What changed in this filing

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Item 1. Financial Statements

2022-08-03 compared with 2022-05-04 · 244 added, 161 removed, 669 unchanged (38% of the section changed)

6 unchanged sentences

Cash and cash equivalents $ 711,265 $ 591,448

Investments 60,000 —

Accounts receivable, net of allowances 594,034 563,360

2 unchanged sentences

Other current assets 255,525 252,392

Assets held for sale 90,888 —

Total current assets 2,590,833 2,611,334

32 unchanged sentences

JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Product sales, net $ 928,300 $ 748,340 $ 1,738,137 $ 1,351,871

6 unchanged sentences

Intangible asset amortization 148,456 140,480 320,550 208,672

Acquired in-process research and development 69,148 — 69,148 —

Total operating expenses 847,332 821,401 1,573,504 1,266,863

Income from operations 87,549 162,119

Income (loss) from operations 85,546 ( 69,590 ) 173,095 92,529

Interest expense, net ( 63,189 ) ( 69,420 ) ( 133,873 ) ( 96,796 )

Foreign exchange gain (loss) ( 1,343 ) 2,950 ( 11,883 ) 3,893

Income before income tax expense and equity in loss (gain) of investees 6,325 135,686

Income tax expense 536 18,019

Income (loss) before income tax expense (benefit) and equity in loss (gain) of investees 21,014 ( 136,060 ) 27,339 ( 374 )

Income tax expense (benefit) ( 16,112 ) 228,621 ( 15,576 ) 246,640

Equity in loss (gain) of investees 2,461 ( 1,365 ) 6,603 ( 5,530 )

Net income $ 1,647 $ 121,832

Net income per ordinary share:

Net income (loss) $ 34,665 $ ( 363,316 ) $ 36,312 $ ( 241,484 )

Net income (loss) per ordinary share:

Basic $ 0.56 $ ( 6.11 ) $ 0.58 $ ( 4.17 )

4 unchanged sentences

JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Three Months Ended

Net income $ 1,647 $ 121,832

Other comprehensive income (loss):

June 30, Six Months Ended

2022 2021 2022 2021

Net income (loss) $ 34,665 $ ( 363,316 ) $ 36,312 $ ( 241,484 )

Other comprehensive loss:

Foreign currency translation adjustments ( 515,309 ) ( 12,303 ) ( 705,797 ) ( 58,523 )

1 unchanged sentence

Loss on cash flow hedging activities reclassified from accumulated other comprehensive income (loss) to interest expense, net of income tax benefit of $ — , $ 167 , $ — and $ 333 , respectively

Unrealized loss on cash flow hedging activities, net of income tax benefit of $ — and ($ 3 ), respectively

— 1,169 — 2,329

Unrealized gain (loss) on cash flow hedging activities, net of income tax provision (benefit) of $ — , $ 1 , $ — and ($ 2 ), respectively

Unrealized loss on fair value hedging activities, net of income tax benefit of $ — , $ 125 , $ — and $ 125 , respectively

— ( 375 ) — ( 375 )

Other comprehensive loss ( 515,309 ) ( 11,507 ) ( 705,669 ) ( 56,583 )

Total comprehensive income (loss) $ ( 188,713 ) $ 76,756

Total comprehensive loss $ ( 480,644 ) $ ( 374,823 ) $ ( 669,357 ) $ ( 298,067 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

18 unchanged sentences

Balance at March 31, 2022 62,244 $ 6 4,000 $ 55 $ 472 $ 3,239,327 $ ( 590,720 ) $ 959,347 $ 3,608,487

Issuance of ordinary shares in conjunction with exercise of share options 194 — — — — 16,640 — — 16,640

Issuance of ordinary shares under employee stock purchase plan 81 — — — — 8,234 — — 8,234

Issuance of ordinary shares in conjunction with vesting of restricted stock units 104 — — — — — — — —

Shares withheld for payment of employee's withholding tax liability — — — — — ( 6,289 ) — — ( 6,289 )

Share-based compensation — — — — — 54,407 — — 54,407

Shares repurchased — — — — — — — ( 54 ) ( 54 )

Other comprehensive loss — — — — — — ( 515,309 ) — ( 515,309 )

Net income — — — — — — — 34,665 34,665

Balance at June 30, 2022 62,623 $ 6 4,000 $ 55 $ 472 $ 3,312,319 $ ( 1,106,029 ) $ 993,958 $ 3,200,781

JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

Ordinary Shares Non-voting Euro Deferred Capital

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Balance at March 31, 2021 56,873 $ 6 4,000 $ 55 $ 472 $ 2,694,858 $ ( 179,428 ) $ 1,281,726 $ 3,797,689

Issuance of ordinary shares in connection with the acquisition of GW Pharmaceuticals plc 3,798 — — — — 608,456 — — 608,456

Share-based payment - precombination service in connection with the acquisition of GW Pharmaceuticals plc — — — — — 3,555 — — 3,555

Issuance of ordinary shares in conjunction with exercise of share options 328 — — — — 43,600 — — 43,600

Issuance of ordinary shares under employee stock purchase plan 79 — — — — 8,282 — — 8,282

Issuance of ordinary shares in conjunction with vesting of restricted stock units 37 — — — — — — — —

Shares withheld for payment of employee's withholding tax liability — — — — — ( 3,388 ) — — ( 3,388 )

Share-based compensation — — — — — 48,119 — — 48,119

Other comprehensive loss — — — — — — ( 11,507 ) — ( 11,507 )

Net loss — — — — — — — ( 363,316 ) ( 363,316 )

Balance at June 30, 2021 61,115 $ 6 4,000 $ 55 $ 472 $ 3,403,482 $ ( 190,935 ) $ 918,410 $ 4,131,490

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

Net income $ 1,647 $ 121,832

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ 36,312 $ ( 241,484 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Intangible asset amortization 320,550 208,672

1 unchanged sentence

Share-based compensation 103,757 82,648

Deferred tax benefit ( 45,339 ) ( 19,110 )

Deferred tax expense (benefit) ( 82,315 ) 171,587

Acquired in-process research and development 69,148 —

Loss on disposal of a business 40,814 —

Non-cash interest expense 17,740 38,010

16 unchanged sentences

Investing activities

Proceeds from maturity of investments — 760,000

Proceeds from sale of a business 53,000 —

Purchases of property, plant and equipment ( 24,570 ) ( 9,346 )

1 unchanged sentence

Acquisition of investments ( 60,736 ) ( 26,100 )

Net cash (used in) provided by investing activities ( 37,292 ) 737,132

Acquired in-process research and development ( 69,148 ) —

Proceeds from maturity of investments — 1,095,000

Acquisition of a business, net of cash acquired — ( 6,234,792 )

Net cash used in investing activities ( 126,454 ) ( 5,175,238 )

Financing activities

Proceeds from employee equity incentive and purchase plans 46,603 102,289

Share repurchases ( 54 ) —

Payment of employee withholding taxes related to share-based awards ( 40,065 ) ( 27,172 )

Repayments of long-term debt ( 266,518 ) ( 584,268 )

Net proceeds from issuance of borrowings under credit agreement — 3,719,930

Net proceeds from issuance of Senior Secured Notes, due 2029 — 1,471,533

Net cash (used in) provided by financing activities ( 260,034 ) 4,682,312

Effect of exchange rates on cash and cash equivalents ( 5,710 ) ( 135 )

Net (decrease) increase in cash and cash equivalents ( 100,613 ) 1,039,764

Net increase (decrease) in cash and cash equivalents 119,817 ( 166,369 )

Cash and cash equivalents, at beginning of period 591,448 1,057,769

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• Xyrem® (sodium oxybate) oral solution , a product approved by FDA and distributed in the U.S.

for the treatment of both cataplexy and EDS in patients seven years of age and older with narcolepsy;

for the treatment of cataplexy or EDS in patients seven years of age and older with narcolepsy;

Jazz also markets Xyrem in Canada for the treatment of cataplexy in patients with narcolepsy.

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in the EU (where it is marketed as Epidyolex®) and other markets, it is approved for adjunctive treatment of seizures associated with LGS or DS, in conjunction with clobazam (EU and Great Britain only), in patients 2 years of age and older and for adjunctive treatment of seizures associated with TSC in patients 2 years of age and older;

• Sunosi ® (solriamfetol) , a product approved by FDA and marketed in the U.S., Canada, EU and Great Britain to improve wakefulness in adult patients with EDS associated with narcolepsy or obstructive sleep apnea, or OSA;

• Sativex® (nabiximols) oral solution , a product approved and marketed in more than 29 markets outside the U.S.

as treatment for symptom improvement in adult patients with moderate to severe spasticity due to multiple sclerosis, or MS, who have not responded adequately to other anti-spasticity medication and who demonstrate clinically significant improvement in spasticity-related symptoms during an initial trial of therapy.

• Zepzelca® (lurbinectedin) , a product approved by FDA in June 2020 and launched in the U.S.

Nabiximols is investigational and currently not approved for any indication in the U.S.

• Zepzelca® (lurbinectedin) , a product approved by FDA in June 2020 under FDA's accelerated approval pathway and launched in the U.S.

in July 2020 for the treatment of adult patients with metastatic small cell lung cancer, or SCLC, with disease progression on or after platinum-based chemotherapy;

i n Canada, Zepzelca was approved in September 2021 for the treatment of adults with Stage III or metastatic SCLC, who have progressed on or after platinum-containing therapy;

i n Canada, Zepzelca received conditional approval in September 2021 for the treatment of adults with Stage III or metastatic SCLC, who have progressed on or after platinum-containing therapy;

• Rylaze® (recombinant Erwinia asparaginase) , a product approved by FDA in June 2021 and launched in the U.S.

1 unchanged sentence

coli -derived asparaginase;

• Vyxeos® (daunorubicin and cytarabine) liposome for injection , a product approved in the U.S., Canada, EU, Great Britain, and recently in Switzerland (marketed as Vyxeos® liposomal in the EU and Great Britain) for the treatment of adults with newly-diagnosed therapy-related acute myeloid leukemia, or t-AML, or AML with myelodysplasia-related changes (AML-MRC).

• Vyxeos® (daunorubicin and cytarabine) liposome for injection , a product approved in the U.S., Canada, EU, Great Britain, Switzerland, Israel and Australia (marketed as Vyxeos® liposomal in the EU, Great Britain, Switzerland and Israel) for the treatment of adults with newly-diagnosed therapy-related acute myeloid leukemia, or t-AML, or AML with myelodysplasia-related changes (AML-MRC).

An expanded indication was granted in the U.S.

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It is indicated in adults and pediatric patients over 1 month of age.

Throughout this report, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” "the Company", “we,” “us,” and “our” refer to Jazz Pharmaceuticals plc and its consolidated subsidiaries.

Throughout this report, all references to “ordinary shares” refer to Jazz Pharmaceuticals plc’s ordinary shares.

Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” "the Company", “we,” “us,” and “our” refer to Jazz Pharmaceuticals plc and its consolidated subsidiaries.

Throughout this Quarterly Report on Form 10-Q, all references to “ordinary shares” refer to Jazz Pharmaceuticals plc’s ordinary shares.

Basis of Presentation

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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 months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, for any other interim period or for any future period.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, for any other interim period or for any future period.

Our significant accounting policies have not changed substantially from those previously described in our Annual Report on Form 10‑K for the year ended December 31, 2021, other than as described below.

25 unchanged sentences

Interest expense on the Exchangeable Senior Notes will be lower as a result of adoption of this guidance.

During the three months ended March 31, 2022 the effect of adoption reduced interest expense, net and increased net income by approximately $ 12 million and increased basic and diluted EPS by approximately $ 0.19 per share.

For the three months ended March 31, 2022, the Exchangeable Senior Notes were determined to be anti-dilutive.

During the three and six months ended June 30, 2022 the effect of adoption reduced interest expense, net and increased net income by approximately $ 12 million and $ 24 million, respectively, and increased basic and diluted EPS by approximately $ 0.19 per share and $ 0.38 per share, respectively.

The Exchangeable Senior Notes were determined to be anti-dilutive for the three and six months ended June 30, 2022.

The adoption of ASU 2020-06 did not impact our cash flows or compliance with debt covenants.

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We have implemented a comprehensive response strategy designed to manage the ongoing impact of the COVID-19 pandemic on our employees, patients and our business.

The prolonged nature of the pandemic is negatively impacting our business in a varied manner due to the emergence of the Delta and Omicron variants and other variants with increased transmissibility, even in some cases in vaccinated people, limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment.

The prolonged nature of the pandemic is negatively impacting our business in a varied manner due to the emergence of variants with increased transmissibility, even in vaccinated people, including with respect to limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment.

We believe these dynamics have negatively impacted new patient starts in the U.S.

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Our business has been substantially dependent on Xyrem and while we expect that our business will continue to be substantially dependent on oxybate product sales from both Xyrem and Xywav, there is no guarantee that we can maintain oxybate revenues at or near current levels, or that oxybate revenues will continue to grow.

Our ability to maintain or increase oxybate revenues and realize the anticipated benefits from our investment in Xywav are subject to a number of risks and uncertainties including, without limitation, those related to the launch of Xywav for the treatment of idiopathic hypersomnia in adults and adoption in that indication;

competition from the introduction of authorized generic and generic versions of sodium oxybate and new products for treatment of cataplexy and/or EDS in narcolepsy in the U.S.

competition from the near-term introduction of authorized generic and generic versions of sodium oxybate and new products for treatment of cataplexy and/or EDS in narcolepsy in the U.S.

market and from other competitors;

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and possible restrictions on our ability and flexibility to pursue certain future opportunities as a result of our substantial outstanding debt obligations.

In addition, the success of the GW Acquisition will depend, in part, on our ability to realize the anticipated benefits from successfully combining our and GW's historical businesses and the integration of our business practices and operations with GW's so that we can fully realize the anticipated benefits of the acquisition.

In May 2021, we acquired GW.

The total consideration paid by us for the entire issued share capital of GW was $ 7.2 billion.

We refer to the acquisition of GW as the GW Acquisition.

The success of the GW Acquisition will depend, in part, on our ability to realize the anticipated benefits from our and GW's historical businesses.

The anticipated benefits to us of the GW Acquisition may not be realized fully within the expected timeframe or at all or may take longer to realize or cost more than expected, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.

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All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.

As of March 31, 2022, we had foreign exchange forward contracts with notional amounts totaling $ 610.1 million.

As of March 31, 2022, the outstanding foreign exchange forward contracts had a net liability fair value of $ 4.7 million.

As of June 30, 2022, we had foreign exchange forward contracts with notional amounts totaling $ 667.0 million.

As of June 30, 2022, the outstanding foreign exchange forward contracts had a net liability fair value of $ 20.3 million.

The counterparties to these contracts are large multinational commercial banks, and we believe the risk of nonperformance is not significant.

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We monitor 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 as of March 31, 2022 and December 31, 2021, allowances on receivables were not material.

As of March 31, 2022, three customers accounted for 74 % of gross accounts receivable, Express Scripts Specialty Distribution Services, Inc.

Historically, we have not experienced significant credit losses on our accounts receivable and as of June 30, 2022 and December 31, 2021, allowances on receivables were not material.

As of June 30, 2022, three customers accounted for 74 % of gross accounts receivable, Express Scripts Specialty Distribution Services, Inc.

and its affiliates, or ESSDS, which accounted for 54 % of gross accounts receivable, McKesson Corporation and affiliates, or McKesson, which accounted for 10 % of gross accounts receivable, and Cardinal Health, Inc., or Cardinal, which accounted for 10 % of gross accounts receivable.

8 unchanged sentences

The new guidance is not expected to have a material impact on our results of operations, financial position, or cash flows.

Disposition and License Agreements

In March 2022, we entered into a definitive agreement to divest Sunosi to Axsome Therapeutics, or Axsome.

In May 2022, we completed the U.S.

divestiture of Sunosi and expect to complete the ex-U.S.

divestiture later this year.

Under the terms of the sale agreement, Axsome received the rights to Sunosi in all of the existing territories available to us.

We received an upfront payment of $ 53.0 million, and have the right to receive a high single-digit royalty on Axsome’s U.S.

net sales of Sunosi in current indications and a mid-single-digit royalty on Axsome’s U.S.

net sales of Sunosi in future indications.

Upon closing, we recognized a loss on disposal of $ 40.8 million within selling, general and administrative expenses in our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2022.

We are accounting for the contingent consideration in the form of the future royalty as it is earned.

We determined that the disposal of Sunosi does not qualify for reporting as a discontinued operation since it does not represent a strategic shift that has or will have a major effect on our operations and financial results.

License Agreements

In the second quarter of 2022, we entered into a licensing agreement with Werewolf Therapeutics, Inc., or Werewolf, to acquire exclusive global development and commercialization rights to Werewolf's investigational WTX-613, now referred to as JZP898.

JZP898 is a differentiated, conditionally-activated interferon alpha (IFNα) INDUKINE™ molecule.

Under the terms of the agreement, we made an upfront payment of $ 15.0 million to Werewolf, which was recorded as acquired in-process research and development, or IPR&D, expense in our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2022.

Werewolf is eligible to receive development, regulatory and commercial milestone payments of up to $ 1.26 billion and, if JZP898 is approved, a tiered, mid-single-digit percentage royalty on net sales of JZP898.

In the second quarter of 2022, we entered into a licensing agreement with Sumitomo Pharma Co., Ltd, or Sumitomo, to acquire exclusive development and commercialization rights in the U.S., Europe and other territories for DSP-0187, now referred to as JZP441.

JZP441 is a potent, highly selective oral orexin-2 receptor agonist with potential application for the treatment of narcolepsy, IH and other sleep disorders.

Under the terms of the agreement, we made an upfront payment of $ 50.0 million to Sumitomo, which was recorded as acquired IPR&D expense in our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2022.

Sumitomo is eligible to receive development, regulatory and commercial milestone payments of up to $ 1.09 billion and, if JZP441 is approved, a tiered, low double-digit royalty on Jazz's net sales of JZP441.

Cash and Available-for-Sale Securities

Cash and cash equivalents consisted of the following (in thousands):

March 31, 2022

Cash, cash equivalents and investments consisted of the following (in thousands):

June 30, 2022

Losses Estimated

Fair Value Cash and

Equivalents Investments

Cash $ 380,328 $ — $ — $ 380,328 $ 380,328 $ —

Time deposits 100,000 — — 100,000 40,000 60,000

Money market funds 290,937 — — 290,937 290,937 —

3 unchanged sentences

Fair Value Cash and

Equivalents Investments

Cash $ 510,747 $ — $ — $ 510,747 $ 510,747 $ —

1 unchanged sentence

Totals $ 591,448 $ — $ — $ 591,448 $ 591,448 $ —

Cash equivalents are considered available-for-sale securities.

We use the specific-identification method for calculating realized gains and losses on securities sold and include them in interest expense, net in the condensed consolidated statements of income.

Interest income from available-for-sale securities was $ 0.2 million and $ 1.2 million in the three months ended March 31, 2022 and 2021, respectively.

Cash equivalents and investments are considered available-for-sale securities.

We use the specific-identification method for calculating realized gains and losses on securities sold and include them in interest expense, net in the condensed consolidated statements of income (loss).

Our investment balances represent time deposits with original maturities of greater than three months and less than one year.

Interest income from available-for-sale securities was $ 0.7 million and $ 0.9 million

in the three and six months ended June 30, 2022, respectively, and $ 0.4 million and $ 1.5 million in the three and six months ended June 30, 2021, respectively.

Fair Value Measurement

The following table summarizes, by major security type, our available-for-sale securities and derivative contracts as of March 31, 2022 and December 31, 2021 that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):

March 31, 2022 December 31, 2021

The following table summarizes, by major security type, our available-for-sale securities and derivative contracts as of June 30, 2022 and December 31, 2021 that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):

June 30, 2022 December 31, 2021

(Level 1) Significant

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Money market funds $ 290,937 $ — $ 290,937 $ 80,701 $ — $ 80,701

Time deposits — 100,000 100,000 — — —

Foreign exchange forward contracts — 3,756 3,756 — 580 580

3 unchanged sentences

Totals $ — $ 24,033 $ 24,033 $ — $ 18,419 $ 18,419

As of March 31, 2022, our available-for-sale securities included money market funds and their carrying values were approximately equal to their fair values.

Money market funds were measured using quoted prices in active markets, which represent Level 1 inputs.

As of June 30, 2022, our available-for-sale securities included money market funds and time deposits and their carrying values were approximately equal to their fair values.

Money market funds were measured using quoted prices in active markets, which represent Level 1 inputs and time deposits were measured at fair value using Level 2 inputs.

Level 2 inputs, obtained from various third party data providers, represent quoted prices for similar assets in active markets, or these inputs were derived from observable market data, or if not directly observable, were derived from or corroborated by other observable market data.

Our derivative assets and liabilities include foreign exchange derivatives that are measured at fair value using observable market inputs such as forward rates and based on these inputs, the derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.

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There were no transfers between the different levels of the fair value hierarchy in 2022 or 2021.

As of March 31, 2022 and December 31, 2021, the carrying amount of investments measured using the measurement alternative for equity investments without a readily determinable fair value was $ 5.0 million.

As of June 30, 2022, the carrying amount of investments measured using the measurement alternative for equity investments without a readily determinable fair value was $ 5.5 million.

The carrying amount, which is recorded within other non-current assets, is based on the latest observable transaction price.

As of March 31, 2022, the estimated fair values of the 2024 Notes, the 2026 Notes, the 4.375 % senior secured notes, due 2029, or the Secured Notes, and the seven-year $ 3.1 billion term loan B facility, or the Dollar Term Loan, were approximately $ 594 million, $ 1.2 billion, $ 1.5 billion and $ 3.1 billion respectively.

As of June 30, 2022, the estimated fair values of the 2024 Notes, the 2026 Notes, the 4.375 % senior secured notes, due 2029, or the Secured Notes, and the seven-year $ 3.1 billion term loan B facility, or the Dollar Term Loan, were approximately $ 571 million, $ 1.2 billion, $ 1.3 billion and $ 2.9 billion respectively.

The fair values of each of these debt facilities was estimated using quoted market prices obtained from brokers (Level 2).

As of March 31, 2022, assets measured at fair value on a non-recurring basis subsequent to initial recognition included assets classified as held for sale on the condensed consolidated balance sheet.

These assets related to an asset purchase agreement with Axsome Therapeutics, or Axsome, pursuant to which Axsome will purchase certain assets related to Sunosi.

Refer to Note 15, Assets Held for Sale, for additional information.

The carrying amount of $ 90.9 million for assets held for sale is equal to estimated fair value, which is based on the sales price agreed less costs to sell, and represents a Level 3 input.

Derivative Instruments and Hedging Activities

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All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.

In order to hedge our exposure to foreign currency exchange risk associated with our Euro Term Loan, we entered into a cross-currency interest rate swap contract in May 2021, which matured on March 31, 2022.

In order to hedge our exposure to foreign currency exchange risk associated with our seven-year € 625.0 million term loan B facility, or the Euro Term Loan, we entered into a cross-currency interest rate swap contract in May 2021, which matured on March 31, 2022.

The terms of this contract converted the principal repayments and interest payments on the Euro Term Loan into U.S.

The carrying amount of the Euro Term Loan and the fair value of the cross-currency interest rate swap contract were remeasured on a monthly basis, with changes in the euro to U.S.

dollar foreign exchange rates recognized within foreign exchange gain (loss) in the condensed consolidated statements of income.

The carrying amount of the Euro Term Loan and the fair value of the cross-currency interest rate swap

contract were remeasured on a monthly basis, with changes in the euro to U.S.

dollar foreign exchange rates recognized within foreign exchange gain (loss) in the condensed consolidated statements of income (loss).

The impact on accumulated other comprehensive income (loss) and earnings from the cross-currency interest rate swap contract was as follows (in thousands):

Cross-Currency Interest Rate Contract:

Three Months Ended

March 31, 2022

June 30, Six Months Ended

Cross-Currency Interest Rate Contract:

2022 2021 2022 2021

Loss recognized in accumulated other comprehensive income (loss), net of tax $ — $ ( 375 ) $ — $ ( 375 )

Loss reclassified from accumulated other comprehensive income (loss) to foreign exchange gain (loss), net of tax — — 128 —

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Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures.

As of March 31, 2022 and December 31, 2021, the notional amount of foreign exchange contracts where hedge accounting is not applied was $ 610.1 million and $ 347.2 million, respectively.

The foreign exchange gain (loss) in our condensed consolidated statements of income included the following losses associated with foreign exchange contracts not designated as hedging instruments (in thousands):

As of June 30, 2022 and December 31, 2021, the notional amount of foreign exchange contracts where hedge accounting is not applied was $ 667.0 million and $ 347.2 million, respectively.

The foreign exchange gain (losses) in our condensed consolidated statements of income (loss) included the following gains (losses) associated with foreign exchange contracts not designated as hedging instruments (in thousands):

Three Months Ended

June 30, Six Months Ended

Foreign Exchange Forward Contracts:

Loss recognized in foreign exchange gain (loss) $ ( 21,025 ) $ ( 13,050 )

The cash flow effects of our derivative contracts for the three months ended March 31, 2022 and 2021 are included within net cash provided by operating activities in the condensed consolidated statements of cash flows, except for the settlement of notional amounts of the cross-currency interest rate contract, which are included in net cash provided by (used in) financing activities.

2022 2021 2022 2021

Gain (loss) recognized in foreign exchange gain (loss) $ ( 34,180 ) $ 3,017 $ ( 55,205 ) $ ( 10,033 )

The cash flow effects of our derivative contracts for the six months ended June 30, 2022 and 2021 are included within net cash provided by operating activities in the condensed consolidated statements of cash flows, except for the settlement of notional amounts of the cross-currency interest rate contract, which are included in net cash provided by (used in) financing activities.

To achieve a desired mix of floating and fixed interest rates on our variable rate debt, we entered into interest rate swap agreements in March 2017.

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The interest rate swap agreements matured in July 2021.

The impact on accumulated other comprehensive income (loss) and earnings from interest rate swap contracts for the three months ended March 31, 2021 was as follows (in thousands):

The impact on accumulated other comprehensive income (loss) and earnings from interest rate swap contracts for the three and six months ended June 30, 2021 was as follows (in thousands):

Interest Rate Contracts:

Three Months Ended

March 31, 2021

Loss recognized in accumulated other comprehensive income (loss), net of tax $ ( 16 )

Loss reclassified from accumulated other comprehensive income (loss) to interest expense, net of tax 1,160

June 30, 2021 Six Months Ended

June 30, 2021

Gain (loss) recognized in accumulated other comprehensive income (loss), net of tax $ 2 $ ( 14 )

Gain reclassified from accumulated other comprehensive income (loss) to interest expense, net of tax 1,169 2,329

The following tables summarize the fair value of outstanding derivatives (in thousands):

Classification March 31,

Classification June 30,

2022 December 31,

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The following tables summarize the potential effect on our condensed consolidated balance sheets of offsetting our cross-currency interest rate contracts and foreign exchange forward contracts subject to such provisions (in thousands):

March 31, 2022

June 30, 2022

Gross Amounts of Recognized Assets/ Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheet Gross Amounts Not Offset in the Consolidated Balance Sheet

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Total inventories $ 861,705 $ 1,072,721

As of March 31, 2022 and December 31, 2021 inventories included $ 727.4 million and $ 811.3 million, respectively, related to the purchase accounting inventory fair value step-up on inventory acquired in the GW Acquisition.

As of June 30, 2022 and December 31, 2021 inventories included $ 606.0 million and $ 811.3 million, respectively, related to the purchase accounting inventory fair value step-up on inventory acquired in the GW Acquisition.

Goodwill and Intangible Assets

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Balance at December 31, 2021 $ 1,827,609

Goodwill allocated to assets held for sale (1)

Goodwill allocated to divestiture of Sunosi (1)

Foreign exchange ( 127,034 )

Balance at March 31, 2022 $ 1,782,444

Balance at June 30, 2022 $ 1,687,648

________________________

(1) In March 2022, we entered into a definitive agreement to divest Sunosi to Axsome.

See Note 15 for further information relating to this transaction.

(1) See Note 2 for further information relating to this divestiture.

The gross carrying amounts and net book values of our intangible assets were as follows (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Average Useful

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Total intangible assets $ 7,659,655 $ ( 1,421,696 ) $ 6,237,959 $ 8,365,678 $ ( 1,213,350 ) $ 7,152,328

The decrease in the gross carrying amount of intangible assets as of March 31, 2022 compared to December 31, 2021 primarily reflects the reclassification of the Sunosi intangible asset to assets held for sale as a result of the execution of the definitive agreement to divest Sunosi to Axsome in March 2022, partially offset by the negative impact of foreign currency translation adjustments due to the weakening of sterling and euro against the U.S.

The decrease in the gross carrying amount of intangible assets as of June 30, 2022 compared to December 31, 2021 primarily reflects the sale of the Sunosi acquired developed technology asset to Axsome and the negative impact of foreign currency translation adjustments due to the weakening of sterling and euro against the U.S.

The assumptions and estimates used to determine future cash flows and remaining useful lives of our intangible and other long-lived assets are complex and subjective.

They can be affected by various factors, including external factors, such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.

Based on finite-lived intangible assets recorded as of March 31, 2022, and assuming the underlying assets will not be impaired and that we will not change the expected lives of the assets, future amortization expenses were estimated as follows (in thousands):

Based on finite-lived intangible assets recorded as of June 30, 2022, and assuming the underlying assets will not be impaired and that we will not change the expected lives of the assets, future amortization expenses were estimated as follows (in thousands):

Year Ending December 31, Estimated Amortization Expense

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Employee compensation and benefits 94,646 158,870

Clinical trial accruals 27,741 25,612

Accrued interest 34,992 48,640

Clinical trial accruals 25,380 25,612

Derivative instrument liabilities 24,033 18,419

Consulting and professional services 19,784 22,507

Accrued royalties 19,295 20,345

Sales return reserve 18,708 15,814

Inventory-related accruals 18,708 16,166

Consulting and professional services 17,527 22,507

Current portion of lease liabilities 15,499 15,763

Selling and marketing accruals 13,121 21,566

Derivative instrument liabilities 8,418 18,419

Accrued construction-in-progress 3,978 2,894

Inventory-related accruals 7,542 16,166

Accrued milestones 5,000 25,000

Accrued construction-in-progress 4,361 2,894

Other 49,647 59,311

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________________________

(1) In May 2021, we entered into a credit agreement that provided for (i) the Dollar Term Loan, (ii) a seven-year $ 625.0 million term loan B facility, or the Euro Term Loan, together with the Dollar Term Loan, collectively known as the Term Loan and (iii) a five-year $ 500.0 million revolving credit facility.

(1) In May 2021, we entered into a credit agreement that provided for (i) the Dollar Term Loan, (ii) the Euro Term Loan, together with the Dollar Term Loan, collectively known as the Term Loan and (iii) a five-year $ 500.0 million revolving credit facility.

In 2021, we made voluntary prepayments on the Euro Term Loan totaling € 416.7 million, or $ 502.0 million, and in March 2022 we repaid the remaining outstanding principal of € 208.3 million, or $ 251.0 million.

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Interest on the 2026 Notes is payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on December 15, 2020, at a rate of 2.00 % per year.

In certain circumstances, we may be required to pay additional amounts as a result of any applicable tax

withholding or deductions required in respect of payments on the 2026 Notes.

In certain circumstances, we may be required to pay additional amounts as a result of any applicable tax withholding or deductions required in respect of payments on the 2026 Notes.

The 2026 Notes mature on June 15, 2026, unless earlier exchanged, repurchased or redeemed.

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In addition, following certain make-whole fundamental changes occurring prior to the maturity date of the 2026 Notes or upon our issuance of a notice of redemption, we will in certain circumstances increase the exchange rate for holders of the 2026 Notes who elect to exchange their 2026 Notes in connection with that make-whole fundamental change or during the related redemption period.

Prior to March 15, 2026, the 2026 Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

March 15, 2026, the 2026 Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

Following the adoption of ASU 2020-06, the 2026 Notes are accounted for as a single liability measured at its amortized cost.

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The effective interest rate of the 2026 Notes is 2.26 %.

During the three months ended March 31, 2022, we recognized interest expense of $ 5.5 million, of which $ 5.0 million related to the contractual coupon rate and $ 0.5 million related to the amortization of debt issuance costs.

During the three and six months ended June 30, 2022, we recognized interest expense of $ 5.6 million and $ 11.1 million, respectively, of which $ 5.0 million and $ 10.0 million, related to the contractual coupon rate and $ 0.6 million and $ 1.1 million, related to the amortization of debt issuance costs.

Please see Note 1 for further information on the adoption of ASU 2020-06.

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The effective interest rate of the 2024 Notes is 1.79 %.

During the three months ended March 31, 2022, we recognized interest expense of $ 2.5 million, of which $ 2.1 million related to the contractual coupon rate and $ 0.4 million related to the amortization of debt issuance costs.

During the three and six months ended June 30, 2022, we recognized interest expense of $ 2.5 million and $ 5.0 million, respectively, of which $ 2.1 million and $ 4.2 million related to the contractual coupon rate and $ 0.4 million and $ 0.8 million, related to the amortization of debt issuance costs.

Please see Note 1 for further information on the adoption of ASU 2020-06.

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There is no assurance that in the future such restrictions will not be adopted.

Scheduled maturities with respect to our long-term debt principal balances outstanding as of March 31, 2022 were as follows (in thousands):

Scheduled maturities with respect to our long-term debt principal balances outstanding as of June 30, 2022 were as follows (in thousands):

Year Ending December 31, Scheduled Long-Term Debt Maturities

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Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, we believe the fair value of these indemnification obligations is not significant.

Accordingly, we did not recognize any liabilities relating to these obligations as of March 31, 2022 and December 31, 2021.

Accordingly, we did not recognize any liabilities relating to these obligations as of June 30, 2022 and December 31, 2021.

No assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case we may incur substantial liabilities as a result of these indemnification obligations.

Other Commitments

As of March 31, 2022, we had $ 74.4 million of noncancelable purchase commitments due within one year, primarily related to agreements with third party manufacturers.

As of June 30, 2022, we had $ 59.1 million of noncancelable purchase commitments due within one year, primarily related to agreements with third party manufacturers.

Legal Proceedings

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Xyrem Class Action

From June 2020 to February 2022, a number of lawsuits were filed on behalf of purported direct and indirect Xyrem purchasers, alleging that the patent litigation settlement agreements we entered with generic drug manufacturers who had filed Abbreviated New Drug Applications, or ANDA, violate state and federal antitrust and consumer protection laws, as follows:

From June 2020 to May 2022, a number of lawsuits were filed on behalf of purported direct and indirect Xyrem purchasers, alleging that the patent litigation settlement agreements we entered with generic drug manufacturers who had filed Abbreviated New Drug Applications, or ANDA, violate state and federal antitrust and consumer protection laws, as follows:

On June 17, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois by Blue Cross and Blue Shield Association, or BCBS, against Jazz Pharmaceuticals plc, Jazz Pharmaceuticals, Inc., and Jazz Pharmaceuticals Ireland Limited, or, collectively, the Company Defendants (hereinafter referred to as the BCBS Lawsuit).

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On March 18, 2021, United Healthcare Services, Inc.

filed a lawsuit in the United States District Court for the District of Minnesota against the Company Defendants, Hikma Pharmaceuticals plc, Roxane Laboratories, Inc., Hikma Pharmaceuticals USA Inc., Eurohealth (USA) Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical Inc., Lupin Ltd., and Lupin

Pharmaceuticals, Inc., raising similar allegations, or the UHS Lawsuit.

On March 24, 2021, the U.S.

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On February 17, 2022, Health Care Service Corporation filed a lawsuit in the United States District Court for the Northern District of California against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations.

A hearing on class certification is scheduled for November 2022.

On May 9, 2022, Aetna Inc.

filed a lawsuit in the Superior Court of California for the County of Alameda against the Company Defendants, Hikma Pharmaceuticals plc, Hikma Pharmaceuticals USA Inc., Hikma Labs, Inc., Eurohealth (USA), Inc., Amneal Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc, raising similar allegations.

A hearing on class certification in the consolidated multi-district litigation referenced above is scheduled for March 2023.

A trial date will be set following a ruling on class certification.

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The suit seeks an injunction to prevent Avadel from launching a product that would infringe this patent, and an award of monetary damages if Avadel does launch an infringing product.

Avadel filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product, if approved, will not infringe our patent s.

Avadel filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product, if approved, will not infringe our patents.

On November 10, 2021, we filed an additional patent infringement suit against Avadel in the United States District Court for the District of Delaware.

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Avadel seeks monetary damages, an injunction preventing us from using Avadel’s confidential information, and an order directing the United States Patent and Trademark Office to modify the inventorship of one of our oxybate patents.

On June 7, 2022 we received notice from Avadel that it had filed a "paragraph IV certification" regarding one patent listed in the Orange Book for Xyrem.

A paragraph IV certification is a certification by a generic applicant that alleges that patents covering the branded product are invalid, unenforceable, and/or will not be infringed by the manufacture, use or sale of the generic product.

On July 15, 2022, we filed an additional lawsuit against Avadel asserting infringement of that patent.

The suit alleges that the filing of Avadel’s application for approval of FT-218 is an act of infringement, and that Avadel’s product would infringe the patent if launched.

The suit seeks an injunction to prevent Avadel from launching a product that would infringe the patent, and an award of damages if Avadel does launch an infringing product.

On July 21, 2022, Avadel filed a lawsuit against FDA in the United States District Court for the District of Columbia, challenging FDA’s determination that Avadel was required to file a paragraph IV certification regarding one of our Orange Book listed patents.

Avadel filed a motion for preliminary injunction, or in the alternative, summary judgment, seeking relief including a declaration that FDA’s decision requiring patent certification was unlawful, an order setting aside that decision, an injunction prohibiting FDA from requiring such certification as a precondition to approval of its application for FT-218, and an order requiring FDA to take final action on Avadel’s application for approval of FT-218 within 14 days of the Court’s ruling.

On July 27, 2022, we filed a motion to intervene in that case, which the Court granted.

Canopy Patent Litigation

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The asserted patents relate generally to the composition and method of use of Xywav, and methods of treatment when Xywav is administered concomitantly with certain other medications.

In July 2021, we filed a patent infringement suit against Lupin in the United States District Court for the District of New Jersey.

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On October 4, 2021, Lupin filed an answer to the complaint and counterclaims asserting that the patents are invalid or not enforceable, and that its product, if approved, will not infringe our patents.

In April 2022, we received notice from Lupin that it had filed a paragraph IV certification regarding a newly-issued patent listed in the Orange Book for Xywav.

On May 11, 2022, we filed an additional lawsuit against Lupin in the United States District Court for the District of New Jersey alleging that by filing its ANDA, Lupin infringed the newly-issued patent related to a method of treatment when Xywav is administered concomitantly with certain other medications.

The suit seeks a permanent injunction to prevent Lupin from introducing a generic version of Xywav that would infringe our patent.

On June 22, 2022, the court consolidated the two lawsuits we filed against Lupin.

No trial date has been set in the consolidated case.

Otsuka Patent Litigation

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Otsuka alleges that under a now-expired Research Collaboration and License Agreement between Otsuka and the GW Parties, Otsuka and the GW Parties jointly own certain patents and other intellectual property, that Epidiolex is covered by that intellectual property, and that Otsuka is therefore due a royalty on net sales of Epidiolex.

In December 2021, GW filed an application contesting the jurisdiction of the Patents Court.

On May 3, 2022, the Patents Court denied GW’s application.

GW has filed papers with the Court of Appeal seeking leave to challenge the Patents Court’s decision.

In January 2022, we filed a lawsuit against Otsuka in the Supreme Court of the State of New York, County of New York, seeking a declaration that Otsuka is not entitled to any royalties on sales of Epidiolex under the Research Collaboration and License Agreement.

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Shareholders’ Equity

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) as of March 31, 2022 and December 31, 2021 were as follows (in thousands):

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

Net Unrealized

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Other comprehensive loss before reclassifications — ( 705,797 ) ( 705,797 )

Amounts reclassified from accumulated other comprehensive income (loss) 128 — 128

Amounts reclassified from accumulated other comprehensive loss 128 — 128

Other comprehensive income (loss), net 128 ( 705,797 ) ( 705,669 )

Balance at March 31, 2022 $ — $ ( 590,720 ) $ ( 590,720 )

During the three months ended March 31, 2022, other comprehensive loss primarily reflects foreign currency translation adjustments, primarily due to the weakening of the sterling and the euro against the U.S.

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):

Balance at June 30, 2022 $ — $ ( 1,106,029 ) $ ( 1,106,029 )

During the six months ended June 30, 2022, other comprehensive loss primarily reflects foreign currency translation adjustments, primarily due to the weakening of the sterling and the euro against the U.S.

Net Income (Loss) per Ordinary Share

Basic net income (loss) per ordinary share is based on the weighted-average number of ordinary shares outstanding.

Diluted net income (loss) 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 (loss) per ordinary share were computed as follows (in thousands, except per share amounts):

Three Months Ended

Net income $ 1,647 $ 121,832

June 30, Six Months Ended

2022 2021 2022 2021

Net income (loss) $ 34,665 $ ( 363,316 ) $ 36,312 $ ( 241,484 )

Weighted-average ordinary shares used in per share calculations - basic 62,436 59,448 62,152 57,966

Dilutive effect of employee equity incentive and purchase plans 995 — 1,019 —

Dilutive effect of Exchangeable Senior Notes — 341

Weighted-average ordinary shares used in per share calculations - diluted 63,431 59,448 63,171 57,966

Net income per ordinary share:

Net income (loss) per ordinary share:

Basic $ 0.56 $ ( 6.11 ) $ 0.58 $ ( 4.17 )

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Potentially dilutive ordinary shares from the Exchangeable Senior Notes are determined by applying the if-converted method to the assumed issuance of ordinary shares upon exchange of the Exchangeable Senior Notes.

The potential issue of ordinary shares upon exchange of the Exchangeable Senior Notes was anti-dilutive and had no impact on diluted net income per ordinary share for the three months ended March 31, 2022.

The following table represents the weighted-average ordinary shares that were excluded from the calculation of diluted net income per ordinary share for the periods presented because including them would have an anti-dilutive effect (in thousands):

The potential issue of ordinary shares upon exchange of the Exchangeable Senior Notes was anti-dilutive and had no impact on diluted net income per ordinary share for the three and six months ended June 30, 2022.

The following table represents the weighted-average ordinary shares that were excluded from the calculation of diluted net income (loss) per ordinary share for the periods presented because including them would have an anti-dilutive effect (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Exchangeable Senior Notes 9,044 10,139 9,044 10,139

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Xyrem $ 269,421 $ 334,182 $ 516,918 $ 669,732

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Epidiolex/Epidyolex 1

Sunosi 15,878 11,606

Sativex 4,742 —

175,289 109,481 333,182 109,481

12,966 12,124 28,844 23,730

4,142 1,961 8,884 1,961

Total Neuroscience 696,843 581,912 1,308,933 1,004,484

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Total revenues $ 932,878 $ 751,811 $ 1,746,599 $ 1,359,392

__________________________

Net product sales for Epidiolex/Epidyolex and Sativex are included from the acquisition of GW on May 5, 2021.

Net product sales for Sunosi U.S.

are included until the date of divestment to Axsome of May 9, 2022.

The following table presents a summary of total revenues attributed to geographic sources (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

United States $ 858,340 $ 690,900 $ 1,598,923 $ 1,239,192

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

ESSDS 56 % 63 % 56 % 65 %

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Contract Liabilities - Deferred Revenue

The deferred revenue balance as of March 31, 2022 primarily related to deferred upfront fees received from Nippon Shinyaku Co., Ltd., or Nippon Shinyaku, in connection with two license, development and commercialization agreements granting Nippon Shinyaku exclusive rights to develop and commercialize each of Defitelio and Vyxeos in Japan.

We recognized contract revenues of $ 0.5 million during the three months ended March 31, 2022, relating to these upfront payments.

The deferred revenue balance as of June 30, 2022 primarily related to deferred upfront fees received from Nippon Shinyaku Co., Ltd., or Nippon Shinyaku, in connection with two license, development and commercialization agreements

granting Nippon Shinyaku exclusive rights to develop and commercialize each of Defitelio and Vyxeos in Japan.

We recognized contract revenues of $ 0.5 million and $ 1.0 million during the three and six months ended June 30, 2022, respectively, relating to these upfront payments.

The deferred revenue balances are being recognized over an average of four years representing the period over which we expect to perform our research and developments obligations under each agreement.

The following table presents a reconciliation of our beginning and ending balances in contract liabilities from contracts with customers for the three months ended March 31, 2022 (in thousands):

The following table presents a reconciliation of our beginning and ending balances in contract liabilities from contracts with customers for the six months ended June 30, 2022 (in thousands):

Contract Liabilities

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Amount recognized within royalties and contract revenues ( 1,047 )

Balance as of March 31, 2022 $ 2,033

Balance as of June 30, 2022 $ 1,509

Share-Based Compensation

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Selling, general and administrative $ 36,233 $ 34,333 $ 71,018 $ 58,179

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Share Options

There were no share options granted in the three months ended March 31, 2022.

The table below shows the number of shares underlying options granted to purchase our ordinary shares, the weighted-average assumptions used in the Black-Scholes option pricing model and the resulting weighted-average grant date fair value of share options granted for the three months ended March 31, 2021:

There were no share options granted in the three and six months ended June 30, 2022.

Three Months Ended

March 31, 2021

June 30, 2021 Six Months Ended

June 30, 2021

Shares underlying options granted (in thousands) 15 110

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Expected dividend yield — % — %

Nominal Strike Price Options

During the second quarter of 2021, we issued nominal strike price share options to replace certain unvested GW awards in connection with the GW Acquisition.

There were no nominal strike price share options granted in the three and six months ended June 30, 2022.

The table below shows the number of nominal strike price options granted covering an equal number of our ordinary shares and the weighted-average grant date fair value:

Three and Six Months Ended

June 30, 2021

Nominal strike price share options granted (in thousands)

Grant date fair value $ 170.82

Restricted Stock Units

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

RSUs granted (in thousands) 62 430 1,950 1,632

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Performance-Based Restricted Stock Units

In March 2022, the Compensation & Management Development Committee of our board of directors approved awards of PRSUs to certain employees of the Company, subject to vesting on the achievement of certain commercial and pipeline performance criteria to be assessed over a performance period from the date of the grant to December 31, 2024.

The Compensation & Management Development Committee of our board of directors approved awards of PRSUs to certain employees of the Company, subject to vesting on the achievement of certain commercial and pipeline performance criteria to be assessed over a performance period from the date of the grant to December 31, 2023 and December 31, 2024, respectively.

Following the determination of the Company’s achievement with respect to the performance criteria, the amount of shares awarded will be subject to adjustment based on the application of a relative total shareholder return, or TSR modifier.

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Three Months Ended

March 31, 2022

June 30, Six Months Ended

2022 2021 2022 2021

PRSUs granted (in thousands) 4 224 285 224

Grant date fair value $ 174.69 $ 190.81 $ 179.12 $ 190.81

As the PRSUs granted in March 2022 are subject to a market condition, the grant date fair value for such PRSUs was based on a Monte Carlo simulation model.

As the PRSUs granted in 2021 and 2022 are subject to a market condition, the grant date fair value for such PRSUs was based on a Monte Carlo simulation model.

The Company evaluated the performance targets in the context of its current long-range financial plan and its product candidate development pipeline and recognized expense based on the probable number of awards that will ultimately vest.

There were no PRSUs granted in the three months ended March 31, 2021.

As of March 31, 2022, compensation cost not yet recognized related to unvested share options, RSUs and PRSUs was $ 29.7 million, $ 418.8 million and $ 56.6 million, respectively, which is expected to be recognized over a weighted-average period of 1.6 years, 3.2 years and 2.3 years, respectively.

Our income tax expense was $ 0.5 million for the three months ended March 31, 2022, compared to $ 18.0 million for the same period in 2021.

The decrease in the income tax expense resulted primarily from the mix of pre-tax income and losses incurred across tax jurisdictions.

As of June 30, 2022, compensation cost not yet recognized related to unvested share options, RSUs and PRSUs was $ 23.1 million, $ 377.0 million and $ 50.4 million, respectively, which is expected to be recognized over a weighted-average period of 1.4 years, 3.0 years and 2.1 years, respectively.

Our income tax benefit was $ 16.1 million and $ 15.6 million for the three and six months ended June 30, 2022, respectively, compared to an income tax expense of $ 228.6 million and $ 246.6 million for the same periods in 2021.

Our income tax expense for the three and six months ended June 30, 2021 included an expense of $ 251.4 million arising on the

remeasurement of our U.K.

net deferred tax liability, which arose primarily in relation to the GW Acquisition, due to a change in the statutory rate in the U.K.

following enactment of the U.K.

Finance Act 2021.

Excluding this impact, the increase in the income tax benefit resulted primarily from the mix of pre-tax income and losses incurred across tax jurisdictions.

We do not provide for Irish income taxes on undistributed earnings of our foreign operations that are intended to be indefinitely reinvested in our foreign subsidiaries.

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(at the federal level and in most states), carryforwards that were generated in 2017 and earlier may still be adjusted upon examination by the tax authorities.

we are no longer subject to income tax audits by taxing authorities for the years prior to 2018.

Certain of our Italian subsidiaries are currently under examination by the Italian taxing authorities for the year ended December 31, 2017.

In the U.K., we are no longer subject to income tax audits by taxing authorities for the years prior to 2018.

Certain of our Luxembourg subsidiaries are currently under examination by the Luxembourg taxing authorities for the years ended December 31, 2017 and 2018.

Certain of our German subsidiaries are currently under examination by the German taxing authorities for the years ended December 31, 2017, 2018 and 2019.

Assets Held for Sale

On March 25, 2022, we entered into a definitive agreement to divest Sunosi to Axsome.

Under the terms of the agreement, Axsome will acquire the rights to Sunosi in all of the existing territories available to us.

We will receive a upfront payment of $ 53 million, a high single-digit royalty on Axsome’s U.S.

net sales of Sunosi in current indications and a mid-single-digit royalty on Axsome’s U.S.

net sales of Sunosi in future indications.

The respective obligations of Jazz and Axsome to consummate the transactions contemplated by the definitive agreement are subject to the satisfaction or waiver of a number of customary conditions.

The transaction is structured to be completed in sequential closings for the U.S.

Subject to the satisfaction or waiver of the closing conditions, the companies expect the U.S.

transaction to close in the second quarter of 2022 and the ex-U.S.

transaction close to occur within 60 days following the close of the U.S.

The assets to be divested met the assets held for sale criteria and were reclassified to assets held for sale as of March 31, 2022.

We determined this is the disposal of a business and have allocated goodwill to these assets using the relative fair value method.

We have determined that the expected disposition of these assets does not qualify for reporting as a discontinued operation since the expected sale does not represent a strategic shift that has or will have a major effect on our operations and financial results.

The following assets were segregated and classified as assets held for sale in the condensed consolidated balance sheet (in thousands):

March 31, 2022

Intangible assets, net $ 56,680

Inventories 21,163

Goodwill 12,927

Total assets held for sale $ 90,888

We will account for the contingent consideration in the form of the future royalty as earned.

As a result, we expect to record a loss on disposal of approximately $ 40.0 million when the transaction closes as the determination of the initial gain or loss will include the upfront consideration only and not include an amount for the contingent consideration.

Subsequent Events

In the second quarter of 2022, we acquired development and commercialization rights to two preclinical compounds, consistent with our objective to expand our pipeline.

In April 2022, we announced that we had entered into a licensing agreement with Werewolf Therapeutics, Inc., or Werewolf, to acquire exclusive global development and commercialization rights to Werewolf's investigational WTX-613, now referred to as JZP898.

JZP898 is a differentiated, conditionally-activated interferon alpha (IFNα) INDUKINE™ molecule.

Under the terms of the agreement, we made an upfront payment of $ 15.0 million to Werewolf, and Werewolf is eligible to receive development, regulatory and commercial milestone payments of up to $ 1.26 billion.

Pending approval, Werewolf is eligible to receive a tiered, mid-single-digit percentage royalty on net sales of JZP898.

The upfront payment totaling $ 15.0 million will be expensed to Acquired in-process research and development, or IPR&D, in the second quarter of 2022.

In May 2022, we announced that we had entered into a licensing agreement with Sumitomo Pharma Co., Ltd, or Sumitomo, to acquire exclusive development and commercialization rights in the United States, Europe and other territories for DSP-0187, which we have designated JZP441.

JZP441 is a potent, highly selective oral orexin-2 receptor agonist with potential application for the treatment of narcolepsy, IH and other sleep disorders.

Under the terms of the agreement, we will make an upfront payment of $ 50.0 million to Sumitomo, and Sumitomo is eligible to receive development, regulatory and commercial milestone payments of up to $ 1.09 billion.

Pending approval, Sumitomo is eligible to receive a tiered, low double-digit royalty on Jazz's net sales of JZP441.

The upfront payment totaling $ 50.0 million will be expensed to Acquired IPR&D in the second quarter of 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements