Jazz Pharmaceuticals plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10‑Q. This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the “Cautionary Note Regarding Forward-Looking Statements” that appears at the end of this discussion. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10‑Q (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. Overview 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 strategy for growth is rooted in executing commercial launches and ongoing commercialization initiatives; advancing robust research and development, or R&D, programs and delivering impactful clinical results; effectively deploying capital to strengthen the prospects of achieving our short- and long-term goals through strategic corporate development; and delivering strong financial performance. We focus on patient populations with high unmet needs. We identify and develop differentiated therapies for these patients that we expect will be long-lived assets and that we can support with an efficient commercialization model. In addition, we leverage our efficient, scalable operating model and integrated capabilities across our global infrastructure to effectively reach patients around the world. At the 40th Annual J.P. Morgan Healthcare Conference in January 2022, we announced our Vision 2025, which aims to deliver sustainable growth and enhanced value, driving our continued transformation to an innovative, high-growth global pharmaceutical leader. The three core components of our Vision 2025 focus on commercial execution, pipeline productivity and operational excellence. Commercial Achievements Our marketed products are approved in countries around the world to improve patient care. Product Indications Initial Approval Date Markets NEUROSCIENCE Xywav ® (calcium, magnesium, potassium, and sodium oxybates) Treatment of cataplexy or excessive daytime sleepiness, or EDS, in patients seven years of age and older with narcolepsy. Treatment of idiopathic hypersomnia, or IH, in adults. July 2020 August 2021 U.S. U.S. Xyrem ® (sodium oxybate) Treatment of cataplexy or EDS in patients seven years of age and older with narcolepsy. For the treatment of cataplexy in patients with narcolepsy. Treatment of narcolepsy with cataplexy in adult patients, adolescents and children from age of 7 years. July 2002 August 2005 October 2005 U.S. Canada EU, Great Britain, other markets (through licensing agreement) 31 Table of Contents Epidiolex ® (cannabidiol) Epidyolex ® (cannabidiol) Treatment of seizures associated with Lennox-Gastaut syndrome, or LGS, Dravet syndrome, or DS, or tuberous sclerosis complex, or TSC, in patients 1 year of age and older. For adjunctive therapy of seizures associated with LGS or DS, in conjunction with clobazam, for patients 2 years of age and older.* For adjunctive therapy of seizures associated with TSC for patients 2 years of age and older.** June 2018 September 2019 April 2021 U.S. EU, Great Britain, other markets EU, Great Britain, other markets Sunosi ® (solriamfetol)*** Improve wakefulness and reduce EDS in adult patients with narcolepsy (with or without cataplexy) or adult patients with obstructive sleep apnea, or OSA, whose EDS has not been satisfactorily treated by primary OSA therapy, such as continuous positive airway pressure, or CPAP. Treatment of EDS in adult patients with narcolepsy or OSA. January 2020 May 2021 EU, Great Britain, other markets Canada Sativex ® (nabiximols) Treatment for 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. June 2010 U.K. (other markets through licensing agreements with partners) ONCOLOGY Zepzelca ® (lurbinectedin) Treatment of adult patients with metastatic small cell lung cancer, or SCLC, with disease progression on or after platinum-based chemotherapy. Treatment of adults with Stage III or metastatic SCLC who have progressed on or after platinum-containing therapy. June 2020 September 2021 U.S. (licensed from PharmaMar)**** Canada (licensed from PharmaMar)***** Rylaze ® (asparaginase erwinia chrysanthemi (recombinant)- rywn) A component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia, or ALL, and lymphoblastic lymphoma, or LBL, in adult and pediatric patients 1 month or older who have developed hypersensitivity to E. coli -derived asparaginase. A component of a multi-agent chemotherapeutic regimen for the treatment of ALL and LBL, in adults and pediatric patients 1 year or older who have developed hypersensitivity to E. coli -derived asparaginase. June 2021 September 2022 U.S. Canada 32 Table of Contents Vyxeos ® (daunorubicin and cytarabine) liposome for injection Vyxeos ® liposomal 44 mg/100 mg powder for concentrate for solution for infusion Vyxeos ® Daunorubicin and cytarabine liposome for injection Powder, 44 mg daunorubicin and 100 mg cytarabine per vial, intravenous infusion Treatment of newly-diagnosed therapy-related acute myeloid leukemia, or t-AML or AML-MRC in adults and pediatric patients one year and older. Treatment of adults with newly-diagnosed t-AML or AML-MRC. Treatment of adults with newly diagnosed therapy-related t-AML or AML with AML-MRC. August 2017 August 2018 April 2021 U.S. EU, Great Britain, other markets Canada Defitelio® (defibrotide sodium) Defitelio® (defibrotide) Treatment of adult and pediatric patients with hepatic veno-occlusive disease, or VOD, also known as sinusoidal obstruction syndrome, or SOS, with renal or pulmonary dysfunction following hematopoietic stem cell transplantation, or HSCT. Treatment of severe hepatic VOD, also known as SOS, following HSCT therapy. March 2016 October 2013 U.S. EU, Great Britain, other markets *Clobazam restriction limited to EU and Great Britain **TSC approval in certain markets ***In May 2022, we completed the U.S. divestiture of Sunosi to Axsome Therapeutics, or Axsome; we expect to complete the ex-U.S. divestiture to Axsome later this year. For more information, see Note 2, Disposition and License Agreements, of the Notes to Condensed Consolidated Financial Statements, included in Part I of this Quarterly Report on Form 10‑Q. ****Accelerated approval received from the U.S. Food and Drug Administration, or FDA *****Conditional approval received from Health Canada Neuroscience We are the global leader in the development and commercialization of oxybate therapy for patients with sleep disorders. Xyrem was approved by FDA in 2002, and has become a standard of care for treating EDS and cataplexy in narcolepsy. In 2020, we received FDA approval for Xywav for the treatment of cataplexy or EDS, in patients seven years of age and older with narcolepsy. In August 2021, Xywav became the first and only therapy approved by FDA for the treatment of IH in adults. Xywav is an oxybate therapy that contains 92% less sodium than Xyrem. Since there is no cure for narcolepsy and long-term disease management is needed, we believe that Xywav represents an important new therapeutic option for patients with this sleep disorder. Our commercial efforts are focused on educating patients and physicians about the lifelong impact of high sodium intake, and how the use of Xywav enables them to address what is a modifiable risk factor. In June 2021, FDA recognized seven years of Orphan Drug Exclusivity, or ODE, for Xywav in narcolepsy. ODE extends through July 2027. In connection with granting ODE, FDA stated that "Xywav is clinically superior to Xyrem by means of greater safety because Xywav provides a greatly reduced chronic sodium burden compared to Xyrem. "FDA's summary also stated that "the differences in the sodium content of the two products at the recommended doses will be clinically meaningful in reducing cardiovascular morbidity in a substantial proportion of patients for whom the drug is indicated." We view the adoption of Xywav in narcolepsy as a positive indication that physicians and patients appreciate the benefits of a lower sodium oxybate option. We continue to see Xywav adoption among existing Xyrem patients, as well as the majority of new-to-oxybate narcolepsy patients. 33 Table of Contents On August 12, 2021, FDA approved Xywav for the treatment of IH in adults. Xywav is the first and only FDA-approved therapy to treat IH. We initiated the U.S. commercial launch of Xywav for the treatment of IH in adults on November 1, 2021. In January 2022, FDA recognized seven years of ODE for Xywav in IH that extends through August 2028. IH is a debilitating neurologic sleep disorder characterized by chronic EDS, the inability to stay awake and alert during the day resulting in the irrepressible need to sleep or unplanned lapses into sleep or drowsiness. An estimated 37,000 people in the U.S. have been diagnosed with IH and are actively seeking healthcare. We now have agreements in place for Xywav with all three major pharmacy benefit managers, or PBMs, in the U.S. To date, we have entered into agreements with various entities and have achieved benefit coverage for Xywav in both narcolepsy and IH indications for approximately 90% of commercial lives. We have seen strong adoption of Xywav in narcolepsy since its launch in November 2020, and increasing adoption in IH since its launch in November 2021. Exiting the third quarter of 2022, there were approximately 9,500 patients taking Xywav, including approximately 8,050 patients with narcolepsy and approximately 1,450 patients with IH. With respect to Xywav and Xyrem in the aggregate, the average number of active oxybate patients on therapy was approximately 17,600 in the third quarter of 2022. We acquired Epidiolex (Epidyolex outside the U.S.) in May 2021 as part of the acquisition of GW Pharmaceuticals plc, or GW, which we refer to as the GW Acquisition, which expanded our growing neuroscience business with a global, high-growth childhood-onset epilepsy franchise. Epidiolex was approved in the U.S. in June 2018 for the treatment of seizures associated with two rare and severe forms of epilepsy, LGS and DS, in patients two years of age and older, and subsequently approved in July 2020 for the treatment of seizures associated with TSC in patients one year of age and older. FDA also approved the expansion of all existing indications, LGS and DS, to patients one year of age and older. The rolling European launch of Epidyolex is also underway following European Commission approval in September 2019 for use as adjunctive therapy of seizures associated with LGS or DS, in conjunction with clobazam, for patients two years of age and older. We successfully completed the pricing and reimbursement process for Epidyolex in France; after commercial launch in France, expected by the end of 2022, Epidyolex will be commercially available and fully reimbursed in all five key European markets: United Kingdom, Germany, Italy, Spain and France. The clobazam restriction is limited to EU and Great Britain. Epidyolex was also approved for adjunctive therapy of seizures associated with TSC for patients 2 years of age and older in the EU in April 2021 and Great Britain in August 2021, and is approved or under review for this indication in other markets. Outside the U.S. and Europe, Epidiolex/Epidyolex is approved in Israel and Australia. Sativex (nabiximols) is approved in 29 countries outside the U.S. for the treatment of adult patients with moderate to severe spasticity due to MS who have not responded adequately to other anti-spasticity medication. We support the availability of Sativex directly in the U.K. and through licensing agreements with partners in other countries. In addition to our currently-marketed products, we previously marketed Sunosi® (solriamfetol) in the U.S. and, pending the completion of the ex-U.S. divestiture of Sunosi to Axsome Therapeutics, or Axsome, we continue to market Sunosi in Europe and Canada. In this regard, in March 2022, we entered into a definitive agreement to divest Sunosi to Axsome. In May 2022, we completed the U.S. divestiture of Sunosi to Axsome and we expect to complete the ex-U.S. divestiture to Axsome later this year. Under the terms of the sale agreement with Axsome, 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. The divestiture of Sunosi to Axsome is intended to enable us to sharpen our focus on our highest strategic priorities designed to deliver sustainable growth and enhanced shareholder value. In assessing the positioning of Sunosi in the overall treatment landscape, we believe that Axsome is well positioned to deliver access to this important medicine and to maximize the value of Sunosi to us through future growth. Oncology We acquired U.S. development and commercialization rights to Zepzelca in early 2020, and launched six months thereafter, with an indication for treatment of patients with SCLC with disease progression on or after platinum-based chemotherapy. Our education and promotional efforts are focused on SCLC-treating physicians. We are continuing to raise awareness of Zepzelca across academic and community cancer centers, and see continued opportunities for growth in second-line share and overall demand, reflecting the significant unmet need and favorable Zepzelca product profile. In collaboration with F. Hoffmann-La Roche Ltd (Roche), we have initiated a Phase 3 pivotal clinical trial in first-line extensive stage SCLC of Zepzelca in combination with Tecentriq ® (atezolizumab). We are also developing Zepzelca in additional indications. 34 Table of Contents Rylaze was approved by FDA in June 2021 under the Real-Time Oncology Review, or RTOR, program, and was launched in the U.S. in July 2021 for use as a component of a multi-agent chemotherapeutic regimen for the treatment of patients with ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli -derived asparaginase. Rylaze is the only recombinant erwinia asparaginase manufactured product that maintains a clinically meaningful level of asparaginase activity throughout the entire duration of treatment. We developed Rylaze to address the needs of patients and health care providers for an innovative, high-quality erwinia asparaginase with reliable supply. The current indication is for an intramuscular, or IM, dosing regimen of 25 mg/m 2 every 48 hours. We submitted a supplemental Biologics License Application, or sBLA, with additional data in support of a Monday/Wednesday/Friday, or M/W/F, IM dosing schedule in January 2022 and submitted a separate sBLA for intravenous, or IV, administration in April 2022, both of which have been granted review under the RTOR program with Prescription Drug User Fee Act, or PDUFA, action dates in 2022 and 2023, respectively. We also completed a Marketing Authorization Application, or MAA, submission to the European Medicines Agency, or EMA, in May 2022 for M/W/F and every 48-hour dosing schedules and IV and IM administration, with potential for approval in 2023. We are also advancing the program for potential submission, approval and launch in Japan, as well as planning additional submissions in other markets. Vyxeos is a treatment for adults with newly-diagnosed t-AML, or AML-MRC. In March 2021, FDA approved a revised label to include a new indication to treat newly-diagnosed t-AML, or AML-MRC, in pediatric patients aged one year and older. We have a number of ongoing development activities and continue to expand into new markets internationally. Despite an ongoing trend in the U.S. towards lower-intensity treatments and away from Vyxeos that accelerated due to the COVID-19 pandemic, we continue to see recovery in demand for Vyxeos and expect future demand for appropriate secondary AML patients to remain steady. In Europe, we continue to expect a negative impact on demand for and utilization of Vyxeos compared to historical periods due to COVID-19. Defitelio is the first and only approved treatment for patients with VOD following HSCT. There was a significant decline in the number of patients receiving HSCT due to the effects of the COVID-19 pandemic. We anticipate the use of Defitelio will increase to the extent that hospital systems globally are able to continue moving forward with HSCT procedures. Research and Development Progress Our research and development activities encompass all stages of development and currently include clinical testing of new product candidates and activities related to clinical improvements of, or additional indications or new clinical data for, our existing marketed products. We also have active preclinical programs for novel therapies, including precision medicines in hematology and oncology and the GW cannabinoid platform. We are increasingly leveraging our growing internal research and development function, and we have also entered into collaborations with third parties for the research and development of innovative early-stage product candidates and have supported additional investigator-sponsored trials, or ISTs, that are anticipated to generate additional data related to our products. We also seek out investment opportunities in support of the development of early- and mid-stage technologies in our therapeutic areas and adjacencies. We have a number of licensing and collaboration agreements with third parties, including biotechnology companies, academic institutions and research-based companies and institutions, related to preclinical and clinical research and development activities in hematology and in precision oncology, as well as in neuroscience. With the approvals and launches of Rylaze for the treatment ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli -derived asparaginase and Xywav for IH in 2021, we accomplished our goal to deliver five product launches through 2020 and 2021. We have taken both Rylaze and Xywav from concept to commercialization. Our neuroscience R&D efforts include the initiation in August 2022 of an ongoing pivotal Phase 3 clinical trial of Epidiolex for the treatment of Epilepsy with Myoclonic-Atonic Seizures, or EMAS, also known as Doose syndrome. This trial is evaluating Epidiolex in a fourth childhood-onset epileptic encephalopathy with high unmet need. EMAS is characterized by generalized myoclonic-atonic seizures, and this trial is designed to provide the first randomized, controlled clinical data with Epidiolex in this syndrome type. Seizure types including atonic, tonic, clonic, tonic-clonic and partial onset seizures are seen in LGS, DS, and TSC. We enrolled the first patient in a Phase 3 trial of Epidyolex for LGS, DS and TSC in Japan in October 2022. In October 2022, we announced an exclusive licensing agreement with Zymeworks Inc., or Zymeworks, under which we have the right to acquire development and commercialization rights to Zymeworks' zanidatamab across all indications in the United States, Europe, Japan and all other territories except for those Asia/Pacific territories previously licensed by Zymeworks. Zanidatamab is a bispecific antibody that can simultaneously bind two non-overlapping epitopes of HER2, known as biparatopic binding. Under the terms of the agreement, following clearance relating to the U.S. Hart-Scott Rodino Antitrust Improvements Act of 1976, or HSR Clearance, Zymeworks is eligible to receive an upfront payment of $50.0 million, and should we decide to continue the collaboration following readout of the top-line clinical data from HERIZON-BTC-01, a 35 Table of Contents second, one-time payment of $325 million. Zymeworks is also eligible to receive regulatory and commercial milestone payments of up to $1.4 billion, for total potential payments of $1.76 billion. Pending approval, Zymeworks is eligible to receive tiered royalties between 10% and 20% on our net sales. Subject to HSR Clearance, the upfront payment of $50.0 million would be expensed to acquired IPR&D in the fourth quarter of 2022. On June 28, 2022, we announced the nabiximols Phase 3 RELEASE MSS1 trial in multiple sclerosis (MS)-related spasticity did not meet the primary endpoint of change in Lower Limb Muscle Tone-6 between baseline and Day 21, as measured by the Modified Ashworth Scale. The analysis of the MSS1 trial has been completed. We have assessed the nabiximols program's potential to support regulatory approval for MS-related spasticity in the U.S., as well as in the context of our broader pipeline opportunities, and have made the decision to discontinue the program. Sativex (nabiximols) was approved outside the U.S. for the treatment of MS-related spasticity based on a comprehensive clinical trial program, including multiple late-stage randomized, controlled trials completed in Europe. We will continue to support the availability of Sativex in the 29 markets outside the U.S. where it is approved. We remain committed to the GW Cannabinoid Platform and are working to advance multiple early-stage cannabinoid programs with the potential to address critical unmet patient needs. In December 2021 we initiated Phase 2 clinical trials for suvecaltamide, or JZP385, for essential tremor, or ET, and for JZP150 for post-traumatic stress disorder, or PTSD. Additionally, in November 2022, we initiated a Phase 2 trial of suvecaltamide in patients with Parkinson's disease tremor. These patient populations suffer significant impacts to their quality of life and there are limited current treatment options. We are also pursuing early-stage activities related to the development of JZP324, an extended-release low sodium, oxybate formulation that we believe could provide a clinically meaningful option for narcolepsy patients. Within our oncology R&D program, there is a robust development plan being executed for Zepzelca. We are collaborating with Roche on a pivotal Phase 3 clinical trial evaluating Zepzelca in combination with Tecentriq in first-line extensive stage SCLC. In December 2021, our licensor PharmaMar initiated a confirmatory trial in second-line SCLC. This is a three-arm trial comparing Zepzelca as either monotherapy or in combination with irinotecan to investigator's choice of irinotecan or topotecan. Data from this trial could confirm the benefit of Zepzelca in the treatment of SCLC when patients progress following first-line treatment with a platinum-based regimen. In 2022, we initiated a Phase 2 basket trial to explore Zepzelca monotherapy in patients with select advanced or metastatic solid tumors. Cohorts include advanced urothelial cancer, large cell neuroendocrine tumor of the lung and homologous recombination deficient, or HRD, cancers. In addition, we have initiated a Phase 4 observational study to collect real world safety and outcome data in adult Zepzelca monotherapy patients with SCLC who progress on or after prior platinum-containing chemotherapy. For Rylaze, in January 2022 we submitted an sBLA with data in support of a M/W/F IM dosing schedule and submitted a separate sBLA for intravenous administration in April 2022, both of which have been granted review under the RTOR program. We completed a MAA submission to the EMA in May 2022. In June 2022, we announced the FDA had cleared our Investigational New Drug, or IND, application for JZP815 and in October 2022, we enrolled the first patient in a Phase 1 trial. JZP815 is an investigational, pre-clinical stage pan-RAF kinase inhibitor that targets specific components of the mitogen-activated protein kinase, or MAPK, pathway that, when activated by oncogenic mutations, can be a frequent driver of human cancer. In the second quarter of 2022, we acquired development and commercialization rights to two early-stage molecules, consistent with our objective to expand our pipeline. In April 2022, we announced that we had entered into a licensing agreement with Werewolf Therapeutics, Inc., or Werewolf, to acquire exclusive global development and commercialization rights to Werewolf's investigational WTX-613, now referred to as JZP898. JZP898 is a differentiated, conditionally-activated interferon alpha, or IFNα, INDUKINE™ molecule. Under the terms of the agreement, we made an upfront payment of $15.0 million to Werewolf, and Werewolf is eligible to receive development, regulatory and commercial milestone payments of up to $1.26 billion. If approved, Werewolf is eligible to receive a tiered, mid-single-digit percentage royalty on net sales of JZP898. This transaction underscores our commitment to enhancing our pipeline to deliver novel oncology therapies to patients, and also provides us with an opportunity to expand into immuno-oncology. In May 2022, we announced that we had entered into a licensing agreement with Sumitomo Pharma Co., Ltd, or Sumitomo, to acquire exclusive development and commercialization rights in the United States, Europe and other territories for DSP-0187, now referred to as JZP441, 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 million to Sumitomo, and Sumitomo is eligible to receive development, regulatory and commercial milestone payments of up to $1.09 billion. If approved, Sumitomo is eligible to receive a tiered, low double-digit royalty on Jazz's net sales of JZP441. 36 Table of Contents Below is a summary of our key ongoing and planned development projects related to our products and pipeline and their corresponding current stages of development: Product Candidates Description NEUROSCIENCE Phase 3 Epidiolex EMAS, also known as Doose syndrome (ongoing trial) LGS, TSC and DS (ongoing trial in Japan) Phase 2b Suvecaltamide (JZP385) ET (ongoing trial) Phase 2 JZP150 PTSD (ongoing trial) Suvecaltamide (JZP385) Parkinson's disease tremor (ongoing trial) Additional cannabinoids Autism spectrum disorders (ongoing trial) Phase 1 JZP324 Oxybate extended-release formulation (planned trial) JZP441* Potent, highly selective oral orexin-2 receptor agonist (ongoing trial in Japan) Additional cannabinoids Neonatal hypoxic-ischemic encephalopathy (ongoing trial) Neuropsychiatry targets (ongoing trial) Preclinical Undisclosed targets Neuroscience Cannabinoids ONCOLOGY Regulatory Review Rylaze ALL/LBL FDA approval in June 2021; submitted sBLA in January 2022 seeking approval for M/W/F IM dosing schedule; submitted separate sBLA seeking approval for intravenous administration; completed MAA submission to EMA in May 2022 Phase 3 Zepzelca First-line extensive stage SCLC in combination with Tecentriq (collaboration with Roche) (ongoing trial) Confirmatory Study (PharmaMar trial) (ongoing trial) Zanidatamab** HER2-positive gastroesophageal adenocarcinoma, or GEA (ongoing trial) Vyxeos AML or high-risk Myelodysplastic Syndrome, or MDS (AML18) (cooperative group studies) (ongoing trial) Newly diagnosed adults with standard- and high-risk AML (AML Study Group cooperative group study) (ongoing trial) Newly diagnosed pediatric patients with AML (Children’s Oncology Group cooperative group study) (ongoing trial) Pivotal Phase 2 Zanidatamab** Previously treated, advanced HER2-expressing biliary tract cancer, or BTC (ongoing trial) Phase 2 Zepzelca Basket trial including urothelial cancer, large cell neuroendocrine tumor of the lung, and HRD cancers (ongoing trial) Vyxeos High-risk MDS (European Myelodysplastic Syndromes (cooperative group study) (ongoing trial) Newly diagnosed untreated patients with high-risk AML (cooperative group study) (planned trial) Vyxeos + venetoclax De novo or relapsed/refractory, or R/R, AML (MD Anderson collaboration study) (ongoing trial) Zanidatamab** HER2-expressing GEA, BTC or colorectal cancer in combination with standard first-line chemotherapy (ongoing trial) Phase 2a Zanidatamab** Previously treated HER2+HR+ breast cancer in combination with palbociclib 37 Table of Contents Product Candidates Description Phase 1b/2 Zanidatamab** First line breast cancer and GEA (BeiGene trial) (ongoing trial) Zanidatamab** HER2-expressing breast cancer in combination with ALX148 (ongoing trial) Phase 1 Vyxeos Low intensity dosing for higher risk MDS (MD Anderson collaboration study) (ongoing trial) Vyxeos + other approved therapies R/R AML or hypomethylating agent failure MDS (MD Anderson collaboration study) (ongoing trial) First-line, fit AML (Phase 1b study) (ongoing trial) Low intensity therapy for first-line, unfit AML (Phase 1b study) (ongoing trial) JZP815 Raf and Ras mutant tumors (acquired from Redx) (ongoing trial) Zanidatamab** In previously treated metastatic HER2-expressing cancers in combination with select antineoplastic therapies (ongoing trial) Preclinical CombiPlex ® Hematology/oncology exploratory activities JZP341 (long-acting Erwinia asparaginase) ALL and other hematological malignancies (collaboration with Ligand) JZP898 Conditionally-activated IFNα INDUKINE™ molecule Undisclosed target Ras/Raf/MAPK pathway (collaboration with Redx) Oncology Exosome targets (up to 3 targets) Hematological malignancies/solid tumors (collaboration with Codiak BioSciences, Inc., or Codiak) Undisclosed targets Oncology *Also known as DSP-0187 **Pending transaction close Operational Excellence We remain focused on continuing to build excellence in areas that we believe will give us a competitive advantage, including building an increasingly agile and adaptable commercialization engine and strengthening our customer-focused market expertise across patients, providers and payors. We are refining our approach to engaging our customers by strengthening alignment and integration across functions and across regions. This includes a more integrated approach to brand planning, a heightened focus on launch and operational excellence and multichannel customer engagement. We have fully adapted to reaching our key audiences through both in-person and virtual initiatives. This includes maintaining a virtual presence at scientific congresses, when appropriate, designed to ensure we can continue to provide promotional and non-promotional interactions and supporting our field-based teams with virtual customer interaction tools, training and content. These initiatives mark a significant operational evolution that is directly linked to our corporate strategy and are designed to better enable our teams to work collaboratively on an aligned and shared agenda through both virtual and in-person interactions. In most geographies, our teams are increasing the frequency of in-person interactions as medical congresses and healthcare practices begin to resume in-person activities, taking into account applicable public health authority and local government guidelines which are designed to ensure community and employee safety. COVID-19 Business Update We have implemented a comprehensive response strategy designed to manage the 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 limited access to health care provider offices and institutions and the willingness of patients or parents of patients to seek treatment or change existing treatments. 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. 38 Table of Contents Workplace and Employees We support broad public health strategies designed to prevent the spread of COVID-19 and are focused on the health and welfare of our employees. Our global organization has mobilized to enable our employees to accomplish our most critical goals through a combination of virtual and in-person work. In addition to rolling out new technologies and collaboration tools, we have implemented processes and resources to support our employees in the event an employee receives a positive COVID-19 diagnosis. We have reopened our sites to enable our employees to return to our global offices, which takes into account applicable public health authority and local government guidelines, and which is designed to ensure community and employee safety. We have moved to a more flexible mix of virtual and in-person working designed to advance our culture, drive innovation and agility and enable greater balance and well-being for our workforce. This should also enable us to reconfigure our physical workspaces to optimize the footprint of our company-owned or leased office spaces. Commercialization 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. As healthcare systems have adapted to cope with the ongoing situation, we have seen improvements. We are utilizing technology to continue to engage healthcare professionals and other customers virtually to support patient care. As more clinics and institutions begin to allow in-person interactions pursuant to local health authority and government guidelines, our field teams continue to resume in-person interactions with healthcare professionals and clinics combined with virtual engagement. The level of renewed in-person engagement varies by account, region and country and may be adversely impacted in the future as a result of the continuing impact of the COVID-19 pandemic. The lack of access to health care providers has caused, and may continue to cause, delays in appropriate diagnosis, treatment and ongoing care for some patients, which has negatively impacted, and could continue to impact, prescribing and use of our products. Supply Chain Our manufacturing facilities in Athlone, Ireland, which produces Xywav and Xyrem, Villa Guardia, Italy, which produces defibrotide, and Kent Science Park, U.K., which produces Epidiolex/Epidyolex and Sativex, are operational with staff onsite and office-based staff working onsite and virtually as business needs require. We currently expect to have adequate global supply of all of our products for 2022. Research and Development With respect to our clinical trial activities, we have taken measures to implement remote and virtual approaches, including remote data monitoring where possible, to maintain patient safety and trial continuity and to preserve study integrity. We have seen some COVID-19-related impact to our mid- and late-stage clinical trial activity. We rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will perform their contractual duties in a timely and satisfactory manner as a result of the evolving effects of the COVID-19 pandemic. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as health care providers, have heightened exposure to COVID-19, is adversely impacting our clinical trial operations. Supply chain disruptions related to the pandemic have also impacted our ability to initiate clinical trials as originally planned. Corporate Response The COVID-19 pandemic has caused a significant burden on health systems globally and has highlighted the need for companies to evaluate existing therapies to assess if they can be utilized beyond their current indications to treat COVID-19 as well as consider developing new therapies. To this end, we have granted requests for several ISTs to evaluate the use of defibrotide in COVID-19 patients experiencing respiratory distress. In addition, we are supporting our local communities and patient-focused organizations in COVID-19 relief efforts including through corporate donations to charitable organizations providing food and medical relief to communities in which we operate, and other localities where the needs related to the impact of COVID-19 are greatest. We are engaging with patient advocacy organizations to better understand the impact of COVID-19 and working to enable patients living with sleep disorders, epilepsies and oncology conditions with access to treatments and that their other needs are addressed given the impact of COVID-19 on the healthcare system. We are committed to enabling our employees to give back, including allowing licensed healthcare practitioners employed by us to support local response efforts. Other Challenges, Risks and Trends Related to Our Business Our business has been substantially dependent on Xyrem. Our future plans assume that Xywav, with 92% lower sodium compared to Xyrem, depending on the dose, absence of a sodium warning and dosing titration option, will become the treatment of choice for patients who can benefit from oxybate treatment, including current Xyrem patients and patients who previously were not prescribed Xyrem for whom sodium content is a concern. In June 2021, FDA recognized seven years of 39 Table of Contents ODE for Xywav in narcolepsy through July 21, 2027 stating that Xywav is clinically superior to Xyrem by means of greater safety due to reduced chronic sodium burden. While we expect that our business will continue to be substantially dependent on oxybate product sales from both Xywav and Xyrem, there is no guarantee that we can maintain oxybate sales at or near historical levels, or that oxybate sales will continue to grow. Our ability to successfully commercialize Xywav will depend on, among other things, our ability to maintain adequate coverage and reimbursement for Xywav and acceptance of Xywav by payors, physicians and patients, including of Xywav for the treatment of IH in adults. In an effort to support strong adoption of Xywav, we are focused on providing robust patient copay and savings programs and facilitating payor coverage for Xywav. Moreover, we have increasingly experienced pressure from third party payors to agree to discounts, rebates or restrictive pricing terms, and we cannot guarantee we will be able to agree to commercially reasonable terms with PBMs and other third party payors, or that we will be able to ensure patient access and acceptance on institutional formularies. Entering into agreements with PBMs and payors to ensure patient access has and will likely continue to result in higher gross to net deductions. In addition to the COVID-19-related impacts described above, we expect our oxybate products to face competition from the near-term introduction of authorized generic versions of sodium oxybate and from generic versions of sodium oxybate pursuant to the settlement agreements we have entered into with multiple abbreviated new drug application, or ANDA, filers. Generic competition can decrease the prices at which Xywav and Xyrem are sold and the number of prescriptions written for Xywav and Xyrem. Xywav and Xyrem may also face increased competition from new branded products for treatment of cataplexy and/or EDS in narcolepsy in the U.S. market. Our financial condition, results of operations and growth prospects are also dependent on our ability to maintain or increase sales of Epidiolex/Epidyolex in the U.S. and Europe, which is subject to many risks and there is no guarantee that we will be able to continue to successfully commercialize Epidiolex/Epidyolex for its approved indications. The commercial success of Epidiolex depends on the extent to which patients and physicians accept and adopt Epidiolex as a treatment for seizures associated with LGS, DS and TSC, and we do not know whether our or others’ estimates in this regard will be accurate. Physicians may not prescribe Epidiolex and patients may be unwilling to use Epidiolex if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, any negative development for Epidiolex in the market, in clinical development for additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Epidiolex. Thus, significant uncertainty remains regarding the commercial potential of Epidiolex. In addition to our neuroscience products and product candidates, we are commercializing a portfolio of oncology products, including Defitelio, Vyxeos, Rylaze and Zepzelca. An inability to effectively commercialize Defitelio, Vyxeos, Rylaze and Zepzelca and to maximize their potential where possible through successful research and development activities could have a material adverse effect on our business, financial condition, results of operations and growth prospects. A key aspect of our growth strategy is our continued investment in our evolving and expanding research and development activities. If we are not successful in the clinical development of these or other product candidates, if we are unable to obtain regulatory approval for our product candidates in a timely manner, or at all, or if sales of an approved product do not reach the levels we expect, our anticipated revenue from our product candidates would be negatively affected, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition to continued investment in our R&D pipeline, we intend to continue to grow our business by acquiring or in-licensing, and developing, including with collaboration partners, additional products and product candidates that we believe are highly differentiated and have significant commercial potential. Failure to identify and acquire, in-license or develop additional products or product candidates, successfully manage the risks associated with integrating any products or product candidates into our portfolio or the risks arising from anticipated and unanticipated problems in connection with an acquisition or in-licensing, such as the GW Acquisition, could have a material adverse effect on our business, results of operations and financial condition. The success of the GW Acquisition will depend, in part, on our ability to realize the anticipated benefits from our and GW’s businesses. Nonetheless, Epidiolex and the other products and technologies acquired may not be successful or continue to grow at the same rate as if our companies operated independently or they may require significantly greater resources and investments than originally anticipated. As a result, the anticipated benefits 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. Our industry has been, and is expected to continue to be, subject to healthcare cost containment and drug pricing scrutiny by regulatory agencies in the U.S. and internationally. If new healthcare policies or reforms intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical drugs generally, the prices that we charge for our products may be affected, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted. For example, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law, which, among other things, requires the U.S. Department of Health and Human 40 Table of Contents Services Secretary to negotiate, with respect to Medicare units and subject to a specified cap, the price of a set number of certain high Medicare spend drugs and biologicals per year starting in 2026, penalizes manufacturers of certain Medicare Parts B and D drugs for price increases above inflation, and makes several changes to the Medicare Part D benefit, including a limit on annual out-of-pocket costs, and a change in manufacturer liability under the program, that could negatively affect our business and financial condition. In addition, under the Medicaid Drug Rebate Program, rebates owed by manufacturers are currently capped at 100 percent of average manufacturer price, but, effective January 1, 2024, this cap will be lifted, which could adversely affect our rebate liability. We are also subject to increasing pricing pressure and restrictions on reimbursement imposed by payors. If we fail to obtain and maintain adequate formulary positions and institutional access for our products and future approved products, we will not be able to achieve a return on our investment and our business, financial condition, results of operations and growth prospects would be materially adversely affected. While certain preparations of cannabis remain Schedule I controlled substances, if such products are approved by FDA for medical use in the U.S. they are rescheduled to Schedules II-V, since approval by FDA satisfies the “accepted medical use” requirement; or may be removed from control under the Controlled Substances Act entirely. If any of our product candidates receive FDA approval, the Department of Health and Human Services, or HHS, and the U.S. Drug Enforcement Administration, or DEA, will make a scheduling determination. U.S. or foreign regulatory agencies may request additional information regarding the abuse potential of our products which may require us to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse potential, which could increase the cost, delay the approval and/or delay the launch of that product. In addition, there are non-FDA approved cannabidiol preparations being made available from companies through the state-enabled medical marijuana industry, which might attempt to compete with Epidiolex. If we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial conditions may be materially harmed. Finally, business practices by pharmaceutical companies, including product formulation improvements, patent litigation settlements, and risk evaluation and mitigation strategy, or REMS, programs, have increasingly drawn public scrutiny from legislators and regulatory agencies, with allegations that such programs are used as a means of improperly blocking or delaying competition. If we become the subject of any future government investigation with respect to our business practices, including as they relate to the Xywav and Xyrem REMS, the launch of Xywav, our Xyrem patent litigation settlement agreements or otherwise, we could incur significant monetary charges to resolve these matters and could be distracted from operation of our business and execution of our strategy. For example, in July 2022, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to Xyrem and U.S. Patent No. 8,772,306 (“Method of Administration of Gamma Hydroxybutyrate with Monocarboxylate Transporters”), product labeling changes for Xyrem, communications with FDA and the U.S. Patent and Trademark Office, pricing of Xyrem, and other related documents. For more information, see the risk factor under the heading “ We are subject to significant ongoing regulatory obligations and oversight, which may subject us to civil or criminal proceedings, investigations, or penalties and may result in significant additional expense and limit our ability to commercialize our products ” in Part II, Item 1A. We may also become subject to similar investigations by other state or federal governmental agencies. The investigation by the U.S. Attorney’s Office and any additional investigations or litigation related to the subject matter of this investigation may result in damages, fines, penalties, financial charges to resolve the matter or administrative sanctions against us, negative publicity or other negative actions that could harm our reputation, reduce demand for Xyrem and/or reduce coverage of Xyrem, including by federal health care programs and state health care programs. In addition, 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 certain generic companies violate state and federal antitrust and consumer protection laws. For additional information on these lawsuits, see Note 10, Commitments and Contingencies-Legal Proceedings of the Notes to Condensed Consolidated Financial Statements, included in Part I of this Quarterly Report on Form 10‑Q. It is possible that additional lawsuits will be filed against us making similar or related allegations. We cannot predict the outcome of these or potential additional lawsuits; however, 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. Moreover, we are, and expect to continue to be, the subject of various claims, legal proceedings, and government investigations apart from those set forth above that have arisen in the ordinary course of business that have not yet been fully resolved and that could adversely affect our business and the execution of our strategy. Any of the foregoing risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, to the extent the COVID-19 pandemic continues to adversely affect our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described above. All of these risks and uncertainties are discussed in greater detail, along with other risks and uncertainties, in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 41 Table of Contents Results of Operations The following table presents our revenues and expenses (in thousands, except percentages): Three Months Ended September 30, Increase/ Nine Months Ended September 30, Increase/ 2022 2021 (Decrease) 2022 2021 (1) (Decrease) Product sales, net $ 935,766 $ 834,247 12 % $ 2,673,903 $ 2,186,118 22 % Royalties and contract revenues 4,886 3,868 26 % 13,348 11,389 17 % Cost of product sales (excluding amortization of acquired developed technologies) 133,661 145,224 (8) % 373,153 304,607 23 % Selling, general and administrative 358,478 363,682 (1) % 1,033,764 1,053,221 (2) % Research and development 148,870 141,036 6 % 417,898 350,305 19 % Intangible asset amortization 141,232 159,804 (12) % 461,782 368,476 25 % Acquired in-process research and development — — — 69,148 — N/A(2) Impairment charge 133,648 — N/A(2) 133,648 — N/A(2) Interest expense, net 80,244 93,372 (14) % 214,117 190,168 13 % Foreign exchange loss (gain) 4,649 2,631 N/A(2) 16,532 (1,262) N/A(2) Income tax expense (benefit) (43,027) (18,057) N/A(3) (58,603) 228,583 N/A(3) Equity in loss (gain) of investees 2,545 3,256 (22) % 9,148 (2,274) (502) % ____________________________ (1) The results of operations of the GW business have been included from the closing of the acquisition of GW on May 5, 2021. (2) Comparison to prior period not meaningful. (3) The fluctuations in the income tax expense (benefit) for the three and nine months ended September 30, 2022 and 2021 are primarily due to the impacts in 2022 of the impairment of our acquired IPR&D asset, costs related to restructuring and the impact in 2021 of the change in the statutory tax rate in the U.K. . Revenues The following table presents our net product sales, royalties and contract revenues, and total revenues (in thousands, except percentages): Three Months Ended September 30, Increase/ Nine Months Ended September 30, Increase/ 2022 2021 (Decrease) 2022 2021 (1) (Decrease) Xyrem $ 256,039 $ 307,333 (17) % $ 772,957 $ 977,065 (21) % Xywav 255,936 153,063 67 % 677,041 352,643 92 % Total Oxybate 511,975 460,396 11 % 1,449,998 1,329,708 9 % Epidiolex/Epidyolex 196,218 160,378 22 % 529,400 269,859 N/A(3) Sativex 3,220 6,097 (47) % 12,104 8,058 N/A(3) Sunosi 2 — 19,251 N/A(3) 28,844 42,981 (33) % Total Neuroscience 711,413 646,122 10 % 2,020,346 1,650,606 22 % Zepzelca 70,320 71,714 (2) % 197,943 181,972 9 % Rylaze 73,513 20,674 256 % 200,687 20,674 N/A(3) Vyxeos 30,067 34,688 (13) % 97,714 99,296 (2) % Defitelio/defibrotide 49,452 57,705 (14) % 153,637 155,420 (1) % Erwinaze/Erwinase — — — — 69,382 N/A(3) Total Oncology 223,352 184,781 21 % 649,981 526,744 23 % Other 1,001 3,344 (70) % 3,576 8,768 (59) % Product sales, net 935,766 834,247 12 % 2,673,903 2,186,118 22 % Royalties and contract revenues 4,886 3,868 26 % 13,348 11,389 17 % Total revenues $ 940,652 $ 838,115 12 % $ 2,687,251 $ 2,197,507 22 % 42 Table of Contents _____________________________ (1) The results of operations of the GW business have been included from the closing of 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. (3) Comparison to prior period not meaningful. Product Sales, Net Total oxybate product sales increased by $51.6 million and $120.3 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Total o xybate revenue bottle volume increased by 7% and 5% in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Average active oxybate patients on therapy were approximately 17,600 in the third quarter of 2022, an increase of approxima tely 10% compared to the same period in 2021. Xyrem product sales decreased in the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to a decrease in sales volume, reflecting the continued adoption of Xywav by existing Xyrem patients, partially offset by a higher average net selling price. Price increases were instituted in January 2021 and January 2022. Xywav product sales increased in the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to higher sales volume, with bottle volume increasing by 61% and 87%, respectively. Xywav product sales were positively impacted by the launch of Xywav for IH and continued strong adoption in narcolepsy driven by educational initiatives around the benefit of lowering sodium intake. Epidiolex/Epidyolex product sales increased by $35.8 million in the three months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in commercial sales volume and a higher average net selling price, partially offset by higher gross to net deductions. On a pro forma basis, Epidiolex/Epidyolex product sales increased by 14% in the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in commercial sales volume and a higher average net selling price, partially offset by higher gross to net deductions. Price increases were instituted in January 2021 and January 2022. We completed the U.S. divestiture of Sunosi in May 2022. Zepzelca product sales in the three months ended September 30, 2022 decreased compared to the same period in 2021, primarily due to higher gross to net deductions, as a result of a returns accrual release in the three months ended September 30, 2021, partially offset by the impact of a higher average net selling price. Zepzelca product sales increased in the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to a higher average net selling price and an increase in sales volume, partially offset by the impact of higher gross to net deductions. P rice increases were instituted in July 2021, January 2022 and July 2022. Rylaze product sales were $73.5 million and $200.7 million in the three and nine months ended September 30, 2022, respectively, following product launch in July 2021. Rylaze net product sales increased in the three months ended September 30, 2022 compared to the same period in 2021 primarily due to higher sales volume reflecting the significant unmet patient need for a high-quality, reliable supply of Erwinia asparaginase for patients with ALL. A p rice increase was instituted in July 2022. Vyxeos product sales decreased in the three months ended September 30, 2022 compared to the same period in 2021 due to higher gross to net deductions, partially offset by an increase in sales volume. Vyxeos product sales decreased in the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to higher gross to net deductions and the negative impact of foreign exchange rates, partially offset by increased sales volume. P rice increases were instituted in August 2021, January 2022 and July 2022. Defitelio/defibrotide product sales decreased in the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the negative impact of foreign exchange rates and a decrease in sales volume. Defitelio/defibrotide product sales in the nine months ended September 30, 2022 were in line with the same period in 2021 as the impact of a higher average net selling price and increased sales volume were offset by the negative impact of foreign exchange rates. P rice increases were instituted in July 2021, January 2022 and July 2022. We distributed our final Erwinaze inventory in June 2021 following expiration of our license and supply agreement. We expect total product sales, net will increase in 2022 over 2021, primarily due to an increase in product sales of Xywav partially offset by a decrease in Xyrem, as patients continue to transition to Xywav, expected growth in, and the inclusion of a full year sales of, Epidiolex and Rylaze, and expected growth in Zepzelca, partially offset by a reduction in Erwinaze following expiration of our license and supply agreement and a reduction in Sunosi following completion of the sale to Axsome. Cost of Product Sales Cost of product sales decreased in the three months ended September 30, 2022 compared to the same period in 2021 primarily due to a decrease in the acquisition accounting inventory fair value step-up expense, or fair value step-up expense, of $11.7 million. Cost of product sales increased in the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the cost of product sales acquired in the acquisition of GW, including an increase in the fair value step-up expense of $54.6 million. Gross margin as a percentage of net product sales was 85.7% for the three months ended September 30, 2022 compared to 82.6% for the same period in 2021 primarily due to the reduction in the fair value step-up expense. Gross margin as a percentage of net product sales of 86.0% for the nine months ended September 30, 2022 was in line 43 Table of Contents with the same period in 2021. We expect our cost of product sales to increase in 2022 compared to 2021 primarily driven by the inclusion of a full year of fair value step-up expense. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to lower transaction and integration expenses related to the acquisition of GW, lower Sunosi related spend offset by restructuring costs and costs related to program terminations and increased marketing expenses relating to Xywav. Selling, general and administrative expenses decreased in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to lower transaction and integration expenses, lower Sunosi related costs partially offset by restructuring costs and costs related to program terminations, the loss on disposal of Sunosi and an increase in compensation related expenses driven by the inclusion of GW related headcount costs for the full period in 2022. We expect selling, general and administrative expenses in 2022 to decrease compared to 2021, primarily due to a reduction in transaction and integration expenses, together with synergies expected to be realized in connection with the acquisition of GW, partially offset by the inclusion of a full year of expense related to the acquired GW business, the loss on disposal of Sunosi and restructuring costs. Research and Development Expenses Research and development expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, and other research and development costs. Clinical study and outside services costs relate primarily to services performed by clinical research organizations, materials and supplies, and other third party fees. Personnel expenses relate primarily to salaries, benefits and share-based compensation. Other research and development expenses primarily include overhead allocations consisting of various support and facilities-related costs. We do not track fully-burdened research and development expenses on a project-by-project basis. We manage our research and development expenses by identifying the research and development activities that we anticipate will be performed during a given period and then prioritizing efforts based on our assessment of which development activities are important to our business and have a reasonable probability of success, and by dynamically allocating resources accordingly. We also continually review our development pipeline projects and the status of their development and, as necessary, reallocate resources among our development pipeline projects that we believe will best support the future growth of our business. The following table provides a breakout of our research and development expenses by major categories of expense (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Clinical studies and outside services $ 57,115 $ 63,929 $ 170,694 $ 162,140 Personnel expenses 59,123 54,523 170,728 138,678 Restructuring expenses 11,891 — 11,891 — Milestone expense 752 3,000 6,252 5,000 Other 19,989 19,584 58,333 44,487 Total $ 148,870 $ 141,036 $ 417,898 $ 350,305 Research and development expenses increased by $7.8 million and $67.6 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Clinical studies and outside services costs decreased in the three months ended September 30, 2022, compared to the same period in 2021, primarily due to a reduction in costs related to JZP458 (Rylaze) and solriamfetol related expenses and increased in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to additional costs related to clinical programs for Epidiolex, nabiximols and cannabinoids and an increase in costs related to JZP150. Personnel expenses increased in the three months ended September 30, 2022, compared to the same period in 2021, primarily due to share-based compensation related expenses. Personnel expenses in the nine months ended September 30, 2022 increased compared to the same period in 2021 due to the inclusion of GW-related headcount costs for the full period in 2022. There were restructuring costs of $11.9 million in the three and nine months ended September 30, 2022. Other costs for the three months ended September 30, 2022 were in line with the same period in 2021 and increased in the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the inclusion of GW-related costs for the full period in 2022. 44 Table of Contents For 2022, we expect that our research and development expenses will continue to increase from previous levels due to the inclusion of a full year of expense with respect to the acquired GW business and initiate and undertake additional clinical trials and related development work and potentially acquire rights to additional product candidates. Intangible Asset Amortization Intangible asset amortization decreased by $18.6 million in the three months ended September 30, 2022, compared to the same period in 2021 due to movements in foreign exchange rates and increased by $93.3 million in the nine months ended September 30, 2022, compared to the same period in 2021 primarily due to the inclusion of the amortization of the intangible assets arising from the acquisition of GW, primarily related to Epidiolex, offset by a decrease relating to the Erwinaze intangible asset that was fully amortized in June 2021. Intangible asset amortization is expected to increase in 2022 compared to 2021 primarily as a result of the inclusion of a full years amortization on the intangible assets acquired in the acquisition of GW. Acquired In-Process Research and Development Acquired in-process research and development, or IPR&D, expense in the nine months ended September 30, 2022 primarily related to the upfront payments made in connection with our licensing agreements with Sumitomo and Werewolf of $50.0 million and $15.0 million, respectively. Impairment charge In the three and nine months ended September 30, 2022, we recorded an IPR&D asset impairment charge of $133.8 million as a result of the decision to discontinue our nabiximols program. Interest Expense, Net Interest expense, net in the three months ended September 30, 2022, decreased by $13.1 million, compared to the same period in 2021, primarily driven by a decrease in non-cash interest expense relating to the 1.50% exchangeable senior notes due 2024, or the 2024 Notes, and the 2.00% exchangeable senior notes due 2026, or the 2026 Notes, following the adoption of 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, on January 1, 2022. Interest expense, net, increased by $23.9 million in the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to higher interest expense from the seven-year $3.1 billion term loan B facility, or the Dollar Term Loan and the 4.375% senior secured notes, due 2029, or the Secured Notes, offset by a decrease in non-cash interest expense relating to the 2024 and 2026 Notes. We expect interest expense, net for 2022 to be broadly in line with 2021. Foreign Exchange Loss (Gain) The foreign exchange loss (gain) is primarily related to the translation of sterling and euro-denominated net monetary liabilities, primarily intercompany balances, held by subsidiaries with a U.S. dollar functional currency and related foreign exchange forward contracts not designated as hedging instruments. Income Tax Expense (Benefit) Our income tax benefit was $43.0 million and $58.6 million for the three and nine months ended September 30, 2022, respectively, compared to an income tax benefit of $18.1 million and an income tax expense of $228.6 million for the same periods in 2021. Our income tax benefit for the three and nine months ended September 30, 2022 included the tax impacts of the impairment of our acquired IPR&D asset and restructuring costs. Our income tax expense for the three and nine months ended September 30, 2021 included an expense of $250.6 million arising on the remeasurement of our U.K. net deferred tax liability, which arose primarily in relation to the GW Acquisition, due to a change in the statutory rate in the U.K. following enactment of the U.K. Finance Act 2021. Excluding these impacts, the decrease in the income tax benefit in the three months ended September 30, 2022 compared to the same period in 2021 resulted primarily from the mix of pre-tax income and losses incurred across tax jurisdictions. The income tax benefit in the nine months ended September 30, 2022 is in line with the prior period. 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. 45 Table of Contents Liquidity and Capital Resources As of September 30, 2022, we had cash, cash equivalents and investments of $899.4 million, borrowing availability under our revolving credit facility of $500.0 million and long-term debt principal balance of $5.8 billion. Our long-term debt included $2.8 billion in aggregate principal amount of the Dollar Term Loan, $1.5 billion in aggregate principal amount of the Secured Notes , $1.0 billion principal amount of the 2026 Notes and $575.0 million principal amount of the 2024 Notes. We generated cash flows from operations of $930.0 million during the nine months ended September 30, 2022, and we expect to continue to generate positive cash flows from operations which will enable us to operate our business and de-lever our balance sheet over time. In 2022, we made voluntary repayments of $300.0 million of the Dollar Term Loan principal outstanding and €208.3 million, or $251.0 million, of the seven-year €625.0 million term loan B facility, or the Euro Term Loan, which represented the remaining principal amount. We have made voluntary repayments of €625.0 million, or $753.0 million, relating to Euro Term Loan and voluntary and mandatory repayments of $300.0 million and $38.2 million, respectively, relating to the Dollar Term Loan since the closing of the acquisition of GW in May 2021. We have a significant amount of debt outstanding on a consolidated basis. For a more detailed description of our debt arrangements, including information relating to our scheduled maturities with respect to our long-term debt, see Note 9, Debt, of the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10‑Q. This substantial level of debt could have important consequences to our business, including, but not limited to the factors set forth in “Risk Factors” of this Quarterly Report on Form 10-Q under the heading “We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position, and our business would be adversely affected if we are unable to service our debt obligations.” We believe that our existing cash, cash equivalents and investments balances, cash we expect to generate from operations and funds available under our Revolving Credit Facility will be sufficient to fund our operations and to meet our existing obligations for the foreseeable future. The adequacy of our cash resources depends on many assumptions, including primarily our assumptions with respect to product sales and expenses, as well as the other factors set forth in in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q under the headings “Risks Related to our Lead Products and Product Candidates” and “To continue to grow our business, we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate and grow our business.” Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash resources, and we may not be able to generate sufficient cash to service our debt obligations which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business. 46 Table of Contents To continue to grow our business over the longer term, we plan to commit substantial resources to product acquisition and in-licensing, product development, clinical trials of product candidates and expansion of our commercial, development, manufacturing and other operations. In this regard, we have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our strategy to acquire or in-license and develop additional products and product candidates. Acquisition opportunities that we pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. We regularly evaluate the performance of our products and product candidates to ensure fit within our portfolio and support efficient allocation of capital. In addition, we may pursue new operations or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations or for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt or equity financings, collaborations or partnering arrangements. However, global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the effects of inflationary pressures, the COVID-19 pandemic and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments. In addition, under Irish law we must have authority from our shareholders to issue any ordinary shares, including ordinary shares that are part of our authorized but unissued share capital. Moreover, as a matter of Irish law, when an Irish public limited company issues ordinary shares to new shareholders for cash, the company must first offer those shares on the same or more favorable terms to existing shareholders on a pro-rata basis, unless this statutory pre-emption obligation is dis-applied, or opted-out of, by approval of its shareholders. At our annual general meeting of shareholders in July 2022, our shareholders voted to approve our proposal to dis-apply the statutory pre-emption obligation on terms that are substantially more limited than our general pre-emption opt-out authority that had been in effect prior to August 4, 2021. This current pre-emption opt-out authority is due to expire in December 2023. If we are unable to obtain further pre-emption authorities from our shareholders in the future, or otherwise continue to be limited by the terms of new pre-emption authorities approved by our shareholders in the future, our ability to use our unissued share capital to fund in-licensing, acquisition or other business opportunities, or to otherwise raise capital, could be adversely affected. In any event, an inability to borrow or raise additional capital in a timely manner and on attractive terms could prevent us from expanding our business or taking advantage of acquisition opportunities, and could otherwise have a material adverse effect on our business and growth prospects. In addition, if we use a substantial amount of our funds to acquire or in-license products or product candidates, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose. Furthermore, any equity financing would be dilutive to our shareholders, and could require the consent of the lenders under the Credit Agreement and the indenture for the Secured Notes for certain financings. The following table presents a summary of our cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2022 2021 Net cash provided by operating activities $ 930,006 $ 600,752 Net cash used in investing activities (121,852) (5,202,051) Net cash (used in) provided by financing activities (549,087) 4,217,131 Effect of exchange rates on cash and cash equivalents (11,157) (1,821) Net increase (decrease) in cash and cash equivalents $ 247,910 $ (385,989) Operating activities Net cash provided by operating activities increased by $329.3 million in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to increased cash received on sales of our products and decreased transaction and integration-related costs associated with the GW Acquisition. Investing activities Net cash used in investing activities decreased by $5,080.2 million in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to the following: • $6,234.8 million outflow related to the net cash paid for the GW Acquisition in the nine months ended September 30, 2021; and • $53.0 million upfront payment from Axsome relating to the Sunosi U.S. disposition in the nine months ended September 30, 2022; offset by 47 Table of Contents • $1,129.3 million decrease in net proceeds from maturity of investments, primarily time deposits in the nine months ended September 30, 2022; and • $69.1 million in upfront payments for acquired IPR&D primarily driven by the $50.0 million and $15.0 million payments to Sumitomo and Werewolf, respectively, in connection with our licensing agreements in the nine months ended September 30, 2022. Financing activities Net cash (used in) provided by financing activities decreased by $4,766.2 million in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to: • Net proceeds from issuance of borrowings under the Credit Agreement of $3,719.9 million and the Secured Notes of $1,471.5 million in the nine months ended September 30, 2021; and • A decrease of $49.2 million in proceeds from employee equity incentive and purchase plans; offset by • Payments for repurchase of the 2021 Notes of $218.8 million in the nine months ended September 30, 2021; and • Repayments of long-term debt of $574.3 million in the nine months ended September 30, 2022, compared to $843.0 million in the nine months ended September 30, 2021. Debt The summary of our outstanding indebtedness under our financing arrangements is included in Note 9, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2022, there were no changes to the credit agreement, as set forth in Note 12, Debt, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Contractual Obligations During the nine months ended September 30, 2022, there were no material changes to our contractual obligations as set forth in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Critical Accounting Estimates To understand our financial statements, it is important to understand our critical accounting estimates. The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in determining the amounts to be deducted from gross revenues and also with respect to the acquisition and valuation of intangibles and income taxes. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. Although we believe our estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10‑K for the year ended December 31, 2021. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10‑K for the year ended December 31, 2021. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10‑Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s current plans, objectives, estimates, expectations and intentions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “propose,” “intend,” “continue,” “potential,” “possible,” “foreseeable,” “likely,” “unforeseen” and similar expressions intended to identify forward-looking statements. These statements involve 48 Table of Contents known and unknown risks, uncertainties and other factors which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other risk factors in greater detail under Part II, Item 1A of this Quarterly Report on Form 10-Q. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our plans, objectives, estimates, expectations and intentions only as of the date of this filing. You should read this Quarterly Report on Form 10‑Q completely and with the understanding that our actual future results and the timing of events may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we undertake no obligation to update or supplement any forward-looking statements publicly, or to update or supplement the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the nine months ended September 30, 2022, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A“Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021.