | | | $ | 0.56 | | | $ | 2.62 | | | $ | 1.59 | |
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Loss from discontinued operations | — | | | (0.01 | ) | | — | | | (0.12 | ) |
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Net income | $ | 1.23 | | | $ | 0.55 | | | $ | 2.62 | | | $ | 1.47 | |
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Potentially dilutive ordinary shares from employee equity plans and warrants are determined by applying the treasury stock method to the assumed exercise of warrants and share options, the assumed vesting of outstanding restricted stock units, or RSUs, and the assumed issuance of ordinary shares under our employee stock purchase plan, or ESPP. The following table represents the weighted-average ordinary shares that were excluded from the computation of diluted net income per ordinary share for the periods presented because including them would have an anti-dilutive effect (in thousands): |
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| Three Months Ended | | Nine Months Ended | | | | |
September 30, | September 30, | | | | |
| 2013 | | 2012 | | 2013 | | 2012 | | | | |
Options to purchase ordinary shares and RSUs | 1,028 | | | 1,785 | | | 2,074 | | | 1,314 | | | | | |
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Recent Accounting Pronouncements |
In July 2013, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, or ASU No. 2013-11, which concludes that, under certain circumstances, unrecognized tax benefits should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU No. 2013-11 will be effective for us beginning January 1, 2014. We do not anticipate that the adoption of this standard will have a material impact on our financial position. |
In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”, or ASU No. 2013-05. The objective of ASU No. 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 will be effective for us beginning January 1, 2014. We do not anticipate that the adoption of this standard will have a material impact on our results of operations or financial position, absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity. |