Edgar Filing: Jazz Pharmaceuticals plc

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2015



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-33500

JAZZ PHARMACEUTICALS PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)



Ireland	98-1032470
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Fourth Floor, Connaught House,

One Burlington Road, Dublin 4, Ireland

011-353-1-634-7800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of October 30, 2015, 61,497,753 ordinary shares of the registrant, nominal value $0.0001 per share, were outstanding.

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JAZZ PHARMACEUTICALS PLC

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2015

INDEX



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – September 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92

Item 5.	Other Information	93

Item 6.	Exhibits	94

We own or have rights to various copyrights, trademarks and trade names used in our business in the United States and/or other countries, including the following: Jazz Pharmaceuticals^®, Xyrem^® (sodium oxybate) oral solution, Erwinaze^® (asparaginase Erwinia chrysanthemi), Erwinase^®(asparaginase Erwinia chrysanthemi), Defitelio^® (defibrotide), Prialt^® (ziconotide) intrathecal infusion, FazaClo^® (clozapine, USP) and Leukotac^TM (inolimomab). This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



	September 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	998,859		$	684,042
Accounts receivable, net of allowances	195,816			186,371
Inventories	30,018			30,037
Prepaid expenses	21,275			12,800
Deferred tax assets, net	50,006			48,440
Other current assets	18,969			21,322
Assets held for sale	—			32,833
Total current assets	1,314,943			1,015,845
Property and equipment, net	83,452			58,363
Intangible assets, net	1,270,777			1,437,435
Goodwill	669,029			702,713
Deferred tax assets, net, non-current	76,391			75,494
Deferred financing costs	24,315			33,174
Other non-current assets	25,393			15,931
Total assets	$	3,464,300		$	3,338,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	29,124		$	25,126
Accrued liabilities	166,375			164,091
Current portion of long-term debt	117,589			9,428
Income taxes payable	16,357			7,588
Deferred tax liability, net	9,417			9,430
Deferred revenue	1,330			1,138
Total current liabilities	340,192			216,801
Deferred revenue, non-current	3,646			4,499
Long-term debt, less current portion	1,172,103			1,333,000
Deferred tax liability, net, non-current	325,216			375,054
Other non-current liabilities	59,666			38,393
Commitments and contingencies (Note 8)
Shareholders’ equity:
Jazz Pharmaceuticals plc shareholders' equity
Ordinary shares	6			6
Non-voting euro deferred shares	55			55
Capital redemption reserve	471			471
Additional paid-in capital	1,534,032			1,458,005
Accumulated other comprehensive loss	(231,277		)	(122,097		)
Retained earnings	260,176			34,704
Total Jazz Pharmaceuticals plc shareholders’ equity	1,563,463			1,371,144
Noncontrolling interests	14			64
Total shareholders’ equity	1,563,477			1,371,208
Total liabilities and shareholders’ equity	$	3,464,300		$	3,338,955

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

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JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Product sales, net	$	338,754		$	304,407		$	977,895		$	838,493
Royalties and contract revenues	2,118			2,177			6,027			6,240
Total revenues	340,872			306,584			983,922			844,733
Operating expenses:
Cost of product sales (excluding amortization and impairment of intangible assets)	28,385			26,994			78,496			88,610
Selling, general and administrative	104,044			93,501			323,564			300,420
Research and development	50,784			22,423			105,798			60,622
Acquired in-process research and development	—			75,000			—			202,000
Intangible asset amortization	26,127			30,630			74,472			94,607
Impairment charges	—			—			—			32,806
Total operating expenses	209,340			248,548			582,330			779,065
Income from operations	131,532			58,036			401,592			65,668
Interest expense, net	(12,650		)	(14,530		)	(44,707		)	(36,035		)
Foreign currency gain (loss)	(977		)	6,483			(646		)	6,680
Loss on extinguishment and modification of debt	—			—			(16,815		)	—
Income before income tax provision	117,905			49,989			339,424			36,313
Income tax provision	29,945			24,221			92,651			60,598
Net income (loss)	87,960			25,768			246,773			(24,285		)
Net income (loss) attributable to noncontrolling interests, net of tax	—			2			(1		)	(1,060		)
Net income (loss) attributable to Jazz Pharmaceuticals plc	$	87,960		$	25,766		$	246,774		$	(23,225	)

Net income (loss) attributable to Jazz Pharmaceuticals plc per ordinary share:
Basic	$	1.43		$	0.43		$	4.04		$	(0.39	)
Diluted	$	1.39		$	0.41		$	3.91		$	(0.39	)
Weighted-average ordinary shares used in per share calculation - basic	61,435			60,305			61,145			59,457
Weighted-average ordinary shares used in per share calculation - diluted	63,154			62,680			63,072			59,457

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

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JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015			2014
Net income (loss)	$	87,960	$	25,768		$	246,773		$	(24,285	)
Other comprehensive income (loss):
Foreign currency translation adjustments	16,779		(117,089		)	(109,174		)	(113,293		)
Other comprehensive income (loss)	16,779		(117,089		)	(109,174		)	(113,293		)
Total comprehensive income (loss)	104,739		(91,321		)	137,599			(137,578		)
Comprehensive income (loss) attributable to noncontrolling interests, net of tax	14		(8		)	5			(1,067		)
Comprehensive income (loss) attributable to Jazz Pharmaceuticals plc	$	104,725	$	(91,313	)	$	137,594		$	(136,511	)

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

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JAZZ PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
Operating activities
Net income (loss)	$	246,773		$	(24,285	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Intangible asset amortization	74,472			94,607
Share-based compensation	67,233			50,618
Impairment charges	—			32,806
Depreciation	7,143			5,037
Acquired in-process research and development	—			202,000
Loss on disposal of property and equipment	117			—
Excess tax benefit from share-based compensation	320			(4,075		)
Acquisition accounting inventory fair value step-up adjustments	—			10,477
Deferred income taxes	(25,368		)	(36,246		)
Provision for losses on accounts receivable and inventory	4,021			2,873
Loss on extinguishment and modification of debt	16,815			—
Amortization of debt discount and deferred financing costs	17,348			7,603
Other non-cash transactions	(3,834		)	(7,382		)
Changes in assets and liabilities:
Accounts receivable	(10,661		)	(50,690		)
Inventories	(3,595		)	(10,184		)
Prepaid expenses and other current assets	(5,298		)	4,262
Other long-term assets	(9,555		)	(5,775		)
Accounts payable	4,826			(33,865		)
Accrued liabilities	4,642			19,468
Income taxes payable	8,993			19,003
Deferred revenue	(659		)	(918		)
Contingent consideration	—			(14,900		)
Other non-current liabilities	18,469			12,910
Net cash provided by operating activities	412,202			273,344
Investing activities
Net proceeds from sale of business	33,703			—
Purchases of property and equipment	(32,591		)	(22,799		)
Acquisitions, net of cash acquired	—			(828,676		)
Acquisition of in-process research and development	—			(202,000		)
Net cash provided by (used in) investing activities	1,112			(1,053,475		)
Financing activities
Net proceeds from issuance of debt	898,960			1,195,366
Proceeds from employee equity incentive and purchase plans and exercise of warrants	34,025			48,452
Repayments of long-term debt	(896,363		)	(7,090		)
Payment of employee withholding taxes related to share-based awards	(25,402		)	(17,306		)
Share repurchases	(21,302		)	(29,973		)
Excess tax benefit from share-based compensation	(320		)	4,075
Acquisition of noncontrolling interests	(60		)	(136,950		)
Payment of contingent consideration	—			(35,100		)
Repayments under revolving credit facility	(80,000		)	(300,000		)
Net cash provided by (used in) financing activities	(90,462		)	721,474
Effect of exchange rates on cash and cash equivalents	(8,035		)	(2,807		)
Net increase (decrease) in cash and cash equivalents	314,817			(61,464		)
Cash and cash equivalents, at beginning of period	684,042			636,504
Cash and cash equivalents, at end of period	$	998,859		$	575,040

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

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JAZZ PHARMACEUTICALS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Summary of Significant Accounting Policies

Jazz Pharmaceuticals plc, a public limited company formed under the laws of Ireland, is an international biopharmaceutical company focused on improving patients’ lives by identifying, developing and commercializing meaningful products that address unmet medical needs. We have a diverse portfolio of products and product candidates, with a focus in the areas of sleep and hematology/oncology. In these areas, we market Xyrem^® (sodium oxybate) oral solution and Erwinaze^® (asparaginase Erwinia chrysanthemi) in the United States, and we market Erwinase^® and Defitelio^® (defibrotide) in countries outside the United States. Our strategy is to create shareholder value by:


•	Growing sales of the existing products in our portfolio, including by identifying new growth opportunities;


•	Acquiring additional differentiated products that are on the market or product candidates that are in late-stage development; and


•	Pursuing focused development of a pipeline of post-discovery differentiated product candidates.

Throughout this report, unless otherwise indicated or the context otherwise requires, all references to “Jazz Pharmaceuticals,” “the registrant,” “we,” “us,” and “our” refer to Jazz Pharmaceuticals plc and its consolidated subsidiaries. Throughout this report, 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 Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles, or GAAP, can be condensed or omitted. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of our financial position and operating results. The results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015, for any other interim period or for any future period.

These condensed consolidated financial statements include the accounts of Jazz Pharmaceuticals plc and our subsidiaries, and intercompany transactions and balances have been eliminated. We record noncontrolling interests in our condensed consolidated financial statements which represent the ownership interest of minority shareholders in the equity of Gentium S.p.A., or Gentium. Our condensed consolidated financial statements include the results of operations of businesses we have acquired from the date of each acquisition for the applicable reporting periods.

Significant Risks and Uncertainties

Our financial results remain significantly influenced by sales of Xyrem. In the three and nine months ended September 30, 2015, net product sales of Xyrem were $242.9 million and $703.4 million, respectively, which represented 71.7% and 71.9% of total net product sales, respectively. Our ability to maintain or increase sales of Xyrem in its approved indications is subject to a number of risks and uncertainties, including the potential introduction of generic competition or an alternative sodium oxybate product that competes with Xyrem; changed or increased regulatory restrictions; our manufacturing partners’ ability to obtain sufficient quota from the U.S. Drug Enforcement Administration, or DEA; any supply, manufacturing or distribution problems arising with any of our manufacturing and distribution partners, all of whom are sole source providers for us; any increase in pricing pressure from or restrictive conditions for reimbursement required by, and the availability of reimbursement from, third party payors; changes in healthcare laws and policy; continued acceptance of Xyrem by physicians and patients; changes to our label, including new safety warnings or changes to our boxed warning, that further restrict how we market and sell Xyrem; any failure of our transition to the final approved risk evaluation and mitigation strategy, or REMS, to meet the requirements of the U.S. Food and Drug Administration, or FDA; and any further operational disruptions at the central pharmacy as a result of the transition to the final approved Xyrem REMS and resulting adverse impacts on Xyrem product sales.

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Seven abbreviated new drug applications, or ANDAs, have been filed with the FDA by third parties seeking to market generic versions of Xyrem. We have filed lawsuits seeking to prevent the introduction of a generic version of Xyrem that would infringe our patents, and the litigation proceedings are ongoing. We cannot predict the timing or outcome of these proceedings. Although no trial date has been set in any of the ANDA suits, we anticipate that trial on some of the patents in the case against the first ANDA filer, Roxane Laboratories, Inc., or Roxane, could occur as early as the first quarter of 2016. In addition, in January 2015, certain of the ANDA filers filed petitions for inter partes review, or IPR, by the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office with respect to the validity of six patents covering the distribution system for Xyrem. In July 2015, the PTAB issued decisions instituting IPR trials with respect to these petitions, and we expect the PTAB to issue final decisions on the validity of the patents within a year of institution. In September and October 2015, certain of the ANDA filers filed petitions for IPR by the PTAB with respect to the validity of an additional patent covering the distribution system for Xyrem and with respect to the validity of one of our patents covering a method for prescribing Xyrem when it is being co-administered with divalproex sodium (also known as valproate or valproic acid). In addition, in April 2015, a hedge fund filed an IPR petition challenging the validity of one of our Xyrem distribution patents that is already the subject of one of the IPR petitions proceeding to trial before the PTAB. The PTAB issued a decision denying institution of IPR proceedings with respect to this petition. We cannot predict whether additional post-grant patent review challenges will be filed by any of the ANDA filers or any other entity, the outcome of any IPR or other proceeding, whether the PTAB will institute any petitioned IPR proceeding that has not yet been instituted, or the impact any IPR or other proceeding might have on ongoing ANDA litigation proceedings or other aspects of our Xyrem business. We expect that the approval of an ANDA that results in the launch of a generic version of Xyrem, or the approval and launch of other sodium oxybate products that compete with Xyrem, would have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In late August 2015, we implemented the final Xyrem REMS approved by the FDA in late February 2015. The process under which enrolled patients receive Xyrem is complex and includes multiple mandatory steps taken by the central pharmacy. The transition to the final approved REMS necessitated significant operational changes at the central pharmacy and revised documentation requirements for patients and prescribers. In the third quarter of 2015, Xyrem product sales were impacted by operational disruption and resulting delays in prescription fills and refills. As physicians and patients familiarized themselves with the new REMS process and documentation requirements, the central pharmacy experienced a significantly increased volume of calls from patients and physicians’ offices that the pharmacy was not able to timely address, resulting in a backlog of prescription fills and refills that were delayed. We have identified and are addressing with the central pharmacy to the extent feasible the processes that led to the operational delays, and to date in the fourth quarter, we have observed an improvement in key operational metrics compared to the third quarter. However, we may experience further disruptions and resulting adverse impacts on Xyrem product sales. In addition, we cannot guarantee that our implementation of the Xyrem REMS will meet FDA requirements, that the ongoing assessments that we submit in accordance with the FDA’s Xyrem REMS approval will be satisfactory to the FDA, or that the Xyrem REMS will satisfy the FDA’s expectations in its anticipated evaluation of the Xyrem REMS on an ongoing basis. Any failure to transition to the Xyrem REMS to the satisfaction of the FDA or to comply with the REMS obligations could result in enforcement action by the FDA; lead to changes in our Xyrem REMS obligations; continue to negatively affect sales of Xyrem; result in additional costs and expenses for us; and/or take a significant amount of time, any of which could materially and adversely affect our business, financial condition, results of operations and growth prospects. Further, we cannot predict whether the FDA will seek to require or ultimately require modifications to the Xyrem REMS, including with respect to the distribution system, or seek to otherwise impose or ultimately impose additional requirements to the Xyrem REMS, or the potential timing, terms or propriety thereof. Any such modifications or additional requirements could potentially make it more difficult or expensive for us to distribute Xyrem, make it easier for future generic competitors, and/or negatively affect sales of Xyrem.

We may face pressure to develop a single shared REMS with potential generic competitors for Xyrem or to license or share intellectual property pertinent to the Xyrem REMS, which is the subject of multiple issued patents, or elements of the Xyrem REMS, with generic competitors. In January 2014, the FDA held an initial meeting with us and the three then-current sodium oxybate ANDA applicants to facilitate the development of a single shared REMS for sodium oxybate. In October 2015, the FDA held a telephonic meeting with us and the seven current sodium oxybate ANDA applicants to discuss the status of the development of a single shared REMS for sodium oxybate. The parties had regular interactions with respect to developing a single shared REMS prior to this meeting, and we are seeking to continue the interactions with the goal of developing a single shared REMS. We cannot predict whether, or to what extent, interactions among the parties will continue or whether we will develop a single shared REMS. If we do not develop a single shared REMS or license or share intellectual property pertinent to our Xyrem REMS with generic competitors within a time frame or on terms that the FDA considers acceptable, the FDA may assert that its waiver authority permits it to approve the ANDA of one or more generic competitors with a separate REMS that differs from our approved Xyrem REMS. We cannot predict the outcome or impact on our business of any future action that we may take with respect to the development of a single shared REMS for sodium oxybate, licensing or sharing intellectual property pertinent to our Xyrem REMS, or the FDA’s response to a request by one or more ANDA applicants for a waiver of

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the requirement for a single shared REMS, including in connection with a certification that the applicant had been unable to obtain a license. In addition, the Federal Trade Commission, other governmental authorities or others could claim or determine that we are using the Xyrem REMS in an anticompetitive manner (including in light of the FDA’s statement in the Xyrem REMS approval notice that the Xyrem REMS could be used in an anticompetitive manner inconsistent with applicable provisions of the Federal Food, Drug and Cosmetic Act) or have engaged in other anticompetitive practices.

Obtaining and maintaining appropriate reimbursement for Xyrem in the U.S. is increasingly challenging due to, among other things, the attention being paid to healthcare cost containment and prescription drug pricing, pricing pressure from third party payors and increasingly restrictive reimbursement conditions being imposed by third party payors. In this regard, we have experienced and expect to continue to experience increasing pressure from third party payors to agree to discounts, rebates or other pricing terms for Xyrem. Any such restrictive pricing terms or additional reimbursement conditions could have a material adverse effect on our Xyrem revenues. In addition, drug pricing by pharmaceutical companies has recently come under close scrutiny, particularly with respect to companies that have increased the price of products after acquiring those products from other companies. We expect that healthcare policies and reforms intended to curb healthcare costs will continue to be proposed, which could limit the prices that we charge for our products, including Xyrem, limit our commercial opportunity and/or negatively impact revenues from sales of our products. Also, price increases on Xyrem and our other products, and negative publicity regarding pricing and price increases generally, whether with respect to our products or products distributed by other pharmaceutical companies, could negatively affect market acceptance of Xyrem and our other products.

In the three and nine months ended September 30, 2015, sales of our second largest product, Erwinaze/Erwinase (which we refer to in this report as Erwinaze unless otherwise indicated or the context otherwise requires), were $56.3 million and $152.8 million, respectively, which represented 16.6% and 15.6% of total net product sales, respectively. We seek to maintain and increase sales of Erwinaze, as well as to make Erwinaze more widely available, through ongoing sales and marketing and research and development activities. However, our ability to successfully and sustainably maintain or grow sales of Erwinaze is subject to a number of risks and uncertainties, including the limited population of patients with acute lymphoblastic leukemia, or ALL, and the incidence of hypersensitivity reactions to E. coli-derived asparaginase within that population, as well as our need to apply for and receive marketing authorizations, through the European Union’s mutual recognition procedure or otherwise, in certain additional countries so we can launch promotional efforts in those countries. Another significant challenge to our ability to maintain current sales levels and to increase sales is our need to avoid supply interruptions of Erwinaze due to capacity constraints, production delays, quality challenges or other manufacturing difficulties. We have limited inventory of Erwinaze, which puts us at significant risk of not being able to meet product demand. Erwinaze is licensed from and manufactured by a single source, which was Public Health England, or PHE, through March 31, 2015. As of April 1, 2015, the facility at which Erwinaze is manufactured was transferred to Porton BioPharma Limited, or PBL, a limited liability company that is wholly-owned by the U.K. Secretary of State for Health. We are now working with PBL on matters related to Erwinaze supply. The current manufacturing capacity for Erwinaze is nearly completely absorbed by demand for the product. As a consequence of constrained manufacturing capacity, we have had an extremely limited ability to build an excess level of product inventory that could be used to absorb disruptions to supply resulting from any quality or other issues. If we continue to be subject to capacity constraints or experience quality or other manufacturing challenges in the future, we may be unable to build a desired excess level of product inventory, and our ability to supply the market may be compromised. Although we are taking steps to improve the Erwinaze manufacturing process, if our ongoing efforts are not successful, we could experience additional Erwinaze supply interruptions in the future, which could have a material adverse effect on our sales of and revenues from Erwinaze and limit our potential future maintenance and growth of the market for this product. In addition, while we continue to work with the manufacturer of Erwinaze to evaluate potential steps to expand production capacity to increase the supply of Erwinaze over the longer term to address worldwide demand, our ability to maintain or increase sales of Erwinaze may be limited by our ability to obtain a sufficient supply of the product.

In furtherance of our growth strategy, we have made a significant investment in Defitelio/defibrotide. We added the product to our portfolio as a result of our acquisition of Gentium that closed in January 2014, or the Gentium Acquisition, and secured worldwide rights to the product by acquiring rights to defibrotide in the Americas in August 2014. Our ability to realize the anticipated benefits from this investment is subject to a number of risks and uncertainties, including our ability to successfully maintain or grow sales of Defitelio in Europe, or obtain marketing approval in other countries, including the United States, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We began to launch Defitelio in certain European countries in 2014, and in 2015 we have continued to launch Defitelio in additional European countries on a rolling basis. We are in the process of making pricing and reimbursement submissions with respect to Defitelio in those European countries where Defitelio is not yet launched, including in countries where pricing and reimbursement approvals are required for launch. A key challenge to our success in maintaining or growing sales of Defitelio in Europe is our ability to obtain appropriate pricing and reimbursement approvals in those European countries where Defitelio is not yet launched. If we experience delays or unforeseen difficulties in obtaining favorable pricing and reimbursement approvals, planned launches in the affected countries would be delayed, or, if we are unable to ultimately

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obtain favorable pricing and reimbursement approvals in countries that represent significant markets, especially where a country’s reimbursed price influences other countries, our growth prospects in Europe could be negatively affected.

We are also engaged in activities related to the potential approval of defibrotide in the United States. In September 2015, the FDA accepted for filing with priority review our new drug application, or NDA, for defibrotide for the treatment of hepatic veno-occlusive disease, or VOD, with evidence of multi-organ dysfunction following hematopoietic stem cell transplantation, or HSCT. Based on timelines established by the Prescription Drug User Fee Act, or PDUFA, we expect FDA review of the NDA to be completed by March 31, 2016. However, the FDA does not always meet the timelines established by PDUFA, and it is possible that the FDA’s review of our NDA will not be completed by the PDUFA date, in which case our plans for commercialization of defibrotide in the U.S. may be delayed. In any event, we cannot predict whether our NDA will be approved in a timely manner, if at all. It is possible that the FDA may ask an Oncologic Drugs Advisory Committee, or ODAC, which provides the FDA with independent expert advice and recommendations, to review our NDA. The ODAC may recommend against approval of our NDA, may recommend conditioning approval on our conducting one or more potentially time-consuming and costly clinical trials to provide supporting data either before approval or as a post-marketing commitment, or may recommend more narrow or restricted labeling than we have proposed. In addition, approval of our NDA is dependent on our and our supplier’s ability to obtain FDA certification of Good Manufacturing Practices in connection with the manufacturing of the defibrotide drug compound and the processing of defibrotide into finished product for the U.S. market and on the outcome of FDA inspections of clinical sites and potentially other entities involved in the development of defibrotide. In May 2015, the FDA issued a Form 483 to the entity that manufactures the defibrotide finished product that included observations related to the facility where the product is manufactured. Failure by such entity to timely remediate the observations to the FDA’s satisfaction or the discovery of issues that impact the defibrotide finished product could have an adverse impact on the potential approval of our NDA for defibrotide, including the timing thereof.

We also face other challenges that could impact the anticipated value of Defitelio/defibrotide, including the limited size of the population of VOD patients who are indicated for treatment with Defitelio/defibrotide (particularly if the FDA requires more narrow or restricted labeling than we have proposed); the need to establish U.S. pricing and reimbursement support for the product in the event we are able to obtain U.S. marketing approval for defibrotide; the possibility that we may be required to conduct time-consuming and costly clinical trials as a condition of any U.S. marketing approval for the product; the lack of experience of U.S. physicians in diagnosing and treating VOD; and challenges to our ability to develop the product for additional indications. Any of these risks could have a material adverse effect on our anticipated revenue from Defitelio/defibrotide and our business, financial condition, results of operations and growth prospects.

In addition to risks specifically related to Xyrem, Erwinaze and Defitelio/defibrotide, we are subject to other challenges and risks specific to our business, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including: the challenges of protecting and enhancing our intellectual property rights; delays or problems in the supply or manufacture of our products, particularly with respect to certain products as to which we maintain limited inventories, including products for which our supply demands are growing, and our dependence on single source suppliers to continue to meet our ongoing commercial demand or our requirements for clinical trial supplies; the need to obtain and maintain appropriate pricing and reimbursement for our products in an increasingly challenging environment due to, among other things, the attention being paid to healthcare cost containment and prescription drug pricing in the United States and worldwide; and the challenges of compliance with the requirements of the FDA, DEA, and non-U.S. regulatory agencies, including with respect to product labeling, requirements for distribution, obtaining sufficient DEA quotas where needed, marketing and promotional activities, adverse event reporting and product recalls or withdrawals.

Other risks and uncertainties related to our ability to execute on our strategy include: the challenges of achieving and maintaining commercial success of our products, such as obtaining sustained acceptance and support of our products by patients, physicians and payors; the risks and costs associated with business combination or product or product candidate acquisition transactions, such as the challenges inherent in the integration of acquired businesses with our historic business, the increase in geographic dispersion among our centers of operation, taking on the operation of a manufacturing plant as a result of the Gentium Acquisition and the risks that we may acquire unanticipated liabilities along with acquired businesses or otherwise fail to realize the anticipated benefits (commercial or otherwise) from such transactions; the difficulty and uncertainty of pharmaceutical product development, including the timing thereof, and the uncertainty of clinical success, such as the risk that results from preclinical studies and/or early clinical trials may not be predictive of results obtained in later and larger clinical trials that we are conducting or that we plan to conduct for our product candidates; the inherent uncertainty associated with the regulatory approval process, especially as we continue to undertake increased activities and make growing investment in our product pipeline development projects; our potential inability to identify and acquire, in-license or develop additional products or product candidates to grow our business; and possible restrictions on our ability and flexibility to pursue certain future corporate development and other opportunities as a result of our substantial outstanding debt obligations.

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Concentrations of Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents. Our investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper issued by U.S. corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of U.S. states, agencies and municipalities and places restrictions on credit ratings, maturities, and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and marketable securities and issuers of investments to the extent recorded on the balance sheet.

We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a reserve against uncollectible accounts receivable as necessary. We extend credit to pharmaceutical wholesale distributors and specialty pharmaceutical distribution companies, primarily in the United States, and to other international distributors and hospitals. Customer creditworthiness is monitored and collateral is not required. We monitor deteriorating economic conditions in certain European countries which may result in variability of the timing of cash receipts and an increase in the average length of time that it takes to collect accounts receivable outstanding. Historically, we have not experienced significant credit losses on our accounts receivable and we do not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on our financial position, liquidity or results of operations. As of September 30, 2015, five customers accounted for 88% of gross accounts receivable, including Express Scripts Specialty Distribution Services, Inc. and its affiliates, or Express Scripts, which accounted for 67% of gross accounts receivable and McKesson Corporation and its affiliates, or McKesson, which accounted for 10% of gross accounts receivable. As of December 31, 2014, five customers accounted for 86% of gross accounts receivable, including Express Scripts, which accounted for 66% of gross accounts receivable, and IDIS Limited, which accounted for 11% of gross accounts receivable.

We depend on single source suppliers and manufacturers for each of our products, product candidates and their active pharmaceutical ingredients.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Net Income (Loss) Attributable to Jazz Pharmaceuticals plc per Ordinary Share

Basic net income (loss) attributable to Jazz Pharmaceuticals plc per ordinary share is based on the weighted-average number of ordinary shares outstanding. Diluted net income (loss) attributable to Jazz Pharmaceuticals plc per ordinary share is based on the weighted-average number of ordinary shares outstanding and potentially dilutive ordinary shares outstanding.

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Basic and diluted net income (loss) attributable to Jazz Pharmaceuticals plc per ordinary share were computed as follows (in thousands, except per share amounts):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income (loss) attributable to Jazz Pharmaceuticals plc	$	87,960	$	25,766	$	246,774	$	(23,225	)
Denominator:
Weighted-average ordinary shares used in per share calculation - basic	61,435		60,305		61,145		59,457
Dilutive effect of employee equity incentive and purchase plans	1,719		2,288		1,927		—
Dilutive effect of warrants	—		87		—		—
Weighted-average ordinary shares used in per share calculation - diluted	63,154		62,680		63,072		59,457

Net income (loss) attributable to Jazz Pharmaceuticals plc per ordinary share:
Basic	$	1.43	$	0.43	$	4.04	$	(0.39	)
Diluted	$	1.39	$	0.41	$	3.91	$	(0.39	)

For the nine months ended September 30, 2014, potentially dilutive ordinary shares from employee equity incentive and purchase plans and warrants were not included in the diluted net loss attributable to Jazz Pharmaceuticals plc per ordinary share because the inclusion of such shares would have an anti-dilutive effect.

Potentially dilutive ordinary shares from our employee equity incentive and purchase plans, warrants and our 1.875% exchangeable senior notes due 2021, or the 2021 Notes, are determined by applying the treasury stock method to the assumed exercise of share options and warrants, the assumed vesting of outstanding restricted stock units, or RSUs, the assumed issuance of ordinary shares under our employee stock purchase plan, or ESPP, and the assumed issuance of ordinary shares upon exchange of the 2021 Notes. The potential issue of approximately 2.9 million ordinary shares issuable upon exchange of the 2021 Notes had no effect on diluted net income attributable to Jazz Pharmaceuticals plc per ordinary share because the average price of our ordinary shares for the three and nine months ended September 30, 2015 did not exceed the effective exchange price of $199.77 per ordinary share.

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



	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
1.875% exchangeable senior notes due 2021	2,878	1,502	2,878	506
Options to purchase ordinary shares and RSUs	1,644	883	1,517	5,475
Warrants to purchase ordinary shares	—	—	—	618
Ordinary shares under ESPP	—	—	—	130

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2015-03, “Interest - Imputation of Interest”, or ASU No. 2015-03. ASU No. 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability instead of as an asset. ASU No. 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. In August 2015, the FASB issued ASU No. 2015-15, “Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcements at the June 2015 EITF Meeting”, or ASU No. 2015-15. ASU No. 2015-15 indicates that the guidance in ASU No. 2015-03 did not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. Given the absence of authoritative guidance within ASU No. 2015-03, the SEC staff has indicated that they

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would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. This guidance is effective for us beginning January 1, 2016 and requires retrospective application. This guidance is not expected to have a material impact on our consolidated balance sheets or related disclosures.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles-Goodwill and Other-Internal-Use Software”, or ASU No. 2015-05. ASU No. 2015-05 provides guidance on whether a cloud computing arrangement contains a software license to be accounted for as internal-use software to assist in the evaluation of the accounting for fees paid by a customer in the arrangement. ASU No. 2015-05 will be effective for us beginning January 1, 2016 and may be applied either prospectively to new cloud computing arrangements or retrospectively. We are currently evaluating the impact of ASU 2015-05 on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, or ASU No. 2014-09, which states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity will need to identify the contract with a customer; identify the separate performance obligations in the contract; determine the transaction price; allocate the transaction price to the separate performance obligations in the contract; and recognize revenue when (or as) the entity satisfies each performance obligation. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which deferred by one year the effective date of ASU No. 2014-09 which will now be effective for us beginning January 1, 2018 and can be adopted on a full retrospective basis or on a modified retrospective basis. We are currently assessing our approach to the adoption of this standard and the potential impact on our results of operations and financial position.

2. Disposition

In March 2015, we sold certain products and the related business that we originally acquired as part of our acquisition of EUSA Pharma Inc. The purchase price for the products and related business was $34.0 million, subject to pre- and post-closing purchase price adjustments. We received approximately $33 million in cash after purchase price adjustments were made.

We recognized a loss on disposal of $0.2 million in the nine months ended September 30, 2015 within selling, general and administrative expenses in our condensed consolidated statements of operations. The related assets met the assets held for sale criteria and were reclassified to assets held for sale as of December 31, 2014. Goodwill was allocated to these assets using the relative fair value method. We have determined that the disposition of these assets did not qualify for reporting as a discontinued operation, because the sale does not represent a strategic shift that has or will have a major effect on our operations and financial results.

3. Fair Value Measurement

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



	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cash and Cash Equivalents
Cash	$	193,256	$	—	$	—	$	193,256	$	193,256
Time deposits	805,603		—		—		805,603		805,603
Totals	$	998,859	$	—	$	—	$	998,859	$	998,859


	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cash and Cash Equivalents
Cash	$	338,262	$	—	$	—	$	338,262	$	338,262
Time deposits	345,780		—		—		345,780		345,780
Totals	$	684,042	$	—	$	—	$	684,042	$	684,042

Cash equivalents are considered available-for-sale securities. We use the specific-identification method for calculating realized gains and losses on securities sold and include them in interest expense, net in the condensed consolidated statements of operations.

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The following table summarizes, by major security type, our available-for-sale securities as of September 30, 2015 and December 31, 2014 that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):



	September 30, 2015				December 31, 2014
	Significant Other Observable Inputs (Level 2)		Total Estimated Fair Value		Significant Other Observable Inputs (Level 2)		Total Estimated Fair Value
Time deposits	$	805,603	$	805,603	$	345,780	$	345,780

As of September 30, 2015, our available-for-sale securities included time deposits which were measured at fair value using Level 2 inputs and their carrying values were approximately equal to their fair values. 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.

There were no transfers between the different levels of the fair value hierarchy in 2015 or in 2014.

As of September 30, 2015, the estimated fair value of our 2021 Notes was approximately $587 million. The fair value of the 2021 Notes was estimated using quoted market prices obtained from brokers (Level 2). The estimated fair value of our borrowings under our term loan and revolving credit facility and other borrowings were approximately equal to their respective book values based on the borrowing rates currently available for variable rate loans (Level 2).

As of December 31, 2014, assets measured at fair value on a non-recurring basis subsequent to initial recognition included assets classified as held for sale on the condensed consolidated balance sheet. The carrying amount of $32.8 million for assets held for sale was equal to estimated fair value, which was based on the sales price agreed less costs to sell, and represented a Level 3 input. We completed the sale of these assets in March 2015.

4. Inventories

Inventories consisted of the following (in thousands):



	September 30, 2015		December 31, 2014
Raw materials	$	3,437	$	3,570
Work in process	12,587		9,870
Finished goods	13,994		16,597
Total inventories	$	30,018	$	30,037

5. Goodwill and Intangible Assets

The gross carrying amount of goodwill was as follows (in thousands):



Balance at December 31, 2014	$	702,713
Foreign exchange	(33,684		)
Balance at September 30, 2015	$	669,029

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



	September 30, 2015								December 31, 2014
	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	12.2	$	1,350,676	$	(305,982	)	$	1,044,694	$	1,450,606	$	(259,889	)	$	1,190,717
Manufacturing contracts	2.3	12,037		(5,088		)	6,949		13,012		(3,060		)	9,952
Trademarks	—	2,891		(2,891		)	—		2,914		(2,896		)	18
Total finite-lived intangible assets		1,365,604		(313,961		)	1,051,643		1,466,532		(265,845		)	1,200,687
Acquired IPR&D assets		219,134		—			219,134		236,748		—			236,748
Total intangible assets		$	1,584,738	$	(313,961	)	$	1,270,777	$	1,703,280	$	(265,845	)	$	1,437,435

The decrease in the gross carrying amount of intangible assets as of September 30, 2015 compared to December 31, 2014 is primarily due to the negative impact of foreign currency translation adjustments, mainly due to the strengthening of the U.S. dollar against the euro.

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 September 30, 2015, 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
2015 (remainder)	$	24,172
2016	92,510
2017	92,510
2018	89,623
2019	89,399
Thereafter	663,429
Total	$	1,051,643

6. Certain Balance Sheet Items

Property and equipment consisted of the following (in thousands):



	September 30, 2015			December 31, 2014
Construction-in-progress	$	61,061		$	37,145
Computer software	14,050			10,634
Computer equipment	11,266			7,670
Leasehold improvements	8,782			7,931
Machinery and equipment	5,862			6,408
Furniture and fixtures	2,339			2,220
Land and buildings	1,775			1,547
Subtotal	105,135			73,555
Less accumulated depreciation and amortization	(21,683		)	(15,192		)
Property and equipment, net	$	83,452		$	58,363

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Accrued liabilities consisted of the following (in thousands):



	September 30, 2015		December 31, 2014
Rebates and other sales deductions	$	63,676	$	51,899
Employee compensation and benefits	33,893		46,143
Accrued milestone payment	25,000		—
Sales returns reserve	7,757		14,039
Royalties	5,340		7,964
Professional fees	3,808		3,295
Accrued interest	1,927		10,327
Accrued construction-in-progress	1,690		4,931
Other	23,284		25,493
Total accrued liabilities	$	166,375	$	164,091

7. Debt

The following table summarizes the carrying amount of our indebtedness (in thousands):



	September 30, 2015			December 31, 2014
1.875% exchangeable senior notes due 2021	$	575,000		$	575,000
Unamortized discount on 1.875% exchangeable senior notes due 2021	(113,108		)	(124,735		)
1.875% exchangeable senior notes due 2021, net	461,892			450,265
Term loans	747,250			890,479
Borrowings under revolving credit facility	80,000			—
Other borrowings	550			1,684
Total debt	1,289,692			1,342,428
Less current portion	117,589			9,428
Total long-term debt	$	1,172,103		$	1,333,000

Credit Agreement

On June 18, 2015, Jazz Pharmaceuticals plc, as guarantor, and certain of its wholly owned subsidiaries, as borrowers, entered into a credit agreement, which we refer to as the June 2015 credit agreement, that provides for a $750.0 million principal amount term loan, which was drawn in full at closing, and a $750.0 million revolving credit facility, of which $160.0 million was drawn at closing. We used the proceeds from initial borrowings under the June 2015 credit agreement to repay in full the $893.1 million principal amount of term loans outstanding under the credit agreement that we entered into in June 2012, as subsequently amended, which we refer to as the 2012 credit agreement, and to pay related fees and expenses. The 2012 credit agreement was terminated upon repayment of the term loans outstanding thereunder.

Under the June 2015 credit agreement, the term loan matures on June 18, 2020 and the revolving credit facility terminates, and any loans outstanding thereunder become due and payable, on June 18, 2020.

Borrowings under the June 2015 credit agreement bear interest, at our option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 1.50% to 2.25% per annum, based upon our secured leverage ratio, or (b) the prime lending rate, plus an applicable margin ranging from 0.50% to 1.25% per annum, based upon our secured leverage ratio. The revolving credit facility has a commitment fee payable on the undrawn amount ranging from 0.25% to 0.35% per annum based upon our secured leverage ratio.

As of September 30, 2015, the interest rate on the term loan was 2.09% and the effective interest rate was 2.38%. As of September 30, 2015, we had a balance outstanding of $80.0 million under the revolving credit facility and a further $1.1 million was committed for an outstanding letter of credit. As of September 30, 2015, the interest rate on borrowings under the revolving credit facility was 1.96%. In October 2015, we repaid the remaining $80.0 million balance then outstanding under the revolving credit facility in full.

Jazz Pharmaceuticals plc and certain of our wholly-owned subsidiaries are borrowers under the June 2015 credit agreement. The borrowers’ obligations under the June 2015 credit agreement, and any hedging or cash management obligations

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entered into with a lender, are guaranteed on a senior secured basis by Jazz Pharmaceuticals plc and certain of its subsidiaries (including the issuer of the 2021 Notes as described below) and are secured by substantially all of Jazz Pharmaceuticals plc’s, the borrowers’ and the guarantor subsidiaries’ assets.

We may make voluntary prepayments of principal at any time without payment of a premium. We are required to make mandatory prepayments of the term loan (without payment of a premium) with (1) net cash proceeds from certain non-ordinary course asset sales (subject to reinvestment rights and other exceptions), (2) net cash proceeds from issuances of debt (other than certain permitted debt), and (3) casualty proceeds and condemnation awards (subject to reinvestment rights and other exceptions).

Principal repayments of the term loan, which are due quarterly, will begin in December 2015 and are equal to 5.0% per annum of the original principal amount of $750.0 million during the first two years, 7.5% per annum during the third year, 10.0% per annum during the fourth year and 12.5% per annum during the fifth year, with any remaining balance payable on the maturity date.

The June 2015 credit agreement contains financial covenants that require Jazz Pharmaceuticals plc and its restricted subsidiaries to (a) not exceed a maximum secured net leverage ratio or (b) not fall below a cash interest coverage ratio. We were, as of September 30, 2015, and are currently, in compliance with these financial covenants.

In connection with our entry into the June 2015 credit agreement and termination of the 2012 credit agreement, we recorded a loss on extinguishment and modification of debt of $16.8 million, which was comprised of $16.0 million related to the expensing of unamortized deferred financing costs and unamortized original issue discount associated with extinguished debt and $0.8 million related to new third party fees associated with modified debt.

Exchangeable Senior Notes

The 2021 Notes were issued by Jazz Investments I Limited, or the Issuer, a 100%-owned finance subsidiary of Jazz Pharmaceuticals plc. The Issuer’s obligations under the 2021 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Jazz Pharmaceuticals plc. No subsidiary of Jazz Pharmaceuticals plc guaranteed the 2021 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.

As of September 30, 2015, the carrying value of the equity component of the 2021 Notes, net of equity issuance costs, was $126.9 million.

Maturities

Scheduled maturities with respect to our long-term debt are as follows (in thousands):



Year Ending December 31,	Scheduled Long-Term Debt Maturities
2015 (remainder)	$	9,397
2016	37,590
2017	42,280
2018	61,037
2019	79,792
Thereafter	1,175,454
Total	$	1,405,550

As of September 30, 2015, we recorded the balance outstanding under our revolving credit facility of $80.0 million in current liabilities based on our intent to repay this amount in October 2015.

8. 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

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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 and 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 September 30, 2015 and December 31, 2014. 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.

Lease and Other Commitments

We have noncancelable operating leases for our office buildings and we are obligated to make payments under noncancelable operating leases for automobiles used by our sales force. Future minimum lease payments under our noncancelable operating leases as of September 30, 2015 were as follows (in thousands):



Year Ending December 31,	Lease Payments
2015 (remainder)	$	2,874
2016	11,683
2017	12,556
2018	8,054
2019	7,197
Thereafter	73,296
Total	$	115,660

In January 2015, we entered into an agreement to lease office space located in Palo Alto, California in a building to be constructed by the landlord. We expect to occupy this office space by the end of 2017. The lease has a term of 12 years from the commencement date as defined in the lease agreement and we have an option to extend the term of the lease twice for a period of five years each. We are obligated to make lease payments totaling approximately $88 million over the initial term of the lease. In connection with this lease, the landlord is providing a tenant improvement allowance for the costs associated with the design, development and construction of tenant improvements for the leased facility. We are obligated to fund all costs incurred in excess of the tenant improvement allowance. The scope of the planned tenant improvements do not qualify as “normal tenant improvements” under the lease accounting guidance. Accordingly, for accounting purposes, we have concluded we are the deemed owner of the building during the construction period. As of September 30, 2015, we recorded project construction costs of $2.7 million incurred by the landlord as construction-in-progress in property and equipment, net and a corresponding financing obligation in other non-current liabilities in our condensed consolidated balance sheets. We will increase the asset and financing obligation as additional building costs are incurred by the landlord during the construction period. In the three and nine months ended September 30, 2015, we recorded rent expense associated with the ground lease of $0.5 million and $1.3 million, respectively, in our condensed consolidated statements of operations.

In April 2015, we amended an existing operating sublease for office space in Palo Alto, California for additional office space and extended the term of this sublease to December 2017. As a result of the amendment, we are obligated to make additional lease payments of approximately $10 million. We also obtained an option to extend the term of the sublease twice for a period of one year each.

As of September 30, 2015, we had $25.6 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 ANDA Matters: On October 18, 2010, we received a notice of Paragraph IV Patent Certification, or Paragraph IV Certification, from Roxane that it had submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem (sodium oxybate) oral solution. Roxane’s initial notice alleged that all five patents then listed for Xyrem in the FDA’s

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publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” or Orange Book, on the date of the notice are invalid, unenforceable or not infringed by Roxane’s proposed generic product. On November 22, 2010, we filed a lawsuit against Roxane in response to Roxane’s initial notice in the U.S. District Court for the District of New Jersey, or the District Court, seeking a permanent injunction to prevent Roxane from introducing a generic version of Xyrem that would infringe our patents. In accordance with the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Act, as a result of our having filed a timely lawsuit against Roxane, FDA approval of Roxane’s ANDA was stayed for 30 months, or until April 18, 2013. That stay has expired. Additional patents covering Xyrem were issued between December 2010 and December 2012, and, after receiving Paragraph IV Certification notices from Roxane, we filed additional lawsuits against Roxane on February 4, 2011, May 2, 2011, October 26, 2012 and December 5, 2012 to include these additional patents in the litigation. All of the lawsuits filed against Roxane between 2010 and 2012 have been consolidated by the District Court into a single case, or the Roxane consolidated case, alleging that 10 of our patents covering Xyrem are or will be infringed by Roxane’s ANDA and seeking a permanent injunction to prevent Roxane from launching a generic version of Xyrem that would infringe these patents.

In December 2013, the District Court permitted Roxane to amend its answer in the Roxane consolidated case to allege additional equitable defenses, and the parties were given additional time for discovery on those new defenses. In addition, in March 2014, the District Court granted our motion to bifurcate and stay the portion of the Roxane consolidated case regarding patents related to the distribution system for Xyrem. Although no trial date has been scheduled, based on the District Court’s current schedule, we anticipate that trial on the patents in the Roxane consolidated case that are not subject to the stay could occur as early as the first quarter of 2016. We do not have any estimate of a possible trial date for trial on the patents in the Roxane consolidated case that are currently subject to the stay. The actual timing of events in this litigation may be significantly earlier or later than we currently anticipate, and we cannot predict the specific timing or outcome of events in this litigation.

On April 1, 2014 and January 15, 2015, we received additional notices of Paragraph IV Certification from Roxane regarding newly issued patents for Xyrem listed in the Orange Book. On February 20, 2015, we filed a new lawsuit against Roxane in the District Court, alleging that three of our patents covering Xyrem are infringed or will be infringed by Roxane’s ANDA and seeking a permanent injunction to prevent Roxane from introducing a generic version of Xyrem that would infringe these patents. On April 20, 2015, Roxane moved to dismiss claims involving our patent covering a part of the Xyrem label that instructs prescribers on adjusting the dose of Xyrem when it is being co-administered with divalproex sodium (also known as valproate or valproic acid) on the grounds that this patent does not cover patentable subject matter. On October 29, 2015, the District Court administratively terminated this motion to dismiss (without prejudice) pending the outcome of IPR proceedings before the PTAB relating to the patent that was the subject of Roxane’s motion. We cannot predict the timing or outcome of events in this matter or its impact on the Roxane consolidated case.

On December 10, 2012, December 12, 2012 and August 8, 2013, we received notices of Paragraph IV Certification from Amneal Pharmaceuticals, LLC, or Amneal, that it had submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. On January 18, 2013 and September 12, 2013, we filed lawsuits against Amneal in the District Court, alleging that nine of our patents covering Xyrem are infringed or will be infringed by Amneal’s ANDA and seeking a permanent injunction to prevent Amneal from introducing a generic version of Xyrem that would infringe these patents. These lawsuits against Amneal were consolidated by the District Court on November 6, 2013.

On November 21, 2013 and November 24, 2013, we received notices of Paragraph IV Certification from Par Pharmaceutical, Inc., or Par, that it had submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. On December 27, 2013, we filed a lawsuit against Par in the District Court, alleging that 13 of our patents covering Xyrem are infringed or will be infringed by Par’s ANDA and seeking a permanent injunction to prevent Par from introducing a generic version of Xyrem that would infringe these patents.

In April 2014, Amneal asked the District Court to consolidate its case with the Par case, stating that both cases would proceed on the schedule for the Par case. The District Court granted this request in May 2014. The order consolidating the cases provides that Amneal’s 30-month stay period will be extended to coincide with the date of Par’s 30-month stay period. As a result, FDA’s approval of both Amneal’s and Par’s ANDAs is stayed until the earlier of (i) May 20, 2016, or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. We cannot predict the timing or outcome of events in the Amneal/Par consolidated case or their impact on other ongoing proceedings with Amneal or Par as described below.

On April 7, 2014 and January 19, 2015, we received additional notices of Paragraph IV Certification from Amneal regarding newly issued patents for Xyrem listed in the Orange Book. On May 20, 2014 and February 6, 2015, we filed additional lawsuits against Amneal in the District Court, alleging that four of our patents covering Xyrem are infringed or will be infringed by Amneal’s ANDA and seeking a permanent injunction to prevent Amneal from introducing a generic version of Xyrem that would infringe these patents. We cannot predict the timing or outcome of events in these matters or their impact on other ongoing proceedings with Amneal.

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On July 3, 2014, August 6, 2014 and November 25, 2014, we received additional notices of Paragraph IV Certification from Par regarding newly issued patents for Xyrem listed in the Orange Book. We filed additional lawsuits against Par in the District Court on August 15, 2014, October 2, 2014 and January 8, 2015, alleging that three of our patents covering Xyrem are infringed or will be infringed by Par’s ANDA and seeking a permanent injunction to prevent Par from introducing a generic version of Xyrem that would infringe these patents. We cannot predict the timing or outcome of events in these matters or their impact on other ongoing proceedings with Par.

On June 4, 2014, we received a notice of Paragraph IV Certification from Ranbaxy Laboratories Limited, or Ranbaxy, that it had submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. On June 6, 2014, we received a notice of an amended Paragraph IV Certification from Ranbaxy. On July 15, 2014, we filed a lawsuit against Ranbaxy in the District Court, alleging that 14 of our patents covering Xyrem are infringed or will be infringed by Ranbaxy’s ANDA and seeking a permanent injunction to prevent Ranbaxy from introducing a generic version of Xyrem that will infringe these patents. On August 20, 2014 and December 1, 2014, we received additional notices of Paragraph IV Certification from Ranbaxy regarding newly issued patents for Xyrem listed in the Orange Book. On October 2, 2014 and January 9, 2015, we filed additional lawsuits against Ranbaxy in the District Court, alleging that two of our patents covering Xyrem are infringed or will be infringed by Ranbaxy’s ANDA and seeking a permanent injunction to prevent Ranbaxy from introducing a generic version of Xyrem that would infringe these patents. We cannot predict the timing or outcome of events in these matters or their impact on other ongoing proceedings with Ranbaxy.

On October 30, 2014, we received a notice of Paragraph IV Certification from Watson Laboratories, Inc., or Watson, that it has submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. On December 11, 2014, we filed a lawsuit against Watson in the District Court, alleging that 15 of our patents covering Xyrem are or will be infringed by Watson’s ANDA and seeking a permanent injunction to prevent Watson from introducing a generic version of Xyrem that would infringe these patents. On March 23, 2015, Watson moved to dismiss the portion of the case based on our Orange Book-listed patents covering the distribution system for Xyrem on the grounds that these patents do not cover patentable subject matter. On November 4, 2015, the District Court administratively terminated this motion to dismiss (without prejudice) pending the outcome of IPR proceedings before the PTAB relating to the patents that were the subject of Watson’s motion. We cannot predict the timing or outcome of events in this litigation.

In January 2015, Amneal, Ranbaxy and Watson proposed the consolidation of their respective cases and a consolidated schedule to the District Court, while Par sought its own proposed schedule with the District Court, notwithstanding the prior consolidation of portions of the Par and Amneal cases. In April 2015, the District Court issued an order that consolidated all then-pending lawsuits against Amneal, Par, Ranbaxy and Watson into one case, the Amneal/Par/Ranbaxy/Watson consolidated case. The schedule for the Amneal/Par/Ranbaxy/Watson consolidated case has been postponed pending resolution of a request by the defendants that the District Court limit the number of asserted claims. We cannot predict the timing or outcome of events in the Amneal/Par/Ranbaxy/Watson consolidated case or their impact on other ongoing proceedings with any ANDA filer.

On March 23, 2015, March 25, 2015, March 26, 2015 and April 16, 2015, we received an additional notice of Paragraph IV Certification from each of Par, Amneal, Ranbaxy and Roxane, respectively, regarding a newly issued method of treatment patent for Xyrem listed in the Orange Book. We filed additional lawsuits against Par, Amneal and Ranbaxy in the District Court on May 7, 2015 and against Roxane on June 1, 2015, alleging that this patent is infringed or will be infringed by Par’s, Amneal’s, Ranbaxy’s and Roxane’s ANDAs and seeking a permanent injunction to prevent each of these parties from introducing a generic version of Xyrem that would infringe this patent. We cannot predict the timing or outcome of events in these matters or their impact on other ongoing proceedings with any ANDA filer.

On May 14, 2015, we received an additional notice of Paragraph IV Certification from Watson regarding newly issued patents for Xyrem listed in the Orange Book. On June 26, 2015, we filed a lawsuit against Watson in the District Court, alleging that two of our patents covering Xyrem are or will be infringed by Watson’s ANDA and seeking a permanent injunction to prevent Watson from introducing a generic version of Xyrem that would infringe these patents. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any ANDA filer.

On June 8, 2015, we received a Paragraph IV Certification from Wockhardt Bio AG, or Wockhardt, that it has submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. Wockhardt’s Paragraph IV Certification alleged that 15 patents listed in the Orange Book for Xyrem are invalid, unenforceable, and/or will not be infringed by Wockhardt’s proposed generic product. On July 17, 2015, we filed a lawsuit in the District Court alleging that 17 of our patents covering Xyrem are or will be infringed by Wockhardt’s ANDA and seeking a permanent injunction to prevent Wockhardt from introducing a generic version of Xyrem that would infringe our patents. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any ANDA filer.

On July 23, 2015, we received a Paragraph IV Certification from Lupin Inc., or Lupin, that it has submitted an ANDA to the FDA requesting approval to market a generic version of Xyrem. Lupin’s Paragraph IV Certification alleged that 16 patents listed in the Orange Book for Xyrem are invalid, unenforceable, and/or will not be infringed by Lupin’s proposed generic

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product. On September 2, 2015, we filed a lawsuit in the District Court alleging that 18 of our patents covering Xyrem are or will be infringed by Lupin’s ANDA and seeking a permanent injunction to prevent Lupin from introducing a generic version of Xyrem that would infringe our patents. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any ANDA filer.

Also on July 23, 2015, we received an additional notice of Paragraph IV Certification from Amneal regarding a newly issued patent for Xyrem listed in the Orange Book. On September 1, 2015, we filed a lawsuit against Amneal in the District Court alleging that our patent is or will be infringed by Amneal’s ANDA and seeking a permanent injunction to prevent Amneal from introducing a generic version of Xyrem that would infringe this patent. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any ANDA filer.

On September 2, 2015, we received an additional notice of Paragraph IV Certification from Par regarding a newly issued patent for Xyrem listed in the Orange Book. On October 19, 2015, we filed a lawsuit against Par in the District Court alleging that our patent is or will be infringed by Par’s ANDA and seeking a permanent injunction to prevent Par from introducing a generic version of Xyrem that would infringe this patent. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any ANDA filer.

On October 12, 2015, we received an additional notice of Paragraph IV Certification under the ANDA filed by Ranbaxy in June 2014 from Sun Pharmaceutical Industries, Ltd., or Sun, regarding a newly issued patent for Xyrem listed in the Orange Book. Sun acquired Ranbaxy in March 2015. We expect to file a lawsuit against Sun in the District Court alleging that our patent is or will be infringed by Sun’s ANDA and seeking a permanent injunction to prevent Sun from introducing a generic version of Xyrem that would infringe this patent. We cannot predict the timing or outcome of events in this matter or its impact on other ongoing proceedings with any other ANDA filer.

Xyrem Post-Grant Patent Review Matters: Between June and August 2014, petitions seeking covered business method, or CBM, post-grant patent review by the PTAB were filed by certain of the ANDA filers with respect to the validity of six of our patents related to the distribution system for Xyrem. In the fall of 2014, we filed preliminary responses to the petitions in which, among other things, we asserted that the challenged patents should not be subject to CBM review. In early 2015, the PTAB issued decisions denying institution of CBM review for all of these petitions.

In January 2015, certain of the ANDA filers filed petitions for IPR by the PTAB with respect to the validity of six patents covering the distribution system for Xyrem. In July 2015, the PTAB issued decisions instituting IPR trials with respect to these petitions, and we expect the PTAB to issue final decisions on the validity of the patents within a year of institution. In April 2015, a hedge fund (acting with affiliated entities and individuals and proceeding under the name of the Coalition for Affordable Drugs III LLC) filed an IPR petition challenging the validity of one of our Xyrem distribution patents that is already the subject of one of the IPR petitions proceeding to trial before the PTAB. In October 2015, the PTAB issued a decision denying institution of IPR proceedings with respect to this petition. The PTAB’s decision declining to institute IPR is final and not appealable. In September 2015, certain of the ANDA filers filed a petition for IPR by the PTAB with respect to the validity of an additional patent covering the distribution system for Xyrem. In October 2015, certain of the ANDA filers filed petitions for IPR by the PTAB with respect to the validity of one of our patents covering a method for prescribing Xyrem when it is being co-administered with divalproex sodium (also known as valproate or valproic acid). We cannot predict whether additional post-grant patent review challenges will be filed by any of the ANDA filers or any other entity, the outcome of any IPR or other proceeding, whether the PTAB will institute any petitioned IPR proceeding that has not yet been instituted, or the impact any IPR or other proceeding might have on ongoing ANDA litigation proceedings or other aspects of our Xyrem business.

FazaClo ANDA Matters: Azur Pharma Public Limited Company, or Azur Pharma (prior to the business combination between Jazz Pharmaceuticals, Inc. and Azur Pharma) received notices of Paragraph IV Certifications from three generics manufacturers, Barr Laboratories, Inc., or Barr, Novel Laboratories, Inc., or Novel, and Mylan Pharmaceuticals, Inc., or Mylan, indicating that ANDAs had been filed with the FDA requesting approval to market generic versions of FazaClo^® (clozapine, USP) LD orally disintegrating clozapine tablets. Azur Pharma and CIMA Labs Inc., or CIMA, a subsidiary of Teva Pharmaceutical Industries Limited, or Teva, our licensor and the entity whose drug-delivery technology is incorporated into FazaClo LD, filed a lawsuit in response to each certification claiming infringement based on such certification against Barr on August 21, 2008, against Novel on November 25, 2008 and against Mylan on July 23, 2010. Each case was filed in the U.S. District Court for the District of Delaware, or the Delaware Court. On July 6, 2011, CIMA, Azur Pharma and Teva, which had acquired Barr, entered into an agreement settling the patent litigation, and CIMA and Azur Pharma granted a sublicense to an affiliate of Teva of Azur Pharma’s rights to have manufactured, market and sell a generic version of both FazaClo LD and FazaClo HD, as well as an option for supply of authorized generic product. The sublicense for FazaClo LD commenced in July 2012, and the sublicense for FazaClo HD commenced in May 2015. Teva exercised its option for supply of an authorized generic product for FazaClo LD and launched the authorized generic product at the end of August 2012. Teva has also exercised its option for supply of an authorized generic product for FazaClo HD. The Novel and Mylan matters had been stayed pending reexamination of the patents in the lawsuits. In September 2013 and January 2014, reexamination certificates

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were issued for the two patents-in-suit, and the patentability of the claims of the patents confirmed. The Delaware Court lifted the stay of litigation in the two cases in March 2014. On December 19, 2014, we and CIMA entered into an agreement with Novel settling the patent litigation against Novel, and we along with CIMA granted Novel a patent sublicense to manufacture, market and sell its generic version of FazaClo LD and, if applicable, FazaClo HD. Novel’s permitted launch date was November 2, 2015 for FazaClo LD and will be May 1, 2017 for FazaClo HD, or earlier upon the occurrence of certain events. On July 13, 2015, we entered into an agreement with Mylan settling the patent litigation against Mylan, and we granted Mylan a patent sublicense to manufacture, market, and sell its generic versions of both FazaClo LD and FazaClo HD. Mylan’s permitted launch date was November 2, 2015 for FazaClo LD and will be May 1, 2017 for FazaClo HD, or earlier depending upon the occurrence of certain events.

Cutler Matter: On October 19, 2011, Dr. Neal Cutler, one of the original owners of FazaClo, filed a complaint against Azur Pharma and one of its subsidiaries, as well as Avanir Pharmaceuticals, Inc., or Avanir, in the California Superior Court in the County of Los Angeles, or the Superior Court. The complaint alleges that Azur Pharma and its subsidiary breached certain contractual obligations. Azur Pharma acquired rights to FazaClo from Avanir in 2007. The complaint alleges that as part of the acquisition of FazaClo, Azur Pharma’s subsidiary agreed to assume certain contingent payment obligations to Dr. Cutler. The complaint further alleges that certain contingent payments are due because revenue thresholds have been achieved, entitling Dr. Cutler to a $10.5 million and an additional $25.0 million contingent payment, plus unspecified punitive damages and attorneys’ fees. In March 2012, the Superior Court granted our petition to compel arbitration of the dispute in New York and stayed the Superior Court litigation. In July 2012, the arbitrator dismissed the arbitration on the grounds that the parties’ dispute falls outside of the scope of the arbitration clause in the applicable contract. That ruling was affirmed by the California Court of Appeal in January 2014, and the case was remanded to Superior Court for discovery and trial. Trial is currently scheduled for March 2016. We cannot predict the specific timing or outcome of this litigation.

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.

Other Contingencies

We have not previously submitted pricing data for two radiopharmaceutical products, Quadramet^® (samarium sm 153 lexidronam injection) and ProstaScint^® (capromab pendetide), for Medicaid and the Public Health Service’s 340B drug pricing discount program. We engaged in interactions with the Centers for Medicare and Medicaid Services, or CMS, and a trade group, the Council on Radionuclides and Radiopharmaceuticals, or CORAR, regarding the reporting of Medicaid pricing data and paying Medicaid rebates for radiopharmaceutical products. In addition to the discussions with CMS as part of CORAR, we have had separate discussions with CMS directly regarding Quadramet. We sold Quadramet to a third party in December 2013, but we retained any liabilities related to sales of the product during prior periods. Similarly, we sold ProstaScint to a third party in May 2015, but we retained any liabilities related to sales of the product during prior periods. We are currently unable to predict whether price reporting and rebates will be required for Quadramet and ProstaScint and, if so, for what period they will be required. The initiation of any reporting of Medicaid pricing data for Quadramet or ProstaScint could result in retroactive 340B ceiling price liability for these two products. We are currently unable to reasonably estimate an amount or range of a potential contingent loss. Any material liability resulting from radiopharmaceutical price reporting would negatively impact our financial results.

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9. Shareholders’ Equity

The following tables present a reconciliation of our beginning and ending balances in shareholders’ equity for the nine months ended September 30, 2015 and 2014, respectively (in thousands):



	Attributable to:
	Jazz Pharmaceuticals plc			Noncontrolling interests			Total Shareholders' Equity
Shareholders' equity at January 1, 2015	$	1,371,144		$	64		$	1,371,208
Acquisition of noncontrolling interests	(5		)	(55		)	(60		)
Issuance of ordinary shares in conjunction with employee equity incentive and purchase plans	34,025			—			34,025
Employee withholding taxes related to share-based awards	(25,402		)	—			(25,402		)
Share-based compensation	67,729			—			67,729
Tax benefit from employee share options	(320		)	—			(320		)
Shares repurchased	(21,302		)	—			(21,302		)
Other comprehensive income (loss)	(109,180		)	6			(109,174		)
Net income (loss)	246,774			(1		)	246,773
Shareholders' equity at September 30, 2015	$	1,563,463		$	14		$	1,563,477



	Attributable to:
	Jazz Pharmaceuticals plc			Noncontrolling interests			Total Shareholders' Equity
Shareholders' equity at January 1, 2014	$	1,295,534		$	—		$	1,295,534
Noncontrolling interests from the Gentium Acquisition	—			136,578			136,578
Acquisition of noncontrolling interests	(1,529		)	(135,421		)	(136,950		)
Issuance of 1.875% exchangeable senior notes due 2021	126,862			—			126,862
Issuance of ordinary shares in conjunction with employee equity incentive and purchase plans and warrant exercises	48,452			—			48,452
Employee withholding taxes related to share-based awards	(17,306		)	—			(17,306		)
Share-based compensation	50,919			—			50,919
Tax benefit from employee share options	4,075			—			4,075
Shares repurchased	(29,973		)				(29,973		)
Other comprehensive loss	(113,286		)	(7		)	(113,293		)
Net loss	(23,225		)	(1,060		)	(24,285		)
Shareholders' equity at September 30, 2014	$	1,340,523		$	90		$	1,340,613

Share Repurchase Programs

In May 2013, our board of directors authorized a share repurchase program pursuant to which we were authorized to repurchase a number of ordinary shares having an aggregate repurchase price of up to $200 million, exclusive of any brokerage commissions. In the nine months ended September 30, 2015, we spent a total of $21.3 million to purchase 0.1 million of our ordinary shares under the share repurchase program at an average total purchase price, including commissions, of $172.43 per share. All ordinary shares repurchased by us were canceled. We completed this share repurchase program in August 2015 by repurchasing all $200 million of ordinary shares authorized to be repurchased. On November 5, 2015, our board of directors authorized a new share repurchase program pursuant to which we are authorized to repurchase a number of ordinary shares having an aggregate purchase price of up to $300 million, exclusive of any brokerage commissions. Under this share repurchase program, which has no expiration date, we may repurchase ordinary shares from time to time on the open market. The timing and amount of repurchases will be at management’s discretion and will depend on a variety of factors, including the price of our ordinary shares, alternative investment opportunities, restrictions under the June 2015 credit agreement, corporate and regulatory requirements and market conditions. The share repurchase program may be modified, suspended or discontinued at any time without prior notice.

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Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss attributable to Jazz Pharmaceuticals plc as of September 30, 2015 and December 31, 2014 were as follows (in thousands):



	Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Loss
Balance at December 31, 2014	$	(122,097	)	$	(122,097	)
Other comprehensive loss	(109,180		)	(109,180		)
Balance at September 30, 2015	$	(231,277	)	$	(231,277	)

During the nine months ended September 30, 2015, other comprehensive loss reflects foreign currency translation adjustments, primarily due to the strengthening of the U.S. dollar against the euro.

10. Segment and Other Information

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 development and commercialization of meaningful pharmaceutical products that address unmet medical needs. The following table presents a summary of total revenues (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Xyrem^® (sodium oxybate) oral solution	$	242,899	$	204,337	$	703,435	$	556,081
Erwinaze^®/Erwinase^® (asparaginase Erwinia chrysanthemi)	56,317		52,121		152,821		146,910
Defitelio^® (defibrotide)/defibrotide	19,639		18,892		52,259		51,345
Prialt^® (ziconotide) intrathecal infusion	6,042		6,282		19,944		16,422
Psychiatry	9,910		10,833		28,375		32,431
Other	3,947		11,942		21,061		35,304
Product sales, net	338,754		304,407		977,895		838,493
Royalties and contract revenues	2,118		2,177		6,027		6,240
Total revenues	$	340,872	$	306,584	$	983,922	$	844,733

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
United States	$	305,585	$	264,719	$	877,397	$	727,200
Europe	26,076		32,578		82,837		87,608
All other	9,211		9,287		23,688		29,925
Total revenues	$	340,872	$	306,584	$	983,922	$	844,733

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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Express Scripts	71	%	67	%	71	%	66	%
McKesson	14	%	1	%	5	%	5	%
Accredo Health Group, Inc.	—	%	14	%	8	%	14	%

At the end of the second quarter of 2015, we transitioned the U.S. distribution of Erwinaze from Accredo Health Group, Inc. to McKesson.

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The following table presents total long-lived assets, consisting of property and equipment, by location (in thousands):



	September 30, 2015		December 31, 2014
Ireland	$	60,447	$	37,775
United States	12,255		9,795
Italy	8,424		8,462
Other	2,326		2,331
Total long-lived assets	$	83,452	$	58,363

11. Share-Based Compensation

Share-based compensation expense related to share options, RSUs and grants under our ESPP was as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Selling, general and administrative	$	19,542		$	14,834		$	54,843		$	40,051
Research and development	2,786			3,177			10,137			8,862
Cost of product sales	786			240			2,253			1,705
Total share-based compensation expense, pre-tax	23,114			18,251			67,233			50,618
Tax benefit from share-based compensation expense	(6,658		)	(5,469		)	(19,722		)	(15,171		)
Total share-based compensation expense, net of tax	$	16,456		$	12,782		$	47,511		$	35,447

Share Options

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:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Shares underlying options granted (in thousands)	106			135			1,056			942
Grant date fair value	$	60.34		$	51.73		$	57.85		$	60.40
Black-Scholes option pricing model assumption information:
Volatility	40		%	42		%	39		%	45		%
Expected term (years)	4.2			4.3			4.2			4.3
Range of risk-free rates	1.3-1.4%			1.3-1.4%			1.1-1.4%			1.1-1.4%
Expected dividend yield	—		%	—		%	—		%	—		%

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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
RSUs granted (in thousands)	40		68		406		459
Grant date fair value	$	179.10	$	145.58	$	175.22	$	160.00

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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 of four years.

As of September 30, 2015, compensation cost not yet recognized related to unvested share options and RSUs was $83.4 million and $93.8 million, respectively, which is expected to be recognized over a weighted-average period of 2.5 years and 2.3 years, respectively.

12. Restructuring

In the fourth quarter of 2014, we incurred severance costs for terminated employees in connection with our decision to discontinue sales representative-led promotion of our psychiatry products starting in 2015. In addition, we initiated a restructuring plan related to the consolidation of our U.K. office locations and incurred costs of severance for terminated employees and facility closure costs in connection with this plan. The one-time termination benefits were recorded over the remaining service period where employees were required to stay through their termination date to receive the benefits. We recorded costs related to these one-time termination benefits of $0.4 million in the nine months ended September 30, 2015 within selling, general and administrative expenses in our condensed consolidated statements of operations. Facility closure costs of $0.2 million incurred in the nine months ended September 30, 2015 were recorded within selling, general and administrative expenses in our condensed consolidated statements of operations. As of September 30, 2015, we had incurred total termination benefit and facility closure costs of $2.2 million and $0.3 million, respectively, in connection with these plans. We do not expect to incur additional termination benefit or facility closure costs in connection with these plans.

The following table summarizes the amounts related to restructuring through September 30, 2015 (in thousands):



	Termination Benefits			Facility Closure Costs			Total
Balance at December 31, 2014	$	1,823		$	118		$	1,941
Costs incurred during the period	381			172			553
Cash payments	(2,204		)	(290		)	(2,494		)
Balance at September 30, 2015	$	—		$	—		$	—

The balance as of December 31, 2014 was included within accrued liabilities in our condensed consolidated balance sheets.

13. Income Taxes

Our income tax provision for the three and nine months ended September 30, 2015 was $29.9 million and $92.7 million, respectively, compared to $24.2 million and $60.6 million for the same periods in 2014. Our effective tax rates for the three and nine months ended September 30, 2015 were 25.4% and 27.3%, respectively. After adjusting the income before income tax provision for the three months ended September 30, 2014 by excluding an upfront payment of $75.0 million for rights to defibrotide in the Americas, the effective tax rate on the resulting income before income tax provision for the three months ended September 30, 2014 was 19.4%. After adjusting the loss before income tax provision for the nine months ended September 30, 2014 by excluding upfront and milestone payments of $202.0 million for rights to JZP-110 and to defibrotide in the Americas, which were acquired by our subsidiary in a non-taxable jurisdiction, the effective tax rate on the resulting income before income tax provision for the nine months ended September 30, 2014 was 25.4%. The increase in the effective tax rate for the three months ended September 30, 2015 compared to the same period in 2014 was primarily due to the impact of changes in U.S. state valuation allowances during 2014, partially offset by changes in income mix among the various jurisdictions in which we operate, increased originating tax credits and increased deductions available in relation to subsidiary equity. The increase in the effective tax rate for the nine months ended September 30, 2015 compared to the same period in 2014 was primarily due to the impact of impairments of intangible assets and changes in U.S. state valuation allowances during 2014, partially offset by changes in income mix among the various jurisdictions in which we operate, increased originating tax credits and increased deductions available in relation to subsidiary equity. The effective tax rates for the three and nine months ended September 30, 2015 were higher than the Irish statutory rate of 12.5% primarily due to income taxable at a rate higher than the Irish statutory rate, uncertain tax positions, and various expenses not deductible for tax purposes, partially offset by originating tax credits and deductions available in relation to subsidiary equity. 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 deferred tax assets are comprised primarily of U.S. federal and state net operating loss carryforwards and tax credit carryforwards, foreign net operating loss carryforwards and other temporary differences. We maintain a valuation allowance against certain U.S. state and foreign 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.

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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 established a liability for certain tax benefits which we judge may not be sustained upon examination. Our most significant tax jurisdictions are Ireland, the United States (both at the federal level and in various state jurisdictions), Italy and France. Because of our net operating loss carryforwards and tax credit carryforwards, substantially all of our tax years remain open to federal, state, and foreign tax examination. Certain of our subsidiaries are currently under examination by the French tax authorities for fiscal years 2012 and 2013 and by Italian tax authorities for fiscal year 2012. We do not anticipate that the amount of our existing liability for unrecognized tax benefits will significantly change within the next 12 months.

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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 Part II, Item 1A “Risk Factors” included elsewhere 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 an international biopharmaceutical company focused on improving patients’ lives by identifying, developing and commercializing meaningful products that address unmet medical needs. We have a diverse portfolio of products and product candidates, with a focus in the areas of sleep and hematology/oncology. Our lead marketed products are:


•	Xyrem^® (sodium oxybate) oral solution, the only product approved by the U.S. Food and Drug Administration, or FDA, for the treatment of both cataplexy and excessive daytime sleepiness, or EDS, in patients with narcolepsy;


•	Erwinaze^® (asparaginase Erwinia chrysanthemi), a treatment approved in the United States and in certain markets in Europe (where it is marketed as Erwinase^®) for patients with acute lymphoblastic leukemia, or ALL, who have developed hypersensitivity to E. coli-derived asparaginase; and


•	Defitelio^®(defibrotide), a product approved in Europe for the treatment of severe hepatic veno-occlusive disease, or VOD, in adults and children undergoing hematopoietic stem cell transplantation, or HSCT, therapy.

Our strategy is to continue to create shareholder value by:


•	Growing sales of the existing products in our portfolio, including by identifying new growth opportunities;


•	Acquiring additional differentiated products that are on the market or product candidates that are in late-stage development; and


•	Pursuing focused development of a pipeline of post-discovery differentiated product candidates.

In the three and nine months ended September 30, 2015, our total net product sales increased by 11% and 17%, respectively, compared to the same periods in 2014, primarily due to increases in Xyrem product sales. Total net product sales are expected to increase in 2015 over 2014, primarily due to anticipated growth in sales of our lead marketed products. For additional information regarding our net product sales, see “—Results of Operations.”

On February 27, 2015, the FDA notified Jazz Pharmaceuticals, Inc., our wholly owned subsidiary, of the FDA’s approval of the risk evaluation and mitigation strategy, or REMS, for Xyrem in the form submitted by us in November 2014, which includes provisions requiring distribution through a single pharmacy. We implemented the final approved Xyrem REMS and submitted the initial assessment required under the approved REMS in late August 2015. We expect to submit ongoing assessments as set forth in the FDA’s Xyrem REMS approval notice.

In the Xyrem REMS approval notice, the FDA states its conclusion that the Xyrem REMS meets the applicable statutory standards. The approval notice also includes statements from the FDA that (i) the approval action should not be construed or understood as agreement with us that dispensing through a single pharmacy is the only way to ensure that the benefits of Xyrem outweigh its risks, and that the FDA has continuing concerns that limiting the distribution of Xyrem to one pharmacy imposes burdens on patient access and the healthcare delivery system and (ii) as with all REMS, the FDA intends to evaluate the Xyrem REMS on an ongoing basis and will require modifications as may be appropriate.

In September 2015, the FDA accepted for filing with priority review our new drug application, or NDA, for defibrotide for the treatment of VOD with evidence of multi-organ dysfunction following HSCT. Based on timelines established by the Prescription Drug User Fee Act, or PDUFA, we expect FDA review of the NDA to be completed by March 31, 2016. However, the FDA does not always meet the timelines established by PDUFA, and it is possible that the FDA’s review of our NDA will not be completed by the PDUFA date, in which case our plans for commercialization of defibrotide in the U.S. may be delayed. In any event, we cannot predict whether our NDA will be approved in a timely manner, if at all.

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We began to launch Defitelio in certain European countries in 2014, and in 2015 we have continued to launch the product in additional European countries on a rolling basis. We are in the process of making pricing and reimbursement submissions in additional European countries where Defitelio is not yet launched, including in countries where pricing and reimbursement approvals are required for launch. Defibrotide has been, and continues to be, provided to patients where it is not commercially available through an expanded access treatment protocol that is open under an investigational new drug application in the United States and on a named patient basis elsewhere.

We continue to execute on our research and development activities, which include clinical development of new product candidates, line extensions for existing products and the generation of additional clinical data for existing products, all in our sleep and hematology/oncology therapeutic areas. A summary of the status of our development pipeline activities is provided below:



Project	Disease Area	Status
Sleep
JZP-110	EDS in narcolepsy	Phase 3 clinical trial initiated in the second quarter of 2015
	EDS in obstructive sleep apnea, or OSA	Two Phase 3 clinical trials initiated in the second quarter of 2015
JZP-386	EDS in narcolepsy	Phase 1 clinical trials completed
Xyrem	Cataplexy in narcolepsy in children and adolescents	Phase 3 clinical trial initiated in the fourth quarter of 2014
Hematology/Oncology
Defibrotide	VOD with evidence of multi-organ dysfunction following HSCT	NDA accepted for filing with priority review by the FDA in the third quarter of 2015
JZP-416	ALL	Phase 1 clinical trial in Europe completed; enrollment suspended in pivotal Phase 2 clinical trial in North America in first quarter of 2015
Leukotac^TM	Steroid refractory acute graft vs. host disease, or GvHD	Phase 3 clinical trial completed in the second quarter of 2015; development discontinued in fourth quarter of 2015

In the sleep area, we have ongoing and planned clinical studies for our product and product candidates, including the following:

•

JZP-110. JZP-110 is a late-stage investigational compound being developed for potential treatment of EDS in patients with narcolepsy and EDS in patients with OSA. We acquired worldwide development, manufacturing and commercial rights to JZP-110 from Aerial BioPharma LLC, or Aerial, in January 2014, other than in certain jurisdictions in Asia where SK Biopharmaceuticals Co., Ltd, or SK, retains rights. We initiated patient enrollment in our Phase 3 clinical program in the second quarter of 2015. We are conducting one Phase 3 clinical trial in patients with EDS associated with narcolepsy and two Phase 3 clinical trials in patients with EDS associated with OSA. Approximately 880 patients are expected to be enrolled in these three trials in the aggregate. In addition, we are evaluating the long-term safety of JZP-110 in an open label extension trial and expect to enroll up to 450 patients from two of our Phase 3 clinical trials in this extension trial.

•

JZP-386. JZP-386 is a deuterium-modified analog of sodium oxybate, the active pharmaceutical ingredient in Xyrem, which we licensed from Concert Pharmaceuticals, Inc. in February 2013. We have conducted preclinical research and development work on JZP-386 for its potential use in patients with narcolepsy. The first study of JZP-386 in humans to evaluate the safety, pharmacokinetics and pharmacodynamics of the compound was conducted in 2014 under an approved investigational medicinal product dossier for JZP-386 in Europe. We completed a second Phase 1 study in the second quarter of 2015. Clinical data from this Phase 1 study demonstrated that JZP-386 provided favorable deuterium-related effects, including higher serum concentrations and correspondingly increased pharmacodynamics effects at clinically relevant time points compared to Xyrem. The safety profile of JZP-386 was similar to that observed with Xyrem. Although we determined that the results did not support advancing into a later-stage clinical trial of JZP-386 at that time, we are further evaluating JZP-386, including exploring formulation options designed to enhance the positive effects observed in the studies to achieve an improved product profile.

•

Xyrem. While in many patients narcolepsy can begin during childhood and adolescence, there is limited information on the treatment of pediatric narcolepsy patients with Xyrem. We have worked with the FDA and several leading specialists to design a clinical trial to generate additional data on the treatment of pediatric narcolepsy patients with Xyrem. As a result, in the fourth quarter of 2014, we initiated a Phase 3 clinical trial to assess the safety and efficacy of Xyrem in children and adolescents aged seven to 17 who have narcolepsy with cataplexy.

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In the hematology and oncology area, our development activities have been focused on the following:

•

Defibrotide. We are engaged in activities related to the potential approval of defibrotide in the United States. In September 2015, the FDA accepted for filing with priority review our NDA for defibrotide for the treatment of VOD with evidence of multi-organ dysfunction following HSCT. We are also assessing the potential for approval of defibrotide in other countries and for development of defibrotide in additional indications.

•

JZP-416 (formerly known as Asparec). We completed a Phase 1 clinical trial in Europe of JZP-416 (pegcrisantaspase), a PEGylated recombinant Erwinia chrysanthemi L-asparaginase, being developed for the treatment of patients with ALL who are hypersensitive to E. coli-derived asparaginase. In addition, we initiated our first study of JZP-416 in children in a pivotal Phase 2 clinical trial in North America in late 2014. In February 2015, we voluntarily suspended patient enrollment in this trial. Our decision to suspend enrollment and to discontinue treatment with JZP-416 for enrolled patients was based on the occurrence of hypersensitivity-like reactions following the administration of JZP-416 in some treated patients. We are in the process of collecting and evaluating the available data and plan to conduct additional research and analysis prior to determining whether to resume the study and determining next steps regarding the development of JZP-416.


•	Leukotac. In the second quarter of 2015, we completed a Phase 3 clinical trial in Europe of Leukotac (inolimomab), an anti-CD25 monoclonal antibody for the treatment of steroid-refractory acute GvHD. Based on our analysis of trial data, we recently decided to discontinue development of Leukotac.

In the second quarter of 2014, we initiated a pharmacokinetics study in Phase 2 to further evaluate the use of Erwinaze in young adults age 18 to 39 with ALL who are hypersensitive to E. coli-derived asparaginase. We terminated this trial in the second quarter of 2015 based on an inability to enroll patients.

Over the past two years, we have made targeted investments to strengthen our operational capabilities to support our lead marketed products and product candidates in our primary therapeutic areas. During 2014, we reorganized our operations in Europe to focus on our hematology/oncology therapeutic area following our acquisition of Gentium S.p.A. in January 2014, or the Gentium Acquisition, and streamlined our U.S. commercial operations to devote more resources to our lead marketed products. In March 2015, we sold certain products and the related business that we acquired as part of our acquisition of EUSA Pharma Inc., or the EUSA Acquisition, to allow us to focus our European commercial operations on Erwinase and Defitelio. In the Gentium Acquisition, we acquired a manufacturing facility located in Italy that produces active pharmaceutical ingredients, including defibrotide. We also have completed construction of a manufacturing and development facility in Ireland and expect to begin operations at the facility in 2016.

On June 18, 2015, we entered into a credit agreement, which we refer to as the June 2015 credit agreement, and terminated the credit agreement that we entered into in June 2012, as subsequently amended, which we refer to as the 2012 credit agreement. The June 2015 credit agreement provides for a five-year $750.0 million principal amount term loan, which was drawn in full at closing, and a five-year $750.0 million revolving credit facility, of which $160.0 million was drawn at closing. We used the proceeds from initial borrowings under the June 2015 credit agreement to repay in full the $893.1 million principal amount of term loans outstanding under the 2012 credit agreement and to pay related fees and expenses. In October 2015, we repaid the remaining balance then outstanding under the revolving credit facility in full. Borrowings under the June 2015 credit agreement bear interest, at our option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 1.50% to 2.25% per annum, based upon our secured leverage ratio, or (b) the prime lending rate, plus an applicable margin ranging from 0.50% to 1.25% per annum, based upon our secured leverage ratio.

We anticipate that we will continue to face a number of challenges and risks to our business and our ability to execute our strategy in 2015. For example, our financial results remain significantly influenced by sales of Xyrem, which accounted for 71.7% and 71.9% of our net product sales in the three and nine months ended September 30, 2015, respectively, and 67.0% of our net product sales for the year ended December 31, 2014. As a result, we continue to place a high priority on seeking to maintain and increase sales of Xyrem in its approved indications, while remaining focused on ensuring the safe and effective use of the product. We are also focusing on the lifecycle management of Xyrem, including seeking to enhance and enforce our intellectual property rights and to develop product, service and safety improvements for patients.

Our ability to maintain or increase Xyrem product sales is subject to a number of risks and uncertainties, including those discussed in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. In particular, seven abbreviated new drug applications, or ANDAs, have been filed with the FDA by third parties seeking to market generic versions of Xyrem. We have filed lawsuits seeking to prevent the introduction of a generic version of Xyrem that would infringe our patents, and the litigation proceedings are ongoing. We cannot predict the timing or outcome of these proceedings. Although no trial date has been set in any of the ANDA suits, we anticipate that trial on some of the patents in the case against the first ANDA filer,

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Roxane Laboratories, Inc., or Roxane, could occur as early as the first quarter of 2016. In addition, in January 2015, certain of the ANDA filers filed petitions for inter partes review, or IPR, by the Patent Trial and Appeal Board, or the PTAB, of the U.S. Patent and Trademark Office with respect to the validity of six patents covering the distribution system for Xyrem. In July 2015, the PTAB issued decisions instituting IPR trials with respect to these petitions, and we expect the PTAB to issue final decisions on the validity of the patents within a year of institution. In September and October 2015, certain of the ANDA filers filed petitions for IPR by the PTAB with respect to the validity of an additional patent covering the distribution system for Xyrem and with respect to the validity of one of our patents covering a method for prescribing Xyrem when it is being co-administered with divalproex sodium (also known as valproate or valproic acid). In addition, in April 2015, a hedge fund filed an IPR petition challenging the validity of one of our Xyrem distribution patents that is already the subject of one of the IPR petitions proceeding to trial before the PTAB. The PTAB issued a decision denying institution of IPR proceedings with respect to this petition. We cannot predict whether additional post-grant patent review challenges will be filed by any of the ANDA filers or any other entity, the outcome of any IPR or other proceeding, whether the PTAB will institute any petitioned IPR proceeding that has not yet been instituted, or the impact any IPR or other proceeding might have on ongoing ANDA litigation proceedings or other aspects of our Xyrem business. We expect that the approval of an ANDA that results in the launch of a generic version of Xyrem, or the approval and launch of other sodium oxybate products that compete with Xyrem, would have a material adverse effect on our business, financial condition, results of operations and growth prospects.

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Sales of our second largest product, Erwinaze/Erwinase (which we refer to in this report as Erwinaze unless otherwise indicated or the context otherwise requires), accounted for 16.6% and 15.6% of our total net product sales in the three and nine months ended September 30, 2015, respectively, and 17.2% of our total net product sales for the year ended December 31, 2014. We seek to maintain and increase sales of Erwinaze, as well as to make Erwinaze more widely available, through ongoing sales and marketing and research and development activities. However, our ability to successfully and sustainably maintain or grow sales of Erwinaze is subject to a number of risks and uncertainties, including the limited population of patients with ALL and the incidence of hypersensitivity reactions to E. coli-derived asparaginase within that population, our need to apply for and receive marketing authorizations, through the European Union’s mutual recognition procedure or otherwise, in certain additional countries so we can launch promotional efforts in those countries, as well as those other risks and uncertainties discussed in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. In particular, a significant challenge to our ability to maintain current sales levels and to increase sales is our need to avoid supply interruptions of Erwinaze due to capacity constraints, production delays, quality challenges or other manufacturing difficulties. We have limited inventory of Erwinaze, which puts us at significant risk of not being able to meet product demand. Erwinaze is licensed from and manufactured by a single source, which was Public Health England, or PHE, through March 31, 2015. As of April 1, 2015, the facility at which Erwinaze is manufactured was transferred to Porton BioPharma Limited, or PBL, a limited liability company that is wholly owned by the U.K. Secretary of State for Health. We are now working with PBL on matters related to Erwinaze supply. The current manufacturing capacity for Erwinaze is nearly completely absorbed by demand for the product. As a consequence of constrained manufacturing capacity, we have had an extremely limited ability to build an excess level of product inventory that could be used to absorb disruptions to supply resulting from any quality or other issues. If we continue to be subject to capacity constraints or experience quality or other manufacturing challenges in the future, we may be unable to build a desired excess level of product inventory, and our ability to supply the market may be compromised. Although we are taking steps to improve the Erwinaze manufacturing process, if our ongoing efforts are not successful, we could experience additional Erwinaze supply interruptions in the future, which could have a material adverse effect on our sales of and revenues from Erwinaze and limit our potential future maintenance and growth of the market for this product. In addition, while we continue to work with the manufacturer of Erwinaze to evaluate potential steps to expand production capacity to increase the supply of Erwinaze over the longer term to address worldwide demand, our ability to maintain or increase sales of Erwinaze may be limited by our ability to obtain a sufficient supply of the product.

In furtherance of our growth strategy, we have made a significant investment in Defitelio/defibrotide. Our ability to realize the anticipated benefits from this investment is subject to a number of risks and uncertainties, including those discussed in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. In particular, we may not be able to successfully maintain or grow sales of Defitelio in Europe, or obtain marketing approval in other countries, including the United States, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. A key challenge to our success in maintaining or growing sales of Defitelio in Europe is our ability to obtain appropriate pricing and reimbursement approvals in those European countries where Defitelio is not yet launched. If we experience delays or unforeseen difficulties in obtaining favorable pricing and reimbursement approvals, planned launches in the affected countries would be delayed, or, if we are unable to ultimately obtain favorable pricing and reimbursement approvals in countries that represent significant markets, especially where a country’s reimbursed price influences other countries, our growth prospects in Europe could be negatively affected.

We cannot predict whether our NDA for defibrotide will be approved by the FDA in a timely manner, if at all. It is possible that the FDA may ask an Oncologic Drugs Advisory Committee, or ODAC, which provides the FDA with independent expert advice and recommendations, to review our NDA. The ODAC may recommend against approval of our NDA, may recommend conditioning approval on our conducting one or more potentially time-consuming and costly clinical trials to provide supporting data either before approval or as a post-marketing commitment, or may recommend more narrow or restricted labeling than we have proposed. In addition, approval of our NDA is dependent on our and our supplier’s ability to

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obtain FDA certification of Good Manufacturing Practices in connection with the manufacturing of the defibrotide drug compound and the processing of defibrotide into finished product for the U.S. market and on the outcome of FDA inspections of clinical sites and potentially other entities involved in the development of defibrotide. In May 2015, the FDA issued a Form 483 to the entity that manufactures the defibrotide finished product that included observations related to the facility where the product is manufactured. Failure by such entity to timely remediate the observations to the FDA’s satisfaction or the discovery of issues that impact the defibrotide finished product could have an adverse impact on the potential approval of our NDA for defibrotide, including the timing thereof.

We also face challenges that could impact the anticipated value of Defitelio/defibrotide, including the limited size of the population of VOD patients who are indicated for treatment with Defitelio/defibrotide (particularly if the FDA requires more narrow or restricted labeling than we have proposed); the need to establish U.S. pricing and reimbursement support for the product in the event we are able to obtain U.S. marketing approval for defibrotide; the possibility that we may be required to conduct time-consuming and costly clinical trials as a condition of any U.S. marketing approval for the product; the lack of experience of U.S. physicians in diagnosing and treating VOD; and challenges to our ability to develop the product for additional indications. Any of these risks could have a material adverse effect on our anticipated revenue from Defitelio/defibrotide and our business, financial condition, results of operations and growth prospects.

The implementation of our strategy is also subject to other challenges and risks specific to our business, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations. In addition to risks specifically related to Xyrem, Erwinaze and Defitelio/defibrotide, other key challenges and risks that we face include risks and uncertainties related to:


•	the challenges of protecting and enhancing our intellectual property rights;


•	delays or problems in the supply or manufacture of our products, particularly with respect to certain products as to which we maintain limited inventories, including products for which our supply demands are growing, and our dependence on single source suppliers to continue to meet our ongoing commercial demand or our requirements for clinical trial supplies;


•	the need to obtain and maintain appropriate pricing and reimbursement for our products in an increasingly challenging environment due to, among other things, the attention being paid to healthcare cost containment and prescription drug pricing in the United States and worldwide;


•	the challenges of compliance with the requirements of the FDA, the U.S. Drug Enforcement Administration, or DEA, and non-U.S. regulatory agencies, including with respect to product labeling, requirements for distribution, obtaining sufficient DEA quotas where needed, marketing and promotional activities, adverse event reporting and product recalls or withdrawals;


•	the challenges of achieving and maintaining commercial success of our products, such as obtaining sustained acceptance and support of our products by patients, physicians and payors;

•

the risks and costs associated with business combination or product or product candidate acquisition transactions, such as the challenges inherent in the integration of acquired businesses with our historic business, the increase in geographic dispersion among our centers of operation, taking on the operation of a manufacturing plant as a result of the Gentium Acquisition and the risks that we may acquire unanticipated liabilities along with acquired businesses or otherwise fail to realize the anticipated benefits (commercial or otherwise) from such transactions;


•	the difficulty and uncertainty of pharmaceutical product development, including the timing thereof, and the uncertainty of clinical success, such as the risk that results from preclinical studies and/or early clinical trials may not be predictive of results obtained in later and larger clinical trials that we are conducting or that we plan to conduct for our product candidates;


•	the inherent uncertainty associated with the regulatory approval process, especially as we continue to undertake increased activities and make growing investment in our product pipeline development projects;


•	our potential inability to identify and acquire, in-license or develop additional products or product candidates to grow our business; and


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

All of these risks are discussed in greater detail, along with other risks, in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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Results of Operations

The following table presents revenues and expenses for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands except percentages):



	Three Months Ended September 30,					Increase/		Nine Months Ended September 30,						Increase/
	2015		2014 (1)			(Decrease)		2015			2014 (1)			(Decrease)
Product sales, net	$	338,754	$	304,407		11	%	$	977,895		$	838,493		17	%
Royalties and contract revenues	2,118		2,177			(3	)%	6,027			6,240			(3	)%
Cost of product sales (excluding amortization and impairment of intangible assets)	28,385		26,994			5	%	78,496			88,610			(11	)%
Selling, general and administrative	104,044		93,501			11	%	323,564			300,420			8	%
Research and development	50,784		22,423			126	%	105,798			60,622			75	%
Acquired in-process research and development	—		75,000			N/A(2)		—			202,000			N/A(2)
Intangible asset amortization	26,127		30,630			(15	)%	74,472			94,607			(21	)%
Impairment charges	—		—			N/A(2)		—			32,806			N/A(2)
Interest expense, net	12,650		14,530			(13	)%	44,707			36,035			24	%
Foreign currency (gain) loss	977		(6,483		)	N/A(2)		646			(6,680		)	N/A(2)
Loss on extinguishment and modification of debt	—		—			N/A(2)		16,815			—			N/A(2)
Income tax provision	29,945		24,221			24	%	92,651			60,598			53	%
Net income (loss) attributable to noncontrolling interests, net of tax	—		2			N/A(2)		(1		)	(1,060		)	N/A(2)

_____________________________


(1)	Our financial results include the financial results of the historic Gentium business following the closing of the Gentium Acquisition on January 23, 2014.


(2)	Comparison to prior period not meaningful.

Revenues

The following table presents product sales, royalties and contract revenues, and total revenues for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands except percentages):



	Three Months Ended September 30,				Increase/		Nine Months Ended September 30,				Increase/
	2015		2014		(Decrease)		2015		2014		(Decrease)
Xyrem^® (sodium oxybate) oral solution	$	242,899	$	204,337	19	%	$	703,435	$	556,081	26	%
Erwinaze^®/Erwinase^® (asparaginase Erwinia chrysanthemi)	56,317		52,121		8	%	152,821		146,910		4	%
Defitelio^® (defibrotide)/defibrotide	19,639		18,892		4	%	52,259		51,345		2	%
Prialt^® (ziconotide) intrathecal infusion	6,042		6,282		(4	)%	19,944		16,422		21	%
Psychiatry	9,910		10,833		(9	)%	28,375		32,431		(13	)%
Other	3,947		11,942		(67	)%	21,061		35,304		(40	)%
Product sales, net	338,754		304,407		11	%	977,895		838,493		17	%
Royalties and contract revenues	2,118		2,177		(3	)%	6,027		6,240		(3	)%
Total revenues	$	340,872	$	306,584	11	%	$	983,922	$	844,733	16	%

Product Sales, Net

Xyrem product sales increased in the three and nine months ended September 30, 2015 compared to the same period in 2014, primarily due to a higher average net selling price and, to a lesser extent, an increase in sales volume. Price increases were instituted in August 2014 and February 2015. Xyrem product sales volume increased by 4% and 8% in the three and nine

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months ended September 30, 2015, respectively, compared to the same periods in 2014. The sales volume increase was driven by an increase in the average number of patients on Xyrem, which includes new patients, patients who have restarted Xyrem therapy and active patients who remained on Xyrem therapy. Erwinaze product sales increased in the three and nine months ended September 30, 2015 compared to the same periods in 2014, due to an increase in product demand and initial inventory build-up by a new distributor and, to a lesser extent, price increases instituted in January 2015 and July 2015, partially offset by higher chargebacks and rebates resulting from increased utilization under the 340B drug pricing discount and Medicaid programs. The increase in product demand was primarily driven by existing treatment sites identifying additional ALL patients with hypersensitivity to E. coli-derived asparaginase and, to a lesser extent, a growth in new treatment sites prescribing Erwinaze. Defitelio/defibrotide product sales increased in the three months ended September 30, 2015 compared to the same period in 2014, primarily due to an increase in sales volume, partially offset by the impact of foreign exchange rates on sales made in euro. Defitelio/defibrotide product sales increased in the nine months ended September 30, 2015 compared to the period beginning from the closing of the Gentium Acquisition on January 23, 2014 to September 30, 2014, primarily due to an increase in sales volume and, to a lesser extent, higher average net selling prices, partially offset by the impact of foreign exchange rates on sales made in euro and the discontinuation of the cost recovery program in the U.S. In July 2014, we ceased our U.S. cost recovery program, and, since that time, patients in the U.S. receive defibrotide at no cost through an expanded access program. Prialt product sales decreased in the three months ended September 30, 2015 compared to the same period in 2014, primarily due to a slight decrease in sales volumes. Prialt product sales increased in the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to an increase in sales volumes. Psychiatry product sales decreased in the three and nine months ended September 30, 2015 compared to the same periods in 2014, primarily due to generic competition. Other sales decreased in the three and nine months ended September 30, 2015 compared to the same periods in 2014, primarily due to our sale of certain products and the related business that we acquired as part of the EUSA Acquisition. We expect total product sales will increase in 2015 over 2014, primarily due to anticipated growth in sales of our lead marketed products, partially offset by decreases in sales of certain other products.

Royalties and Contract Revenues

Royalties and contract revenues decreased slightly in the three and nine months ended September 30, 2015 compared to the same periods in 2014. We expect royalties and contract revenues in 2015 to be lower than 2014 due to a milestone payment of $2.0 million that we received in 2014.

Cost of Product Sales

Cost of product sales increased in the three months ended September 30, 2015 compared to the same period in 2014, primarily due to an increase in inventory provisions and an increase in net product sales, partially offset by a change in product mix. Cost of product sales decreased in the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to acquisition accounting inventory fair value step-up adjustments of $10.5 million in the nine months ended September 30, 2014 and a change in product mix, partially offset by an increase in net product sales. Gross margin as a percentage of net product sales was 91.6% and 92.0% in the three and nine months ended September 30, 2015, respectively, compared to 91.1% and 89.4% for the same periods in 2014. The increase in our gross margin percentage in the three months ended September 30, 2015 was primarily due to a change in product mix. The increase in our gross margin percentage in the nine months ended September 30, 2015 was primarily due to a decrease in acquisition accounting inventory fair value step-up adjustments and, to a lesser extent, a change in product mix. We expect our gross margin as a percentage of net product sales in 2015 to be slightly higher than in 2014, primarily due to a change in product mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased in the three months ended September 30, 2015 compared to the same period in 2014, primarily due to an increase in compensation-related expenses of $3.8 million driven by higher headcount and an increase in other expenses related to the expansion of our business. Selling, general and administrative expenses increased in the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to an increase in compensation-related expenses of $21.8 million driven by higher headcount and an increase in other expenses related to the expansion of our business, partially offset by a decrease in transaction and integration expenses of $22.3 million. We expect that selling, general and administrative expenses will increase in 2015 compared to 2014, primarily due to higher headcount to support our larger, global organization and an increase in other expenses related to the expansion of our business.

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Research and Development Expenses

Research and development expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, milestone payments 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 what 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,
	2015		2014		2015		2014
Clinical studies and outside services	$	15,732	$	10,535	$	47,045	$	29,287
Personnel expenses	8,437		9,201		28,291		25,166
Milestone	25,000		—		25,000		—
Other	1,615		2,687		5,462		6,169
Total	$	50,784	$	22,423	$	105,798	$	60,622

Research and development expenses increased by $28.4 million and $45.2 million in the three and nine months ended September 30, 2015, respectively, compared to the same periods in 2014, primarily due to a $25.0 million milestone payable that was triggered by the acceptance for filing by the FDA of our NDA for defibrotide for VOD and increased clinical studies and outside services costs driven by higher costs incurred to develop our sleep and hematology/oncology product candidates.

For 2015 and beyond, we expect that our research and development expenses will increase substantially from historical levels, particularly as we conduct late stage clinical trials and related development work and potentially acquire rights to additional product candidates. A discussion of the risks and uncertainties with respect to our research and development activities, including completing the development of our product candidates, and the consequences to our business, financial condition, results of operations and growth prospects can be found in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

Acquired In-Process Research and Development

In the nine months ended September 30, 2014, we acquired the rights to defibrotide in the Americas for an upfront payment of $75.0 million. During this period, we also acquired the worldwide development, manufacturing and commercial rights to JZP-110, other than in certain jurisdictions in Asia, for an upfront payment of $125.0 million and we paid a $2.0 million milestone which was triggered on assignment of the JZP-110 rights to us.

Intangible Asset Amortization

Intangible asset amortization decreased in the three and nine months ended September 30, 2015 compared to the same periods in 2014 due to the cessation of amortization on intangible assets classified as assets held for sale as of December 31, 2014 and certain other intangible assets that were fully amortized in 2014 and the impact of foreign exchange rates on euro denominated assets. As a result, we expect intangible asset amortization to decrease in 2015 compared to 2014.

Impairment Charges

In the nine months ended September 30, 2014, we recorded an impairment charge of $32.8 million on acquired developed technologies related to certain products acquired as part of the EUSA Acquisition. Sales of these products were reported under “Other” products.

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Interest Expense, Net

Interest expense, net decreased by $1.9 million in the three months ended September 30, 2015, compared to the same period in 2014. In June 2015, we refinanced our existing term loans and revolving credit facility and we reduced the interest rate on our term loan and revolving credit facility borrowings, which resulted in a decrease in interest expense. Interest expense, net increased by $8.7 million in the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to a larger debt balance. In August 2014, we issued $575.0 million principal amount of 1.875% exchangeable senior notes due 2021, or the 2021 Notes. We expect interest expense to be higher in 2015 compared to 2014 due to the increase in our debt balance and the amortization of the debt discount on the 2021 Notes, partially offset by the reduction in interest rates on borrowings under the June 2015 credit agreement as compared to the 2012 credit agreement.

Foreign Currency (Gain) Loss

The foreign currency (gain) loss in the three and nine months ended September 30, 2015 primarily related to the translation of euro denominated net monetary liabilities, including intercompany balances, held by subsidiaries with a U.S. dollar functional currency.

Loss on Extinguishment and Modification of Debt

In the nine months ended September 30, 2015, we recorded a loss of $16.8 million in connection with the refinancing of our term loans and revolving credit facility in June 2015, which was comprised of $16.0 million related to the expensing of unamortized deferred financing costs and unamortized original issue discount associated with extinguished debt and $0.8 million related to new third party fees associated with the modification of existing debt.

Income Tax Provision

Our income tax provision for the three and nine months ended September 30, 2015 was $29.9 million and $92.7 million, respectively, compared to $24.2 million