Jazz Pharmaceuticals plc 10-Q

Item 1. Financial Statements JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 711,265 $ 591,448 Investments 60,000 — Accounts receivable, net of allowances 594,034 563,360 Inventories 861,705 1,072,721 Prepaid expenses 108,304 131,413 Other current assets 255,525 252,392 Total current assets 2,590,833 2,611,334 Property, plant and equipment, net 239,523 256,837 Operating lease assets 78,365 86,586 Intangible assets, net 6,237,959 7,152,328 Goodwill 1,687,648 1,827,609 Deferred tax assets, net 320,550 311,103 Deferred financing costs 10,643 12,029 Other non-current assets 34,612 40,813 Total assets $ 11,200,133 $ 12,298,639 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 74,161 $ 100,298 Accrued liabilities 593,207 666,304 Current portion of long-term debt 31,000 31,000 Income taxes payable 5,796 9,608 Deferred revenue 1,278 2,093 Total current liabilities 705,442 809,303 Deferred revenue, non-current 231 463 Long-term debt, less current portion 5,989,998 6,018,943 Operating lease liabilities, less current portion 77,845 87,200 Deferred tax liabilities, net 1,096,416 1,300,541 Other non-current liabilities 129,420 116,998 Commitments and contingencies (Note 10) Shareholders’ equity: Ordinary shares 6 6 Non-voting euro deferred shares 55 55 Capital redemption reserve 472 472 Additional paid-in capital 3,312,319 3,534,792 Accumulated other comprehensive loss ( 1,106,029 ) ( 400,360 ) Retained earnings 993,958 830,226 Total shareholders’ equity 3,200,781 3,965,191 Total liabilities and shareholders’ equity $ 11,200,133 $ 12,298,639 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues: Product sales, net $ 928,300 $ 748,340 $ 1,738,137 $ 1,351,871 Royalties and contract revenues 4,578 3,471 8,462 7,521 Total revenues 932,878 751,811 1,746,599 1,359,392 Operating expenses: Cost of product sales (excluding amortization of acquired developed technologies) 124,208 119,194 239,492 159,383 Selling, general and administrative 366,473 429,031 675,286 689,539 Research and development 139,047 132,696 269,028 209,269 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 (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 (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 (loss) $ 34,665 $ ( 363,316 ) $ 36,312 $ ( 241,484 ) Net income (loss) per ordinary share: Basic $ 0.56 $ ( 6.11 ) $ 0.58 $ ( 4.17 ) Diluted $ 0.55 $ ( 6.11 ) $ 0.57 $ ( 4.17 ) Weighted-average ordinary shares used in per share calculations - basic 62,436 59,448 62,152 57,966 Weighted-average ordinary shares used in per share calculations - diluted 63,431 59,448 63,171 57,966 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 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 ) Loss on fair value hedging activities reclassified from accumulated other comprehensive income (loss) to foreign exchange gain (loss), net of income tax benefit of $ — , $ — , $ 43 and $ — , respectively — — 128 — 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 — 1,169 — 2,329 Unrealized gain (loss) on cash flow hedging activities, net of income tax provision (benefit) of $ — , $ 1 , $ — and ($ 2 ), respectively — 2 — ( 14 ) 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 loss $ ( 480,644 ) $ ( 374,823 ) $ ( 669,357 ) $ ( 298,067 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) Ordinary Shares Non-voting Euro Deferred Capital Redemption Reserve Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Equity Shares Amount Shares Amount Balance at December 31, 2021 61,633 $ 6 4,000 $ 55 $ 472 $ 3,534,792 $ ( 400,360 ) $ 830,226 $ 3,965,191 Cumulative effect adjustment from adoption of ASU 2020-06 — — — — — ( 333,524 ) — 127,474 ( 206,050 ) Issuance of ordinary shares in conjunction with exercise of share options 207 — — — — 21,729 — — 21,729 Issuance of ordinary shares in conjunction with vesting of restricted stock units 404 — — — — — — — — Shares withheld for payment of employee's withholding tax liability — — — — — ( 33,776 ) — — ( 33,776 ) Share-based compensation — — — — — 50,106 — — 50,106 Other comprehensive loss — — — — — — ( 190,360 ) — ( 190,360 ) Net income — — — — — — — 1,647 1,647 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 6 Table of Contents JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) Ordinary Shares Non-voting Euro Deferred Capital Redemption Reserve Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Equity Shares Amount Shares Amount Balance at December 31, 2020 56,171 $ 6 4,000 $ 55 $ 472 $ 2,633,670 $ ( 134,352 ) $ 1,159,894 $ 3,659,745 Issuance of ordinary shares in conjunction with exercise of share options 408 — — — — 50,407 — — 50,407 Issuance of ordinary shares in conjunction with vesting of restricted stock units 294 — — — — — — — — Shares withheld for payment of employee's withholding tax liability — — — — — ( 23,784 ) — — ( 23,784 ) Share-based compensation — — — — — 34,565 — — 34,565 Other comprehensive loss — — — — — — ( 45,076 ) — ( 45,076 ) Net income — — — — — — — 121,832 121,832 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. 7 Table of Contents JAZZ PHARMACEUTICALS PLC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2022 2021 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 Acquisition accounting inventory fair value step-up adjustment 132,225 65,991 Share-based compensation 103,757 82,648 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 Depreciation 15,364 11,614 Provision for losses on accounts receivable and inventory 6,150 8,742 Other non-cash transactions ( 29,095 ) 2,983 Changes in assets and liabilities: Accounts receivable ( 34,231 ) ( 34,838 ) Inventories ( 41,929 ) ( 29,402 ) Prepaid expenses and other current assets 22,654 ( 21,351 ) Operating lease assets 6,939 7,893 Other non-current assets ( 329 ) ( 173 ) Accounts payable ( 24,771 ) 19,309 Accrued liabilities ( 44,430 ) 56,688 Income taxes payable ( 4,468 ) ( 21,839 ) Deferred revenue ( 1,047 ) ( 911 ) Operating lease liabilities, less current portion ( 8,085 ) ( 8,790 ) Other non-current liabilities 11,062 11,343 Net cash provided by operating activities 512,015 326,692 Investing activities Proceeds from sale of a business 53,000 — Purchases of property, plant and equipment ( 24,570 ) ( 9,346 ) Acquisition of intangible assets ( 25,000 ) — Acquisition of investments ( 60,736 ) ( 26,100 ) 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 increase (decrease) in cash and cash equivalents 119,817 ( 166,369 ) Cash and cash equivalents, at beginning of period 591,448 1,057,769 Cash and cash equivalents, at end of period $ 711,265 $ 891,400 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents JAZZ PHARMACEUTICALS PLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The Company and Summary of Significant Accounting Policies Jazz Pharmaceuticals plc is a global biopharmaceutical company whose purpose is to innovate to transform the lives of patients and their families. We are dedicated to developing life-changing medicines for people with serious diseases - often with limited or no therapeutic options. We have a diverse portfolio of marketed medicines and novel product candidates, from early- to late-stage development, in neuroscience and oncology. Within these therapeutic areas, we strive to identify new options for patients by actively exploring small molecules and biologics, and through innovative delivery technologies and cannabinoid science. Our lead marketed products are: Neuroscience • Xywav® (calcium, magnesium, potassium, and sodium oxybates) oral solution , a product approved by the U.S. Food and Drug Administration, or FDA, in July 2020 and launched in the U.S. in November 2020 for the treatment of cataplexy or excessive daytime sleepiness, or EDS, in patients with narcolepsy aged seven years of age and older, and also approved by FDA in August 2021 for the treatment of idiopathic hypersomnia, or IH, in adults and launched in the U.S. in November 2021. Xywav contains 92% less sodium than Xyrem®; • Xyrem® (sodium oxybate) oral solution , a product approved by FDA and distributed in the U.S. 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. Xyrem is also approved and distributed in the EU, Great Britain and other markets through a licensing agreement; • Epidiolex® (cannabidiol) oral solution , a product approved by FDA and launched in the U.S. in 2018 by GW Pharmaceuticals plc, or GW, and currently indicated for the treatment of seizures associated with Lennox-Gastaut syndrome, or LGS, Dravet syndrome, or DS, or tuberous sclerosis complex, or TSC, in patients one year of age or older; 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; and • 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. Nabiximols is investigational and currently not approved for any indication in the U.S. Oncology • 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 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. in July 2021 for use as a component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia, or ALL, or lymphoblastic lymphoma, or LBL, in adults and pediatric patients who have developed hypersensitivity to E. coli -derived asparaginase; • 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. for the treatment of newly diagnosed t-AML or AML-MRC in pediatric patients aged 1 year and older; and 9 Table of Contents • Defitelio® (defibrotide sodium) , a product approved in the U.S. and Brazil for the treatment of hepatic veno-occlusive disease, or VOD, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation, or HSCT, and in Japan for the treatment of hepatic sinusoidal obstruction syndrome (hepatic veno-occlusive disease). It is currently approved in the EU, Great Britain and other markets for the treatment of severe hepatic VOD, also known as sinusoidal obstructive syndrome, or SOS, in HSCT therapy. It is indicated in adults and pediatric patients over 1 month of age. 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 These unaudited condensed consolidated financial statements have been prepared following the requirements of the U.S. Securities and Exchange Commission 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 U.S. GAAP, can be condensed or omitted. The information included in this Quarterly Report on Form 10‑Q should be read in conjunction with our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10‑K for the year ended December 31, 2021. 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 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. These condensed consolidated financial statements include the accounts of Jazz Pharmaceuticals plc and our subsidiaries, and intercompany transactions and balances have been eliminated. Our operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision maker, or CODM. Our CODM has been identified as our chief executive officer. We have determined that we operate in one business segment, which is the identification, development and commercialization of meaningful pharmaceutical products that address unmet medical needs. 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. Adoption of New Accounting Standards In August 2020, the Financial Accounting Standards Board, or FASB, issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, or ASU 2020-06. ASU 2020-06 simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. The Company adopted ASU 2020-06 on January 1, 2022, on a modified retrospective basis. This impacted the accounting for our 1.50 % exchangeable senior notes due 2024, or the 2024 Notes, and our 2.00 % exchangeable senior notes due 2026, or the 2026 Notes, collectively known as the Exchangeable Senior Notes. As a result of the adoption of ASU 2020-06, the Exchangeable Senior Notes are now accounted for entirely as liabilities measured at amortized cost. ASU 2020-06 also removes certain settlement conditions that are required for contracts to qualify for equity classification and eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. 10 Table of Contents The adoption of ASU 2020-06 resulted in the following adjustments to the condensed consolidated balance sheet (in thousands): Balance Sheet Item: December 31, 2021 Adoption of ASU 2020-06 January 1, 2022 Deferred tax assets, net $ 311,103 $ 109 $ 311,212 Long-term debt, less current portion 6,018,943 206,159 6,225,102 Retained earnings 830,226 127,474 957,700 Additional paid-in capital 3,534,792 ( 333,524 ) 3,201,268 Interest expense on the Exchangeable Senior Notes will be lower as a result of adoption of this guidance. 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. Significant Risks and Uncertainties 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 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. and Europe. We expect that our business, financial condition, results of operations and growth prospects may continue to be negatively impacted by the pandemic on a limited basis that may vary depending on the context. However, we have begun to observe, and expect to continue to observe, a gradual normalization in patient and health care provider practices, as providers and patients have adapted their behaviors and procedures to the evolving circumstances and as COVID-19 vaccines continue to be administered. With respect to our commercialization activities, while there continues to be some negative impact on demand, new patient starts and treatments for our products arising from the pandemic, primarily due to the inherent limitations of telemedicine and a reprioritization of healthcare resources toward COVID-19, we have seen improvements as healthcare systems have adapted to cope with the ongoing situation. The extent of the impact on our ability to generate sales of approved products, execute on new product launches, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our ordinary shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. 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 IH in adults and adoption in that indication; 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; the current and potential impacts of the COVID-19 pandemic, including the current and expected future negative impact on demand for our products; increased pricing pressure from, changes in policies by, or restrictions on reimbursement imposed by, third party payors, including our ability to maintain adequate coverage and reimbursement for Xywav and Xyrem; increased rebates required to maintain access to our products; challenges to our intellectual property around Xywav and/or Xyrem, including pending antitrust and intellectual property litigation; and continued acceptance of Xywav and Xyrem by physicians and patients . In addition to risks related specifically to Xywav and Xyrem, we are subject to other challenges and risks related to successfully commercializing a portfolio of oncology products and other neuroscience products, and other risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: ongoing clinical research activity and related outcomes, obtaining regulatory approval of our late-stage product candidates; effectively commercializing our recently approved or acquired products such as Epidiolex, Zepzelca and Rylaze; obtaining and maintaining adequate coverage and reimbursement for our products; contracting and rebates to pharmacy benefit managers that reduces our net revenue; increasing scrutiny of pharmaceutical product pricing and resulting changes in healthcare laws and policy; market acceptance; regulatory concerns with controlled substances generally and the potential for abuse; future legislation, action by the U.S. Drug Enforcement Administration, or DEA, or FDA action authorizing the sale, distribution, use, and insurance reimbursement of non-FDA approved cannabinoid products; delays or problems in the supply of 11 Table of Contents our products, loss of single source suppliers or failure to comply with manufacturing regulations; delays or problems with third parties that are part of our manufacturing and supply chain; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements; and possible restrictions on our ability and flexibility to pursue certain future opportunities as a result of our substantial outstanding debt obligations. 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. Concentrations of Risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, investments and derivative contracts. 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 investments to the extent recorded on the balance sheet. We manage our foreign currency transaction risk and interest rate risk within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes. 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. 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 pharmaceutical wholesale distributors and specialty pharmaceutical distribution companies, primarily in the U.S., and to other international distributors and hospitals. Customer creditworthiness is monitored and collateral is not required. 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 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. As of December 31, 2021, three customers accounted for 74 % of gross accounts receivable, ESSDS, which accounted for 52 % of gross accounts receivable, McKesson, which accounted for 12 % of gross accounts receivable, and Cardinal, which accounted for 10 % of gross accounts receivable. We depend on single source suppliers for most of our products, product candidates and their active pharmaceutical ingredients, or APIs. With respect to our oxybate products, the API is manufactured for us by a single source supplier and the finished products are manufactured both by us in our facility in Athlone, Ireland and by our U.S.-based supplier. Recent Accounting Pronouncements In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The new guidance is not expected to have a material impact on our results of operations, financial position, or cash flows. 12 Table of Contents 2. Disposition and License Agreements Sunosi U.S. Disposition 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. 3. Cash and Available-for-Sale Securities Cash, cash equivalents and investments consisted of the following (in thousands): June 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and Cash 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 — Totals $ 771,265 $ — $ — $ 771,265 $ 711,265 $ 60,000 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and Cash Equivalents Investments Cash $ 510,747 $ — $ — $ 510,747 $ 510,747 $ — Money market funds 80,701 — — 80,701 80,701 — Totals $ 591,448 $ — $ — $ 591,448 $ 591,448 $ — 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 13 Table of Contents 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. 4. Fair Value Measurement 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 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Estimated Fair Value Assets: Available-for-sale securities: 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 Totals $ 290,937 $ 103,756 $ 394,693 $ 80,701 $ 580 $ 81,281 Liabilities: Cross-currency interest rate contracts $ — $ — $ — $ — $ 15,232 $ 15,232 Foreign exchange forward contracts — 24,033 24,033 — 3,187 3,187 Totals $ — $ 24,033 $ 24,033 $ — $ 18,419 $ 18,419 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. The cross-currency interest rate swap contract matured on March 31, 2022. There were no transfers between the different levels of the fair value hierarchy in 2022 or 2021. 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 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). 5. Derivative Instruments and Hedging Activities We are exposed to certain risks arising from operating internationally, including fluctuations in foreign exchange rates primarily related to the translation of sterling and euro-denominated net monetary liabilities, including intercompany balances, held by subsidiaries with a U.S. dollar functional currency. We manage these exposures within specified guidelines through the use of derivatives. 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 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. dollars. The carrying amount of the Euro Term Loan and the fair value of the cross-currency interest rate swap 14 Table of Contents 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): Three Months Ended June 30, Six Months Ended June 30, 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 — Loss recognized in foreign exchange gain (loss) — ( 12,365 ) ( 2,646 ) ( 12,365 ) We also enter into foreign exchange forward contracts, with durations of up to 12 months, designed to limit the exposure to fluctuations in foreign exchange rates related to the translation of certain non-U.S. dollar denominated liabilities, including intercompany balances. 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 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 June 30, Foreign Exchange Forward Contracts: 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. In May 2021, we repaid the term loan to which these interest rate swap agreements related, at which point the interest rate swap contracts were de-designated as cash flow hedges. 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 and six months ended June 30, 2021 was as follows (in thousands): Interest Rate Contracts: Three Months Ended 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 15 Table of Contents The following tables summarize the fair value of outstanding derivatives (in thousands): Classification June 30, 2022 December 31, 2021 Assets Derivatives not designated as hedging instruments: Foreign exchange forward contracts Other current assets $ 3,756 $ 580 Liabilities Derivatives not designated as hedging instruments: Foreign exchange forward contracts Accrued liabilities $ 24,033 $ 3,187 Derivatives designated as hedging instruments: Cross-currency interest rate contract Accrued liabilities — 15,232 Total fair value of derivative liability instruments $ 24,033 $ 18,419 Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. 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): 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 Description Derivative Financial Instruments Cash Collateral Received (Pledged) Net Amount Derivative assets $ 3,756 $ — $ 3,756 $ ( 3,756 ) $ — $ — Derivative liabilities ( 24,033 ) — ( 24,033 ) 3,756 — ( 20,277 ) December 31, 2021 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 Description Derivative Financial Instruments Cash Collateral Received (Pledged) Net Amount Derivative assets $ 580 $ — $ 580 $ ( 567 ) $ — $ 13 Derivative liabilities ( 18,419 ) — ( 18,419 ) 567 — ( 17,852 ) 6. Inventories Inventories consisted of the following (in thousands): June 30, 2022 December 31, 2021 Raw materials $ 26,802 $ 21,550 Work in process 646,647 886,849 Finished goods 188,256 164,322 Total inventories $ 861,705 $ 1,072,721 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. 16 Table of Contents 7. Goodwill and Intangible Assets The gross carrying amount of goodwill was as follows (in thousands): Balance at December 31, 2021 $ 1,827,609 Goodwill allocated to divestiture of Sunosi (1) ( 12,927 ) Foreign exchange ( 127,034 ) Balance at June 30, 2022 $ 1,687,648 ________________________ (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): June 30, 2022 December 31, 2021 Remaining Weighted- Average Useful Life (In years) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Acquired developed technologies 10.9 $ 7,506,501 $ ( 1,407,709 ) $ 6,098,792 $ 8,195,675 $ ( 1,198,333 ) $ 6,997,342 Manufacturing contracts — 11,119 ( 11,119 ) — 12,124 ( 12,124 ) — Trademarks — 2,868 ( 2,868 ) — 2,893 ( 2,893 ) — Total finite-lived intangible assets 7,520,488 ( 1,421,696 ) 6,098,792 8,210,692 ( 1,213,350 ) 6,997,342 Acquired in-process research and development assets 139,167 — 139,167 154,986 — 154,986 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 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. dollar. 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 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 2022 (remainder) $ 285,275 2023 570,550 2024 570,550 2025 570,550 2026 570,550 Thereafter 3,531,317 Total $ 6,098,792 17 Table of Contents 8. Certain Balance Sheet Items Property, plant and equipment consisted of the following (in thousands): June 30, 2022 December 31, 2021 Construction-in-progress $ 79,599 $ 86,511 Manufacturing equipment and machinery 70,572 69,079 Leasehold improvements 62,956 66,318 Land and buildings 62,169 64,008 Computer software 30,933 25,646 Computer equipment 19,750 16,234 Furniture and fixtures 10,226 14,412 Subtotal 336,205 342,208 Less accumulated depreciation and amortization ( 96,682 ) ( 85,371 ) Property, plant and equipment, net $ 239,523 $ 256,837 Other current assets consisted of the following (in thousands): June 30, 2022 December 31, 2021 Deferred charge for income taxes on intercompany profit $ 204,949 $ 203,480 Other 50,576 48,912 Total other current assets $ 255,525 $ 252,392 Accrued liabilities consisted of the following (in thousands): June 30, 2022 December 31, 2021 Rebates and other sales deductions $ 261,199 $ 215,397 Employee compensation and benefits 94,646 158,870 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 Current portion of lease liabilities 15,499 15,763 Selling and marketing accruals 13,121 21,566 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 Total accrued liabilities $ 593,207 $ 666,304 18 Table of Contents 9. Debt The following table summarizes the carrying amount of our indebtedness (in thousands): June 30, 2022 December 31, 2021 2024 Notes $ 575,000 $ 575,000 Unamortized - debt issuance costs ( 3,616 ) ( 4,401 ) Unamortized discount - equity component — ( 66,836 ) 2024 Notes, net 571,384 503,763 2026 Notes 1,000,000 1,000,000 Unamortized - debt issuance costs ( 10,268 ) ( 11,407 ) Unamortized discount - equity component — ( 139,323 ) 2026 Notes, net 989,732 849,270 Secured Notes 1,475,073 1,473,810 Term Loan (1) 2,984,809 3,223,100 Total debt 6,020,998 6,049,943 Less current portion 31,000 31,000 Total long-term debt $ 5,989,998 $ 6,018,943 ________________________ (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. Exchangeable Senior Notes Due 2026 In 2020, we completed a private placement of $ 1.0 billion principal amount of the 2026 Notes. 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. The 2026 Notes mature on June 15, 2026, unless earlier exchanged, repurchased or redeemed. The holders of the 2026 Notes have the ability to require us to repurchase all or a portion of their 2026 Notes for cash in the event we undergo certain fundamental changes, such as specified change of control transactions, our liquidation or dissolution or the delisting of our ordinary shares from any of The New York Stock Exchange, The Nasdaq Global Market, The Nasdaq Global Select Market or The Nasdaq Capital Market (or any of their respective successors). Additionally, the terms and covenants in the indenture related to the 2026 Notes include certain events of default after which the 2026 Notes may be due and payable immediately. Prior to June 15, 2026, we may redeem the 2026 Notes, in whole but not in part, subject to compliance with certain conditions, if we have, or on the next interest payment date would, become obligated to pay to the holder of any 2026 Notes additional amounts as a result of certain tax-related events. We also may redeem the 2026 Notes on or after June 20, 2023 and prior to March 15, 2026, in whole or in part, if the last reported sale price per ordinary share has been at least 130 % of the exchange price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the notice of redemption. The 2026 Notes are exchangeable at an initial exchange rate of 6.4182 ordinary shares per $1,000 principal amount of 2026 Notes, which is equivalent to an initial exchange price of approximately $ 155.81 per ordinary share. Upon exchange, the 2026 Notes may be settled in cash, ordinary shares or a combination of cash and ordinary shares, at our election. Our intent and policy is to settle the principal amount of the 2026 Notes in cash upon exchange. The exchange rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. 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 19 Table of Contents 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. The total liability is reflected net of issuance costs of $ 15.3 million which will be amortized over the term of the 2026 Notes. The effective interest rate of the 2026 Notes is 2.26 %. 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. Exchangeable Senior Notes Due 2024 In 2017, we completed a private placement of $ 575.0 million principal amount of 2024 Notes. Interest on the 2024 Notes is payable semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on February 15, 2018, at a rate of 1.50 % 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 2024 Notes. The 2024 Notes mature on August 15, 2024, unless earlier exchanged, repurchased or redeemed. The holders of the 2024 Notes have the ability to require us to repurchase all or a portion of their 2024 Notes for cash in the event we undergo certain fundamental changes, such as specified change of control transactions, our liquidation or dissolution or the delisting of our ordinary shares from The Nasdaq Global Select Market. Prior to August 15, 2024, we may redeem the 2024 Notes, in whole but not in part, subject to compliance with certain conditions, if we have, or on the next interest payment date would, become obligated to pay to the holder of any 2024 Notes additional amounts as a result of certain tax-related events. We also may redeem the 2024 Notes on or after August 20, 2021, in whole or in part, if the last reported sale price per ordinary share has been at least 130 % of the exchange price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the notice of redemption. The 2024 Notes are exchangeable at an initial exchange rate of 4.5659 ordinary shares per $1,000 principal amount of 2024 Notes, which is equivalent to an initial exchange price of approximately $ 219.02 per ordinary share. Upon exchange, the 2024 Notes may be settled in cash, ordinary shares or a combination of cash and ordinary shares, at our election. Our intent and policy is to settle the principal amount of the 2024 Notes in cash upon exchange. The exchange rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain make-whole fundamental changes occurring prior to the maturity date of the 2024 Notes or upon our issuance of a notice of redemption, we will in certain circumstances increase the exchange rate for holders of the 2024 Notes who elect to exchange their 2024 Notes in connection with that make-whole fundamental change or during the related redemption period. Prior to May 15, 2024, the 2024 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 adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability measured at its amortized cost. The total liability is reflected net of issuance costs of $ 11.4 million which will be amortized over the term of the 2024 Notes. The effective interest rate of the 2024 Notes is 1.79 %. 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. The Exchangeable Senior Notes were issued by Jazz Investments I Limited, or the Issuer, a 100 %-owned finance subsidiary of Jazz Pharmaceuticals plc. The Exchangeable Senior Notes are senior unsecured obligations of the Issuer and are fully and unconditionally guaranteed on a senior unsecured basis by Jazz Pharmaceuticals plc. No subsidiary of Jazz Pharmaceuticals plc guaranteed the Exchangeable Senior Notes. Subject to certain local law restrictions on payment of dividends, among other things, and potential negative tax consequences, we are not aware of any significant restrictions on the ability of Jazz Pharmaceuticals plc to obtain funds from the Issuer or Jazz Pharmaceuticals plc’s other subsidiaries by dividend or loan, or any legal or economic restrictions on the ability of the Issuer or Jazz Pharmaceuticals plc’s other subsidiaries to transfer funds to Jazz Pharmaceuticals plc in the form of cash dividends, loans or advances. There is no assurance that in the future such restrictions will not be adopted. 20 Table of Contents Maturities 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 2022 (remainder) $ 15,500 2023 31,000 2024 606,000 2025 31,000 2026 1,031,000 Thereafter 4,429,500 Total $ 6,144,000 10. Commitments and Contingencies Indemnification In the normal course of business, we enter into agreements that contain a variety of representations and warranties and provide for general indemnification, including indemnification associated with product liability or infringement of intellectual property rights. Our exposure under these agreements is unknown because it involves future claims that may be made but have not yet been made against us. To date, we have not paid any claims or been required to defend any action related to these indemnification obligations. We have agreed to indemnify our executive officers, directors and certain other employees for losses and costs incurred in connection with certain events or occurrences, including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future payments we could be required to make under the indemnification obligations is unlimited; however, we maintain insurance policies that may limit our exposure and may enable us to recover a portion of any future amounts paid. 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 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 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 We are involved in legal proceedings, including the following matters: Xyrem Class Action 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). The BCBS Lawsuit also names Roxane Laboratories, Inc., Hikma Pharmaceuticals USA Inc., Eurohealth (USA), Inc., Hikma Pharmaceuticals plc, Amneal Pharmaceuticals LLC, Par Pharmaceuticals, Inc., Lupin Ltd., Lupin Pharmaceuticals Inc., and Lupin Inc., or, collectively, the BCBS Defendants. 21 Table of Contents On June 18 and June 23, 2020, respectively, two additional class action lawsuits were filed against the Company Defendants and the BCBS Defendants: one by the New York State Teamsters Council Health and Hospital Fund in the United States District Court for the Northern District of California, and another by the Government Employees Health Association Inc. in the United States District Court for the Northern District of Illinois (hereinafter referred to as the GEHA Lawsuit). On June 18, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of California by the City of Providence, Rhode Island, on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals plc, and Roxane Laboratories, Inc., West-Ward Pharmaceuticals Corp., Hikma Labs Inc., Hikma Pharmaceuticals USA Inc., and Hikma Pharmaceuticals plc, or, collectively, the City of Providence Defendants. On June 30, 2020, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois by UFCW Local 1500 Welfare Fund on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals Ireland Ltd., Jazz Pharmaceuticals, Inc., Roxane Laboratories, Inc., Hikma Pharmaceuticals plc, Eurohealth (USA), Inc. and West-Ward Pharmaceuticals Corp., or collectively the UFCW Defendants (hereinafter referred to as the UFCW Lawsuit). On July 13, 2020, the plaintiffs in the BCBS Lawsuit and the GEHA Lawsuit dismissed their complaints in the United States District Court for the Northern District of Illinois and refiled their respective lawsuits in the United States District Court for the Northern District of California. On July 14, 2020, the plaintiffs in the UFCW Lawsuit dismissed their complaint in the United States District Court for the Northern District of Illinois and on July 15, 2020, refiled their lawsuit in the United States District Court for the Northern District of California. On July 31, 2020, a class action lawsuit was filed in the United States District Court for the Southern District of New York by the A.F. of L.-A.G.C. Building Trades Welfare Plan on behalf of itself and all others similarly situated, against Jazz Pharmaceuticals plc (hereinafter referred to as the AFL Plan Lawsuit). The AFL Plan Lawsuit also names Roxane Laboratories Inc., West-Ward Pharmaceuticals Corp., Hikma Labs Inc., Hikma Pharmaceuticals plc, Amneal Pharmaceuticals LLC, Par Pharmaceuticals Inc., Lupin Ltd., Lupin Pharmaceuticals, Inc., and Lupin Inc. On August 14, 2020, an additional class action lawsuit was filed in the United States District Court for the Southern District of New York by the Self-Insured Schools of California on behalf of itself and all others similarly situated, against the Company Defendants, as well as Hikma Pharmaceuticals plc, Eurohealth (USA) Inc., Hikma Pharmaceuticals USA, Inc., West-Ward Pharmaceuticals Corp., Roxane Laboratories, Inc., Amneal Pharmaceuticals LLC, Endo International, plc, Endo Pharmaceuticals LLC, Par Pharmaceutical, Inc., Lupin Ltd., Lupin Pharmaceuticals Inc., Lupin Inc., Sun Pharmaceutical Industries Ltd., Sun Pharmaceutical Holdings USA, Inc., Sun Pharmaceutical Industries, Inc., Ranbaxy Laboratories Ltd., Teva Pharmaceutical Industries Ltd., Watson Laboratories, Inc., Wockhardt Ltd., Morton Grove Pharmaceuticals, Inc., Wockhardt USA LLC, Mallinckrodt plc, and Mallinckrodt LLC (hereinafter referred to as the Self-Insured Schools Lawsuit). On September 16, 2020, an additional class action lawsuit was filed in the United States District Court for the Northern District of California, by Ruth Hollman on behalf of herself and all others similarly situated, against the same defendants named in the Self-Insured Schools Lawsuit. In December 2020, the above cases were centralized and transferred to the United States District Court for the Northern District of California, where the multidistrict litigation will proceed for the purpose of discovery and pre-trial proceedings. In January 2021, the United States District Court for the Northern District of California issued a Case Management Order that schedules this case for trial in February 2023. 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. Judicial Panel on Multidistrict Litigation conditionally transferred the UHS Lawsuit to the United States District Court for the Northern District of California, where it was consolidated for discovery and pre-trial proceedings with the other cases. On August 13, 2021, the United States District Court for the Northern District of California granted in part and denied in part the Company Defendants" motion to dismiss the complaints in the cases referenced above. On October 8, 2021, Humana Inc. 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. On October 8, 2021, Molina Healthcare Inc. 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. 22 Table of Contents 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. 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. The plaintiffs in certain of these lawsuits are seeking to represent a class of direct purchasers of Xyrem, and the plaintiffs in the remaining lawsuits are seeking to represent a class of indirect purchasers of Xyrem. Each of the lawsuits generally alleges violations of U.S. federal and state antitrust, consumer protection, and unfair competition laws in connection with the Company Defendants’ conduct related to Xyrem, including actions leading up to, and entering into, patent litigation settlement agreements with each of the other named defendants. Each of the lawsuits seeks monetary damages, exemplary damages, equitable relief against the alleged unlawful conduct, including disgorgement of profits and restitution, and injunctive relief. It is possible that additional lawsuits will be filed against the Company Defendants making similar or related allegations. If the plaintiffs were to be successful in their claims, they may be entitled to injunctive relief or we may be required to pay significant monetary damages, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. GW Acquisition Litigation On March 15, 2021, GW filed a definitive proxy statement, or Proxy Statement, with the Securities and Exchange Commission in connection with the GW Acquisition. Since the filing of the Proxy Statement, Jazz Pharmaceuticals plc has been named in two lawsuits filed in state and federal courts in New York on March 17, 2021 by purported GW shareholders in connection with the GW Acquisition. The first was filed in the United States District Court for the Southern District of New York by James Farrell (hereinafter referred to as the Farrell Lawsuit) and an additional suit was filed in New York state court by Brian Levy (hereinafter referred to as the Levy Lawsuit). In addition to Jazz Pharmaceuticals plc, Jazz Pharmaceuticals U.K. Holdings Ltd., GW Pharmaceuticals plc, and the GW board of directors are named as defendants in the Farrell Lawsuit. In the Levy Lawsuit, GW Pharmaceuticals plc, the GW board of directors, Centerview Partners LLC, and Goldman Sachs & Co. LLC are named as defendants. In addition to the Farrell Lawsuit and the Levy Lawsuit, ten additional suits have been filed in New York, California, and Pennsylvania federal courts by purported GW shareholders against GW Pharmaceuticals plc and its board of directors, but which do not name any Jazz Pharmaceuticals parties (hereinafter referred to as the GW Litigation, and collectively with the Farrell Lawsuit and the Levy Lawsuit, as the Transaction Litigation). In the Transaction Litigation, the plaintiffs allege that the Proxy Statement omitted material information and contained misrepresentations, and that the individual members of the GW board of directors breached their fiduciary duties, in violation of state and federal laws, including the Securities Exchange Act of 1934. The plaintiffs in the Transaction Litigation sought various remedies, including injunctive relief to prevent the consummation of the GW Acquisition unless certain allegedly material information was disclosed, or in the alternative, rescission or damages. On April 14, 2021, GW filed a Form 8-K containing supplemental disclosures related to the GW Acquisition. Pursuant to a memorandum of understanding between the parties, the Levy Lawsuit was dismissed on April 14, 2021. On May 27, 2021, a class action lawsuit was filed in the United States District Court for the Southern District of California by plaintiff Kurt Ziegler against GW and its former Directors asserting claims under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, referred to as the Ziegler Lawsuit. The allegations in the Ziegler Lawsuit are similar to those in the previously dismissed Transaction Litigation. Patent Infringement Litigation Avadel Patent Litigation On May 13, 2021, we filed a patent infringement suit against Avadel Pharmaceuticals plc, or Avadel, and several of its corporate affiliates in the United States District Court for the District of Delaware. The suit alleges that Avadel’s product candidate FT-218 will infringe five of our patents related to controlled release formulations of oxybate and the safe and effective distribution of oxybate. The suit seeks an injunction to prevent Avadel from launching a product that would infringe these patents, 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 patents. 23 Table of Contents On August 4, 2021, we filed an additional patent infringement suit against Avadel in the United States District Court for the District of Delaware. The second suit alleges that Avadel’s product candidate FT-218 will infringe a newly-issued patent related to sustained-release formulations of oxybate. 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 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. The third suit alleges that Avadel’s product candidate FT-218 will infringe a newly-issued patent related to sustained-release formulations of oxybate. 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 patents. On April 14, 2022, Avadel sued us in the United States District Court for the District of Delaware. Avadel’s new suit alleges that we misappropriated trade secrets related to Avadel’s once-nightly sodium oxybate development program and breached certain contracts between the parties. 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 In December 2020, Canopy Growth Corporation filed a complaint against our subsidiary, GW, in the United States District Court for the Western District of Texas, alleging infringement of its patent, U.S. Patent No. 10,870,632. Canopy claims that our extraction process used to produce material used to produce Epidiolex infringes its patent. Canopy seeks a judgment that we have infringed their patent and an award of monetary damages. In July 2021, we filed an answer to the amended complaint, and counterclaims seeking judgment that the ‘632 patent is invalid and that we have not infringed the patent. In October 2021, the United States District Court for the Western District of Texas held a claim construction hearing regarding the disputed term of the ‘632 patent. In November 2021, the Court issued a claim construction order. On February 23, 2022, the parties filed a Joint Motion and Stipulation to Enter Final Judgment in favor of GW. On February 25, 2022, the Court granted the parties’ motion and entered final judgment in favor of GW. Pursuant to the stipulation, Canopy filed a notice of appeal of the Court’s ruling on the disputed term in March 2022. Lupin Patent Litigation In June 2021, we received notice from Lupin Inc., or Lupin, that it has filed with FDA an ANDA, for a generic version of Xywav. The notice from Lupin included a paragraph IV certification with respect to ten of our patents listed in FDA’s Orange Book for Xywav on the date of our receipt of the notice. 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. The complaint alleges that by filing its ANDA, Lupin has infringed ten of our Orange Book listed patents. We are seeking a permanent injunction to prevent Lupin from introducing a generic version of Xywav that would infringe our patents. As a result of this lawsuit, we expect that a stay of approval of up to 30 months will be imposed by FDA on Lupin's ANDA. In June 2021, FDA recognized seven years of Orphan Drug Exclusivity for Xywav through July 21, 2027. 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. 24 Table of Contents 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 In October 2021, Otsuka Pharmaceutical Co., Ltd., or Otsuka, filed claims against GW Pharma Limited and GW Pharmaceuticals Limited, or collectively, the GW Parties, in the English High Court, Patents Court. 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. The Company vigorously enforces its intellectual property rights, but cannot predict the outcome of these matters. From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition. 11. Shareholders’ Equity 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 Loss From Hedging Activities Foreign Currency Translation Adjustments Total Accumulated Other Comprehensive Loss Balance at December 31, 2021 $ ( 128 ) $ ( 400,232 ) $ ( 400,360 ) Other comprehensive loss before reclassifications — ( 705,797 ) ( 705,797 ) Amounts reclassified from accumulated other comprehensive loss 128 — 128 Other comprehensive income (loss), net 128 ( 705,797 ) ( 705,669 ) 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. dollar. 25 Table of Contents 12. 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator: Net income (loss) $ 34,665 $ ( 363,316 ) $ 36,312 $ ( 241,484 ) Denominator: 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 — Weighted-average ordinary shares used in per share calculations - diluted 63,431 59,448 63,171 57,966 Net income (loss) per ordinary share: Basic $ 0.56 $ ( 6.11 ) $ 0.58 $ ( 4.17 ) Diluted $ 0.55 $ ( 6.11 ) $ 0.57 $ ( 4.17 ) Potentially dilutive ordinary shares from our employee equity incentive and purchase plans are determined by applying the treasury stock method to the assumed exercise of share options, the assumed vesting of outstanding Restricted Stock Units, or RSUs, and Performance-based restricted stock units, or PRSUs, and the assumed issuance of ordinary shares under our employee stock purchase plan, or ESPP. 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 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 June 30, 2022 2021 2022 2021 Exchangeable Senior Notes 9,044 10,139 9,044 10,139 Employee equity incentive and purchase plans 2,041 2,570 2,275 2,912 26 Table of Contents 13. Revenues The following table presents a summary of total revenues (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Xyrem $ 269,421 $ 334,182 $ 516,918 $ 669,732 Xywav 235,025 124,164 421,105 199,580 Total Oxybate 504,446 458,346 938,023 869,312 Epidiolex/Epidyolex 1 175,289 109,481 333,182 109,481 Sunosi 2 12,966 12,124 28,844 23,730 Sativex 1 4,142 1,961 8,884 1,961 Total Neuroscience 696,843 581,912 1,308,933 1,004,484 Zepzelca 68,285 55,924 127,623 110,258 Rylaze 72,954 — 127,174 — Vyxeos 33,890 31,453 67,647 64,608 Defitelio/defibrotide 54,696 48,096 104,185 97,715 Erwinaze/Erwinase — 28,314 — 69,382 Total Oncology 229,825 163,787 426,629 341,963 Other 1,632 2,641 2,575 5,424 Product sales, net 928,300 748,340 1,738,137 1,351,871 Royalties and contract revenues 4,578 3,471 8,462 7,521 Total revenues $ 932,878 $ 751,811 $ 1,746,599 $ 1,359,392 __________________________ 1. Net product sales for Epidiolex/Epidyolex and Sativex are included from the acquisition of GW on May 5, 2021. 2. 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 June 30, 2022 2021 2022 2021 United States $ 858,340 $ 690,900 $ 1,598,923 $ 1,239,192 Europe 60,779 47,270 121,807 94,503 All other 13,759 13,641 25,869 25,697 Total revenues $ 932,878 $ 751,811 $ 1,746,599 $ 1,359,392 The following table presents a summary of the percentage of total revenues from customers that represented more than 10% of our total revenues: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 ESSDS 56 % 63 % 56 % 65 % McKesson 12 % 13 % 12 % 13 % Financing and payment Our payment terms vary by the type and location of our customer but payment is generally required in a term ranging from 30 to 45 days. Contract Liabilities - Deferred Revenue 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 27 Table of Contents 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 six months ended June 30, 2022 (in thousands): Contract Liabilities Balance as of December 31, 2021 $ 2,556 Amount recognized within royalties and contract revenues ( 1,047 ) Balance as of June 30, 2022 $ 1,509 14. Share-Based Compensation Share-based compensation expense related to share options, RSUs, PRSUs and grants under our ESPP was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Selling, general and administrative $ 36,233 $ 34,333 $ 71,018 $ 58,179 Research and development 14,902 11,240 27,338 19,883 Cost of product sales 2,552 2,590 5,401 4,586 Total share-based compensation expense, pre-tax 53,687 48,163 103,757 82,648 Income tax benefit from share-based compensation expense ( 11,140 ) ( 8,178 ) ( 19,963 ) ( 14,931 ) Total share-based compensation expense, net of tax $ 42,547 $ 39,985 $ 83,794 $ 67,717 Share Options There were no share options granted in the three and six months ended June 30, 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 and six months ended June 30, 2021: Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Shares underlying options granted (in thousands) 15 110 Grant date fair value $ 51.76 $ 51.39 Black-Scholes option pricing model assumption information: Volatility 35 % 37 % Expected term (years) 4.5 4.5 Range of risk-free rates 0.8 % 0.4 - 0.8 % Expected dividend yield — % — % 28 Table of Contents 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) 124 Grant date fair value $ 170.82 Restricted Stock Units The table below shows the number of RSUs granted covering an equal number of our ordinary shares and the weighted-average grant date fair value of RSUs granted: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 RSUs granted (in thousands) 62 430 1,950 1,632 Grant date fair value $ 153.29 $ 170.55 $ 152.40 $ 170.05 The fair value of RSUs is determined on the date of grant based on the market price of our ordinary shares on that date. The fair value of RSUs is expensed ratably over the vesting period, generally over four years . Performance-Based Restricted Stock Units 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. The number of shares that may be earned ranges between 0 % and 200 % of the target number of PRSUs granted based on the degree of achievement of the applicable performance metric and the application of the relative TSR modifier. The table below shows the number of PRSUs granted covering an equal number of our ordinary shares and the weighted-average grant date fair value of PRSUs granted: Three Months Ended June 30, Six Months Ended June 30, 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 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. 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. 15. Income Taxes 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 29 Table of Contents 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. Our net deferred tax liability is primarily related to acquired intangible assets, and is net of deferred tax assets related to U.S. federal and state tax credits, U.S. federal and state and foreign net operating loss carryforwards and other temporary differences. We maintain a valuation allowance against certain deferred tax assets. Each reporting period, we evaluate the need for a valuation allowance on our deferred tax assets by jurisdiction and adjust our estimates as more information becomes available. We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. As a result, we have recorded an unrecognized tax benefit for certain tax benefits which we judge may not be sustained upon examination. Our most significant tax jurisdictions are Ireland, the U.S. (both at the federal level and in various state jurisdictions) and the U.K. In Ireland we are no longer subject to income tax audits by taxing authorities for the years prior to 2017. The U.S. jurisdictions generally have statute of limitations three to four years from the later of the return due date or the date when the return was filed. However, in the U.S. (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. 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. 30 Table of Contents