# Jazz Pharmaceuticals plc (JAZZ) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from Jazz Pharmaceuticals plc's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1232524/000123252423000015/jazz-20221231.htm Accession: 0001232524-23-000015 Filing date: 2023-03-01 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/JAZZ/ All MD&A years: /company/JAZZ/mda/ Previous year: /company/JAZZ/mda/fy2021/ (FY 2021) Next year: /company/JAZZ/mda/fy2023/ (FY 2023) Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations The purpose of the Management Discussion and Analysis is to present information that management believes is relevant to promote a understanding of our results of operations and cash flows for the fiscal year ended December 31, 2022 and our financial condition as of December 31, 2022 and should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included elsewhere in this Annual Report on Form 10‑K. 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 impact our business. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10‑K. 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. Overview Jazz Pharmaceuticals plc is a global biopharmaceutical company whose purpose is to innovate to transform the lives of patients and their families. We are dedicated to developing life-changing medicines for people with serious diseases - often with limited or no therapeutic options. We have a diverse portfolio of marketed medicines and novel product candidates, from early- to late-stage development, in neuroscience and oncology. Within these therapeutic areas, we strive to identify new options for patients by actively exploring small molecules and biologics, and through innovative delivery technologies and cannabinoid science. Our strategy for growth is rooted in executing commercial launches and ongoing commercialization initiatives; advancing robust research and development, or R&D, programs and delivering impactful clinical results; effectively deploying capital to strengthen the prospects of achieving our short- and long-term goals through strategic corporate development; and delivering strong financial performance. We focus on patient populations with high unmet needs. We identify and develop differentiated therapies for these patients that we expect will be long-lived assets and that we can support with an efficient commercialization model. In addition, we leverage our efficient, scalable operating model and integrated capabilities across our global infrastructure to effectively reach patients around the world. In January 2022, we announced our Vision 2025, which aims to deliver sustainable growth and enhanced value, driving our continued transformation to an innovative, high-growth global pharmaceutical leader. The three core components of our Vision 2025 focus on commercial execution, pipeline productivity and operational excellence. Our strategy to deliver sustainable growth and enhanced value is focused on: •Strong commercial execution to drive diversified revenue growth and address unmet medical needs of our patients across our product portfolio, which focuses on neuroscience and oncology medicines; •Expanding and advancing our pipeline to achieve a valuable product portfolio of durable, highly differentiated programs; •Continuing to build a flexible, efficient and productive development engine for targeted therapeutic areas to identify and progress early-, mid- and late-stage assets; •Identifying and acquiring novel product candidates and approved therapies to complement our existing pipeline and commercial portfolio; 69 Table of Contents •Investing in an efficient, scalable operating model and differentiated capabilities to enable growth; and •Unlocking further value through indication expansion and entry into global markets. In 2022, consistent with our strategy, we continued to focus on research and development activities within our neuroscience and oncology therapeutic areas. For a summary of our ongoing research and development activities, see “Business—Research and Development” in Part I, Item 1 of this Annual Report on Form 10-K. Our lead marketed products, listed below, are approved in countries around the world to improve patient care. [[GREPCENT_TABLE]] [["Product","Indication(s)","Initial Approval Date","Market(s)"],["NEUROSCIENCE"],["Xywav\u00ae (calcium, magnesium, potassium, and sodium oxybates)","Treatment of cataplexy or excessive daytime sleepiness, or EDS, in patients seven years of age and older with narcolepsy. Treatment of idiopathic hypersomnia, or IH, in adults.","July 2020 August 2021","U.S. U.S."],["Xyrem\u00ae (sodium oxybate)","Treatment of cataplexy or EDS in patients seven years of age and older with narcolepsy. For the treatment of cataplexy in patients with narcolepsy. Treatment of narcolepsy with cataplexy in adult patients, adolescents and children from age of 7 years.","July 2002 August 2005 October 2005","U.S. Canada EU, Great Britain, other markets (through licensing agreement)"],["Epidiolex\u00ae (cannabidiol) Epidyolex\u00ae (cannabidiol)","Treatment of seizures associated with Lennox-Gastaut syndrome, or LGS, Dravet syndrome, or DS, or tuberous sclerosis complex, or TSC, in patients 1 year of age and older. For adjunctive therapy of seizures associated with LGS or DS, in conjunction with clobazam, for patients 2 years of age and older.* For adjunctive therapy of seizures associated with TSC for patients 2 years of age and older.","June 2018 September 2019 April 2021","U.S. EU, Great Britain, Israel, Australia and New Zealand EU, Great Britain, Israel"],["ONCOLOGY"],["Zepzelca\u00ae (lurbinectedin)","Treatment of adult patients with metastatic small cell lung cancer, or SCLC, with disease progression on or after platinum-based chemotherapy. Treatment of adults with Stage III or metastatic SCLC who have progressed on or after platinum-containing therapy.","June 2020 September 2021","U.S. (licensed from PharmaMar)** Canada (licensed from PharmaMar)***"]] [[/GREPCENT_TABLE]] 70 Table of Contents [[GREPCENT_TABLE]] [["Rylaze\u00ae (asparaginase erwinia chrysanthemi (recombinant)-rywn","A component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia, or ALL, and lymphoblastic lymphoma, or LBL, in adult and pediatric patients 1 month or older who have developed hypersensitivity to E. coli-derived asparaginase. A component of a multi-agent chemotherapeutic regimen for the treatment of ALL and LBL, in adults and pediatric patients 1 year or older who have developed hypersensitivity toE. coli-derived asparaginase.","June 2021 September 2022","U.S. Canada"],["Vyxeos\u00ae (daunorubicin and cytarabine) liposome for injection Vyxeos\u00ae liposomal 44 mg/100 mg powder for concentrate for solution for infusion Vyxeos\u00ae Daunorubicin and cytarabine liposome for injection Powder, 44 mg daunorubicin and 100 mg cytarabine per vial, intravenous infusion","Treatment of newly-diagnosed therapy-related acute myeloid leukemia, or t-AML or AML-MRC in adults and pediatric patients one year and older. Treatment of adults with newly-diagnosed t-AML or AML-MRC. Treatment of adults with newly diagnosed therapy-related t-AML or AML with AML-MRC.","August 2017 August 2018 April 2021","U.S. EU, Great Britain, Switzerland, Israel, Australia, South Korea Canada"],["Defitelio\u00ae (defibrotide) Defitelio\u00ae (defibrotide sodium) Defitelio\u00ae (defibrotide sodium) Defitelio\u00ae (defibrotide)","Treatment of severe hepatic VOD, also known as SOS, following HSCT therapy. Treatment of adult and pediatric patients with hepatic VOD, also known as SOS, with renal or pulmonary dysfunction following HSCT. Treatment of severe hepatic VOD, also known as SOS, following HSCT therapy. Treatment of haptic sinusoidal obstruction syndrome (hepatic VOD)","October 2013 March 2016 July 2017 June 2019","EU, Great Britain, Switzerland, Israel, Australia, South Korea, Saudi Arabia U.S., Brazil Canada Japan"]] [[/GREPCENT_TABLE]] *The Clobazam restriction limited to EU and Great Britain **Accelerated approval received from U.S. Food and Drug Administration, or FDA ***Conditional approval received from Health Canada Neuroscience We are the global leader in the development and commercialization of oxybate therapy for patients with sleep disorders. Xyrem was approved by FDA in 2002, and has become a standard of care for treating EDS and cataplexy in narcolepsy. In 2020, we received FDA approval for Xywav for the treatment of cataplexy or EDS, in patients seven years of age and older with narcolepsy. In August 2021, Xywav became the first and only therapy approved by FDA for the treatment of IH in adults. Xywav is an oxybate therapy that contains 92% less sodium than Xyrem. Since there is no cure for narcolepsy and long-term disease management is needed, we believe that Xywav represents an important new therapeutic option for patients with this sleep disorder. Our commercial efforts are focused on educating patients and physicians about the lifelong impact of high sodium intake, and how the use of Xywav enables them to address what is a modifiable risk factor. 71 Table of Contents In June 2021, FDA recognized seven years of Orphan Drug Exclusivity, or ODE, for Xywav in narcolepsy. ODE extends through July 2027. In connection with granting ODE, FDA stated that "Xywav is clinically superior to Xyrem by means of greater safety because Xywav provides a greatly reduced chronic sodium burden compared to Xyrem.” FDA's summary also stated that "the differences in the sodium content of the two products at the recommended doses will be clinically meaningful in reducing cardiovascular morbidity in a substantial proportion of patients for whom the drug is indicated." We view the adoption of Xywav in narcolepsy as a positive indication that physicians and patients appreciate the benefits of a lower sodium oxybate option. We continue to see Xywav adoption among existing Xyrem patients, as well as the majority of new-to-oxybate narcolepsy patients. On August 12, 2021, FDA approved Xywav for the treatment of IH in adults. Xywav is the first and only FDA-approved therapy to treat IH. We initiated the U.S. commercial launch of Xywav for the treatment of IH in adults on November 1, 2021. In January 2022, FDA recognized seven years of ODE for Xywav in IH that extends through August 2028. IH is a debilitating neurologic sleep disorder characterized by chronic EDS, the inability to stay awake and alert during the day resulting in the irrepressible need to sleep or unplanned lapses into sleep or drowsiness. An estimated 37,000 people in the U.S. have been diagnosed with IH and are actively seeking healthcare. We have agreements in place for Xywav with all three major pharmacy benefit managers, or PBMs, in the U.S. To date, we have entered into agreements with various entities and have achieved benefit coverage for Xywav in both narcolepsy and IH indications for approximately 90% of commercial lives. We have seen strong adoption of Xywav in narcolepsy since its launch in November 2020, and increasing adoption in IH since its launch in November 2021. Exiting the fourth quarter of 2022, there were approximately 10,300 patients taking Xywav, including approximately 8,550 patients with narcolepsy and approximately 1,750 patients with IH. With respect to Xywav and Xyrem in the aggregate, the average number of active oxybate patients on therapy was approximately 18,000 in the fourth quarter of 2022. We acquired Epidiolex (Epidyolex outside the U.S.) in May 2021 as part of the acquisition of GW Pharmaceuticals plc, or GW, which we refer to as the GW Acquisition, which expanded our growing neuroscience business with a global, high-growth childhood-onset epilepsy franchise. Epidiolex was approved in the U.S. in June 2018 for the treatment of seizures associated with two rare and severe forms of epilepsy, LGS and DS, in patients two years of age and older, and subsequently approved in July 2020 for the treatment of seizures associated with TSC in patients one year of age and older. FDA also approved the expansion of all existing indications, LGS and DS, to patients one year of age and older. The rolling European launch of Epidyolex is also underway following European Commission approval in September 2019 for use as adjunctive therapy of seizures associated with LGS or DS, in conjunction with clobazam, for patients two years of age and older. Epidyolex is now launched in all five key European markets: United Kingdom, Germany, Italy, Spain and France. The clobazam restriction is limited to the European Union, or EU, and Great Britain. Epidyolex was also approved for adjunctive therapy of seizures associated with TSC for patients 2 years of age and older in the EU in April 2021 and Great Britain in August 2021, and is approved or under review for this indication in other markets. Outside the U.S. and Europe, Epidiolex/Epidyolex is approved in Israel, Australia and New Zealand. In addition to our currently marketed products, we previously marketed Sunosi® (solriamfetol) in the U.S. and in Europe and Canada. In this regard, in March 2022, we entered into a definitive agreement to divest Sunosi to Axsome Therapeutics, Inc,, or Axsome. In May 2022, we completed the U.S. divestiture of Sunosi and in November 2022 we completed the ex-U.S. divestiture to Axsome. Under the terms of the sale agreement with Axsome, Axsome received the rights to Sunosi in all of the existing territories available to us. We received an upfront payment of $53.0 million, and have the right to receive a high single-digit royalty on Axsome’s U.S. net sales of Sunosi in current indications and a mid-single-digit royalty on Axsome’s U.S. net sales of Sunosi in future indications. The divestiture of Sunosi to Axsome is intended to enable us to sharpen our focus on our highest strategic priorities designed to deliver sustainable growth and enhanced shareholder value. In assessing the positioning of Sunosi in the overall treatment landscape, we believe that Axsome is well positioned to deliver access to this important medicine and to maximize the value of Sunosi to us through future growth. Oncology We acquired U.S. development and commercialization rights to Zepzelca in early 2020, and launched six months thereafter, with an indication for treatment of patients with SCLC with disease progression on or after platinum-based chemotherapy. Our education and promotional efforts are focused on SCLC-treating physicians. We are continuing to raise awareness of Zepzelca across academic and community cancer centers, and see continued opportunities for growth in second-line share and overall demand, reflecting the significant unmet need and favorable Zepzelca product profile. In collaboration with F. Hoffmann-La Roche Ltd, or Roche, we have initiated a Phase 3 pivotal clinical trial in first-line extensive stage SCLC of Zepzelca in combination with Tecentriq® (atezolizumab). We are also developing Zepzelca in additional indications. 72 Table of Contents Rylaze was approved by FDA in June 2021 under the Real-Time Oncology Review, or RTOR, program, and was launched in the U.S. in July 2021 for use as a component of a multi-agent chemotherapeutic regimen for the treatment of patients with ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli-derived asparaginase. Rylaze is the only recombinant erwinia asparaginase manufactured product that maintains a clinically meaningful level of asparaginase activity throughout the entire course of treatment. We developed Rylaze to address the needs of patients and health care providers for an innovative, high-quality erwinia asparaginase with reliable supply. The initial approved recommended dosage of Rylaze was for an intramuscular, or IM, administration of 25 mg/m2 every 48 hours. In November 2022, FDA approved a supplemental Biologics License Application, or sBLA, for a Monday/Wednesday/Friday, or M/W/F, IM dosing schedule. In April 2022, we submitted a separate sBLA for intravenous, or IV, administration. In February 2023, we received a complete response letter from FDA requesting additional clinical data on the IV administration of Rylaze. There is no impact on the approved product labeling for Rylaze IM administration. We also completed a Marketing Authorization Application, or MAA, submission to the European Medicines Agency, or EMA, in May 2022 for M/W/F and every 48-hour dosing schedules and IV and IM administration, with potential for approval in 2023. We are also advancing the program for potential submission, approval and launch in Japan, as well as planning additional submissions in other markets. Vyxeos is a treatment for adults with newly-diagnosed t-AML, or AML-MRC. In March 2021, FDA approved a revised label to include a new indication to treat newly-diagnosed t-AML, or AML-MRC, in pediatric patients aged one year and older. We have a number of ongoing development activities and continue to expand into new markets internationally. Despite an ongoing trend in the U.S. towards lower-intensity treatments and away from Vyxeos that accelerated due to the COVID-19 pandemic, we continue to see recovery in demand for Vyxeos and expect future demand for appropriate secondary AML patients to remain steady. In Europe, we continue to expect a negative impact on demand for and utilization of Vyxeos compared to historical periods due to COVID-19. Defitelio is the first and only approved treatment for patients with VOD following HSCT. There was a significant decline in the number of patients receiving HSCT due to the effects of the COVID-19 pandemic. We anticipate the use of Defitelio will increase to the extent that hospital systems globally are able to continue moving forward with HSCT procedures. Research and Development Progress Our research and development activities encompass all stages of development and currently include clinical testing of new product candidates and activities related to clinical improvements of, or additional indications or new clinical data for, our existing marketed products. We also have active preclinical programs for novel therapies, including precision medicines in hematology and oncology and the GW Cannabinoid Platform. We are increasingly leveraging our growing internal research and development function, and our proprietary GW Cannabinoid Platform, and we have also entered into collaborations with third parties for the research and development of innovative early-stage product candidates and have supported additional investigator-sponsored trials, or ISTs, that are anticipated to generate additional data related to our products. We also seek out investment opportunities in support of the development of early- and mid-stage technologies in our therapeutic areas and adjacencies. We have a number of licensing and collaboration agreements with third parties, including biotechnology companies, academic institutions and research-based companies and institutions, related to preclinical and clinical research and development activities in hematology and in precision oncology, as well as in neuroscience. With the approvals and launches of Rylaze for the treatment ALL or LBL in pediatric and adult patients one month and older who have developed hypersensitivity to E. coli-derived asparaginase and Xywav for IH in 2021, we accomplished our goal to deliver five product launches through 2020 and 2021. We have taken both Rylaze and Xywav from concept to commercialization. Our neuroscience R&D efforts include the initiation in August 2022 of an ongoing pivotal Phase 3 clinical trial of Epidiolex for the treatment of Epilepsy with Myoclonic-Atonic Seizures, or EMAS, also known as Doose syndrome. This trial is evaluating Epidiolex in a fourth childhood-onset epileptic encephalopathy with high unmet need. EMAS is characterized by generalized myoclonic-atonic seizures, and this trial is designed to provide the first randomized, controlled clinical data with Epidiolex in this syndrome type. Seizure types including atonic, tonic, clonic, tonic-clonic and partial onset seizures are seen in LGS, DS, and TSC. We enrolled the first patient in a Phase 3 trial of Epidyolex for LGS, DS and TSC in Japan in October 2022. In December 2021 we initiated Phase 2 clinical trials for suvecaltamide, or JZP385, for essential tremor, or ET, and for JZP150 for post-traumatic stress disorder, or PTSD. Additionally, in November 2022, we initiated a Phase 2 trial of suvecaltamide in patients with Parkinson's disease tremor. These patient populations suffer significant impacts to their quality of life and there are limited current treatment options. We are also pursuing early-stage activities related to the development of JZP324, an extended-release low sodium, oxybate formulation that we believe could provide a clinically meaningful option for narcolepsy patients. On June 28, 2022, we announced the nabiximols Phase 3 RELEASE MSS1 trial in multiple sclerosis related, or MS-related, spasticity did not meet the primary endpoint of change in Lower Limb Muscle Tone-6 between baseline and Day 21, as 73 Table of Contents measured by the Modified Ashworth Scale. The analysis of the MSS1 trial has been completed. We have assessed the nabiximols program's potential to support regulatory approval for MS-related spasticity in the U.S., as well as in the context of our broader pipeline opportunities, and have made the decision to discontinue the program. Sativex (nabiximols) was approved outside the U.S. for the treatment of MS-related spasticity based on a comprehensive clinical trial program, including multiple late-stage randomized, controlled trials completed in Europe. We will continue to support the availability of Sativex in the 29 markets outside the U.S. where it is approved. We remain committed to the GW Cannabinoid Platform and are working to advance multiple early-stage cannabinoid programs with the potential to address critical unmet patient needs. In May 2022, we announced that we had entered into a licensing agreement with Sumitomo Pharma Co., Ltd, or Sumitomo, to acquire exclusive development and commercialization rights in the United States, Europe and other territories for JZP441, also known as DSP-0187, a potent, highly selective oral orexin-2 receptor agonist with potential application for the treatment of narcolepsy, IH and other sleep disorders. In November 2022, the first participant was enrolled in a Phase 1 development program to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of JZP441 in sleep-deprived healthy volunteers. Under the terms of the agreement, we made an upfront payment of $50 million to Sumitomo, and Sumitomo is eligible to receive development, regulatory and commercial milestone payments of up to $1.09 billion. If approved, Sumitomo is eligible to receive a tiered, low double-digit royalty on Jazz's net sales of JZP441. Within our oncology R&D program, there is a robust development plan being executed for Zepzelca. We are collaborating with Roche on a pivotal Phase 3 clinical trial evaluating Zepzelca in combination with Tecentriq in first-line extensive stage SCLC. In December 2021, our licensor PharmaMar initiated a confirmatory trial in second-line SCLC. This is a three-arm trial comparing Zepzelca as either monotherapy or in combination with irinotecan to investigator's choice of irinotecan or topotecan. Data from either the first-line trial of Zepzelca in combination with Tecentriq or the PharmaMar trial could serve to confirm clinical benefit of Zepzelca and secure full approval in the U.S. In 2022, we initiated a Phase 2 basket trial to explore Zepzelca monotherapy in patients with select advanced or metastatic solid tumors. Cohorts include advanced urothelial cancer, poorly differentiated neuroendocrine carcinomas, or PD-NECs, and homologous recombination deficient, or HRD, cancers. In addition, we have initiated a Phase 4 observational study to collect real world safety and outcome data in adult Zepzelca monotherapy patients with SCLC who progress on or after prior platinum-containing chemotherapy. For Rylaze, in November 2022, FDA approved an sBLA, with a M/W/F, IM dosing schedule. In April 2022, we submitted a separate sBLA for IV administration. In February 2023, we received a complete response letter from FDA requesting additional clinical data on the IV administration of Rylaze. There is no impact on the approved product labeling for Rylaze IM administration. We completed a MAA submission to the EMA in May 2022 for M/W/F and every 48-hour dosing schedules and IV and IM administration. In October 2022, we announced an exclusive licensing and collaboration agreement with Zymeworks Inc., or Zymeworks, providing us the right to acquire development and commercialization rights to Zymeworks' zanidatamab across all indications in the United States, Europe, Japan and all other territories except for those Asia/Pacific territories previously licensed by Zymeworks. In December 2022, we exercised the option to continue with the exclusive development and commercialization rights to zanidatamab. Zanidatamab is a bispecific antibody that can simultaneously bind two non-overlapping epitopes of HER2, known as biparatopic binding. Under the terms of the agreement, Zymeworks received an upfront payment of $50.0 million, and following the exercise of our option to continue the collaboration, a second, one-time payment of $325 million. Zymeworks is also eligible to receive regulatory and commercial milestone payments of up to $1.4 billion, for total potential payments of $1.76 billion. Pending approval, Zymeworks is eligible to receive tiered royalties between 10% and 20% on our net sales. In June 2022, we announced the FDA had cleared our Investigational New Drug, or IND, application for JZP815 and in October 2022, we enrolled the first patient in a Phase 1 trial. JZP815 is an investigational stage pan-RAF kinase inhibitor that targets specific components of the mitogen-activated protein kinase, or MAPK, pathway that, when activated by oncogenic mutations, can be a frequent driver of human cancer. In April 2022, we announced that we had entered into a licensing and collaboration agreement with Werewolf Therapeutics, Inc., or Werewolf, to acquire exclusive global development and commercialization rights to Werewolf's investigational WTX-613, now referred to as JZP898. JZP898 is a differentiated, conditionally-activated interferon alpha, or IFNα, INDUKINE™ molecule. Under the terms of the agreement, we made an upfront payment of $15.0 million to Werewolf, and Werewolf is eligible to receive development, regulatory and commercial milestone payments of up to $1.26 billion. If approved, Werewolf is eligible to receive a tiered, mid-single-digit percentage royalty on net sales of JZP898. This transaction underscores our commitment to enhancing our pipeline to deliver novel oncology therapies to patients, and also provides us with an opportunity to expand into immuno-oncology. Below is a summary of our key ongoing and planned development projects related to our products and pipeline and their corresponding current stages of development: 74 Table of Contents [[GREPCENT_TABLE]] [["Product Candidates","Description"],["NEUROSCIENCE"],["Phase 3"],["Epidiolex","EMAS, also known as Doose syndrome (ongoing trial) LGS, TSC and DS (ongoing trial in Japan)"],["Phase 2b"],["Suvecaltamide (JZP385)","ET (ongoing trial)"],["Phase 2"],["Suvecaltamide (JZP385)","Parkinson's disease tremor (ongoing trial)"],["JZP150","PTSD (ongoing trial)"],["JZP541","Irritability associated with autism spectrum disorder, or ASD (planned trial)"],["Additional cannabinoids","ASD (ongoing trial)"],["Phase 1"],["JZP324","Oxybate extended-release formulation (planned trial)"],["JZP441*","Potent, highly selective oral orexin-2 receptor agonist (ongoing trials in Japan and the U.S.)"],["Additional cannabinoids","Neonatal hypoxic-ischemic encephalopathy (completed study) Neuropsychiatry targets (ongoing trial)"],["Preclinical"],["Undisclosed targets","Neuroscience Cannabinoids"],["ONCOLOGY"],["Regulatory Review"],["Rylaze","ALL/LBL FDA approval in June 2021; approval for M/W/F IM dosing schedule in November 2022; submitted an sBLA for IV administration in April 2022; received complete response letter from FDA requesting additional data on IV administration in February 2023; submitted MAA to EMA in May 2022"],["Phase 3"],["Zepzelca","First-line extensive stage SCLC in combination with Tecentriq (collaboration with Roche) (ongoing trial) Confirmatory Study (PharmaMar study) (ongoing trial)"],["Zanidatamab","HER2-positive gastroesophageal adenocarcinoma, or GEA (ongoing trial)"],["Vyxeos","AML or high-risk Myelodysplastic Syndrome, or MDS (AML18) (cooperative group studies) (ongoing trial) Newly diagnosed adults with standard- and high-risk AML (AML Study Group cooperative group study) (ongoing trial) Newly diagnosed pediatric patients with AML (Children\u2019s Oncology Group cooperative group study) (ongoing trial)"],["Pivotal Phase 2"],["Zanidatamab","Previously treated, advanced HER2-expressing biliary tract cancer, or BTC (ongoing trial) (pivotal trial)"],["Phase 2"],["Zepzelca","Basket trial including urothelial cancer, PD-NECs, and HRD cancers (ongoing trial)"],["Vyxeos","High-risk MDS (European Myelodysplastic Syndromes) (cooperative group study) (ongoing trial) Newly diagnosed untreated patients with high-risk AML (cooperative group study) (planned trial)"],["Vyxeos + venetoclax","De novo or relapsed/refractory, or R/R, AML (MD Anderson collaboration study) (ongoing trial)"],["Zanidatamab","HER2-expressing GEA, BTC or colorectal cancer in combination with standard first-line chemotherapy (ongoing trial)"],["Phase 2a"],["Zanidatamab","Previously treated HER2+HR+ breast cancer in combination with palbociclib"]] [[/GREPCENT_TABLE]] 75 Table of Contents [[GREPCENT_TABLE]] [["Phase 1b/2"],["Zanidatamab","First line breast cancer and GEA (BeiGene trial) (ongoing trial)"],["Zanidatamab","HER2-expressing breast cancer in combination with ALX148 (ongoing trial)"],["Vyxeos + other approved therapies","First-line, fit AML (ongoing trial) Low intensity therapy for first-line, unfit AML (ongoing trial)"],["Phase 1"],["Vyxeos","Low intensity dosing for higher risk MDS (MD Anderson collaboration study) (ongoing trial)"],["Vyxeos + other approved therapies","R/R AML or hypomethylating agent failure MDS (MD Anderson collaboration study) (ongoing trial)"],["JZP815","Raf and Ras mutant tumors (acquired from Redx Pharma plc, or Redx) (ongoing trial)"],["Zanidatamab","In previously treated metastatic HER2-expressing cancers in combination with select antineoplastic therapies (ongoing trial)"],["JZP341 (long-acting Erwinia asparaginase)","Solid tumors (licensed from Ligand Pharmaceuticals Incorporated, or Ligand) (ongoing trial)"],["Preclinical"],["CombiPlex\u00ae","Hematology/oncology exploratory activities"],["JZP898","Conditionally-activated IFN\u03b1 INDUKINE\u2122 molecule"],["Undisclosed target","Ras/Raf/MAP kinase pathway (collaboration with Redx) Oncology"],["Exosome targets (up to 3)","Hematological malignancies/solid tumors (collaboration with Codiak BioSciences, Inc., or Codiak)"],["Undisclosed targets","Oncology"]] [[/GREPCENT_TABLE]] *Also known as DSP-0187 2022 Highlights and Recent Developments Regulatory Submissions, Approvals and Commercial Launches Oxybate Franchise •In January 2022, FDA recognized seven years of ODE for Xywav in IH through August 12, 2028. Epidiolex/Epidyolex •In the first quarter of 2022, launched Epidyolex for LGS, DS and TSC in Ireland, for TSC in Scotland and Wales. •In the third quarter of 2022, launched Epidyolex for TSC in Italy and Switzerland. •In the fourth quarter of 2022, successfully completed the pricing and reimbursement process and commercial launch of Epidyolex in France. Epidyolex is launched in all five key European markets: United Kingdom, Germany, Italy, Spain and France. Rylaze •In January 2022, we submitted an sBLA for Rylaze with additional data in support of a M/W/F IM dosing schedule, and in November 2022, FDA approved the sBLA. •In April 2022, we submitted an sBLA for IV administration. In February 2023, we received a complete response letter from FDA requesting additional clinical data on the IV administration of Rylaze. There is no impact on the approved product labelling for Rylaze IM administration. •In May 2022, we completed a MAA submission to the EMA for M/W/F and every 48-hour dosing schedules and IV and IM dosing. Research & Development •In January 2022, we initiated a Phase 2 basket trial for Zepzelca in solid tumors. •In August 2022, we initiated a Phase 3 trial for Epidiolex in EMAS. 76 Table of Contents •In October 2022, we enrolled the first patient in a Phase 1 trial for JZP815 in patients with advanced or metastatic solid tumors with MAPK pathway alterations, and we enrolled the first patient in a Phase 3 trial of Epidyolex in LGS, DS and TSC in Japan. •In November 2022, we initiated a Phase 2 trial of suvecaltamide in patients with Parkinson’s disease tremor, and we initiated a Phase 1 development program for JZP441 in sleep-deprived healthy volunteers. •In December 2022, we initiated a trial for JZP341 in solid tumors. Operational Excellence We remain focused on continuing to build excellence in areas that we believe will give us a competitive advantage, including building an increasingly agile and adaptable commercialization engine and strengthening our customer-focused market expertise across patients, providers and payors. We are refining our approach to engaging our customers by strengthening alignment and integration across functions and across regions. This includes maintaining a virtual presence at scientific congresses, when appropriate, designed to ensure we can continue to provide promotional and non-promotional interactions and supporting our field-based teams with virtual customer interaction tools, training and content. These initiatives mark a significant operational evolution that is directly linked to our corporate strategy and are designed to better enable our teams to work collaboratively on an aligned and shared agenda through both virtual and in-person interactions. In most geographies, our teams are increasing the frequency of in-person interactions as medical congresses and healthcare practices begin to resume in-person activities, taking into account applicable public health authority and local government guidelines which are designed to ensure community and employee safety. Impact to Business Due to COVID-19 The prolonged nature of the pandemic continues to impact the healthcare system and is negatively impacting our business in a varied manner due to the emergence of variants with increased transmissibility, even in vaccinated people, including limited access to health care provider offices and institutions. Workforce trends starting during the pandemic results in staffing shortages in health care organizations and offices, which may impact the ability of patients to seek or change existing treatments. We expect that our business, financial condition, results of operations and growth prospects may continue to be negatively impacted by the pandemic on a limited basis that may vary depending on the context. However we have begun to observe, and expect to continue to observe, a gradual normalization in patient and healthcare provider practices, as providers and patients have adapted their behaviors and procedures to the evolving circumstances and as COVID-19 vaccines continue to be administered. As healthcare systems have adapted to cope with the ongoing situation, we have seen improvements, although in many countries the healthcare system continues to operate under significant strain. We are utilizing technology to continue to engage healthcare professionals and other customers virtually in cases where this is the preferred method of engagement. The lack of access to health care providers has caused, and may continue to cause, delays in appropriate diagnosis, treatment and ongoing care for some patients, which has negatively impacted, and could continue to impact, prescribing and use of our products. Other Challenges, Risks and Trends Related to Our Business Historically, our business has been substantially dependent on Xyrem and our financial results have been significantly influenced by sales of Xyrem. Our operating plan assumes that Xywav, with 92% lower sodium compared to Xyrem, depending on the dose, absence of a sodium warning and dosing titration option, will remain the treatment of choice for patients who can benefit from oxybate treatment. In June 2021, FDA recognized seven years of ODE for Xywav in narcolepsy through July 21, 2027 stating that Xywav is clinically superior to Xyrem by means of greater safety due to reduced chronic sodium burden. While we expect that our business will continue to be substantially dependent on oxybate product sales, there is no guarantee that we can maintain oxybate sales at or near historical levels, or that oxybate sales will continue to grow. Our ability to successfully commercialize Xywav will depend on, among other things, our ability to maintain adequate coverage and reimbursement for Xywav and acceptance of Xywav by payors, physicians and patients, including of Xywav for the treatment of IH in adults. In an effort to support strong adoption of Xywav, we are focused on providing robust patient copay and savings programs and facilitating payor coverage for Xywav. Moreover, we have increasingly experienced pressure from third party payors to agree to discounts, rebates or restrictive pricing terms, and we cannot guarantee we will be able to agree to commercially reasonable terms with PBMs, or similar organizations and other third party payors, or that we will be able to ensure patient access and acceptance on institutional formularies. Entering into agreements with PBMs or similar organizations and payors to ensure patient access has and will likely continue to result in higher gross to net deductions. In addition, beginning in January 2023 our oxybate products face competition from an authorized generic version of sodium oxybate pursuant to a settlement agreement we entered into with an abbreviated new drug application, or ANDA, filer, and, in the future, we expect our oxybate products to face competition from additional authorized generic versions of sodium oxybate and from generic versions of sodium oxybate pursuant to settlement agreements we entered into with multiple ANDA filers. Generic competition can decrease the prices at which Xywav and Xyrem are sold and the number of prescriptions written for 77 Table of Contents Xywav and Xyrem. Xywav and Xyrem may also face increased competition from new branded products for treatment of cataplexy and/or EDS in narcolepsy in the U.S. market. Our financial condition, results of operations and growth prospects are also dependent on our ability to maintain or increase sales of Epidiolex/Epidyolex in the U.S. and Europe, which is subject to many risks and there is no guarantee that we will be able to continue to successfully commercialize Epidiolex/Epidyolex for its approved indications. The commercial success of Epidiolex/Epidyolex depends on the extent to which patients and physicians accept and adopt Epidiolex/Epidyolex as a treatment for seizures associated with LGS, DS and TSC, and we do not know whether our or others’ estimates in this regard will be accurate. Physicians may not prescribe Epidiolex and patients may be unwilling to use Epidiolex/Epidyolex if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, any negative development for Epidiolex/Epidyolex in the market, in clinical development for additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Epidiolex/Epidyolex. Moreover, we expect that Epidiolex will face competition from generic products in the future. For example, in November and December 2022, we received notices from ten ANDA filers that they have each filed with FDA an ANDA for a generic version of Epidiolex. In addition, there are non-FDA approved cannabidiol preparations being made available from companies through the state-enabled medical marijuana industry, which might attempt to compete with Epidiolex. Thus, significant uncertainty remains regarding the commercial potential of Epidiolex/Epidyolex. In addition to our neuroscience products and product candidates, we are commercializing a portfolio of oncology products, including Defitelio, Vyxeos, Rylaze and Zepzelca. An inability to effectively commercialize Defitelio, Vyxeos, Rylaze and Zepzelca and to maximize their potential where possible through successful research and development activities could have a material adverse effect on our business, financial condition, results of operations and growth prospects. A key aspect of our growth strategy is our continued investment in our evolving and expanding R&D activities. If we are not successful in the clinical development of these or other product candidates, if we are unable to obtain regulatory approval for our product candidates in a timely manner, or at all, or if sales of an approved product do not reach the levels we expect, our anticipated revenue from our product candidates would be negatively affected, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition to continued investment in our R&D pipeline, we intend to continue to grow our business by acquiring or in-licensing, and developing, including with collaboration partners, additional products and product candidates that we believe are highly differentiated and have significant commercial potential. Failure to identify and acquire, in-license or develop additional products or product candidates, successfully manage the risks associated with integrating any products or product candidates into our portfolio or the risks arising from anticipated and unanticipated problems in connection with an acquisition or in-licensing, such as the GW Acquisition, could have a material adverse effect on our business, results of operations and financial condition. The success of the GW Acquisition will depend, in part, on our ability to realize the anticipated benefits from our and GW’s historical businesses. Nonetheless, Epidiolex and the other products and technologies acquired may not be successful or continue to grow at the same rate as if our companies operated independently or they may require significantly greater resources and investments than originally anticipated. For example, in the third quarter of 2022, we recorded a $133.6 million asset impairment charge as a result of the decision to discontinue the nabiximols program. As a result, the anticipated benefits of the GW Acquisition may not be realized at the expected level, within the expected timeframe or at all or may take longer to realize or cost more than expected, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. Our industry has been, and is expected to continue to be, subject to healthcare cost containment and drug pricing scrutiny by regulatory agencies in the U.S. and internationally. If new healthcare policies or reforms intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical drugs generally, the prices that we charge for our products may be affected, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted. For example, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law, which, among other things, requires the U.S. Department of Health and Human Services Secretary to negotiate, with respect to Medicare units and subject to a specified cap, the price of a set number of certain high Medicare spend drugs and biologicals per year starting in 2026, penalizes manufacturers of certain Medicare Parts B and D drugs for price increases above inflation, and makes several changes to the Medicare Part D benefit, including a limit on annual out-of-pocket costs, and a change in manufacturer liability under the program, that could negatively affect our business and financial condition. In addition, under the Medicaid Drug Rebate Program, rebates owed by manufacturers are currently capped at 100 percent of average manufacturer price, but, effective January 1, 2024, this cap will be lifted, which could adversely affect our rebate liability. We are also subject to increasing pricing pressure and restrictions on reimbursement imposed by payors. If we fail to obtain and maintain adequate formulary positions and institutional access for our current 78 Table of Contents products and future approved products, we will not be able to achieve a return on our investment and our business, financial condition, results of operations and growth prospects would be materially adversely affected. While certain preparations of cannabis remain Schedule I controlled substances, if such products are approved by FDA for medical use in the U.S. they are rescheduled to Schedules II-V, since approval by FDA satisfies the “accepted medical use” requirement; or such products may be removed from control under the Controlled Substances Act entirely. If any of our product candidates receive FDA approval, the Department of Health and Human Services, or HHS, and the U.S. Drug Enforcement Administration, or DEA, will make a scheduling determination. U.S. or foreign regulatory agencies may request additional information regarding the abuse potential of our products which may require us to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse potential, which could increase the cost, delay the approval and/or delay the launch of that product. Finally, business practices by pharmaceutical companies, including product formulation improvements, patent litigation settlements, and risk evaluation and mitigation strategy, or REMS, programs, have increasingly drawn public scrutiny from legislators and regulatory agencies, with allegations that such programs are used as a means of improperly blocking or delaying competition. Government investigations with respect to our business practices, including as they relate to the Xywav and Xyrem REMS, the launch of Xywav, our Xyrem patent litigation settlement agreements or otherwise, could cause use to incur significant monetary charges to resolve these matters and could distract us from the operation of our business and execution of our strategy. For example, in July 2022, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to Xyrem and U.S. Patent No. 8,772,306 (“Method of Administration of Gamma Hydroxybutyrate with Monocarboxylate Transporters”), product labeling changes for Xyrem, communications with FDA and the U.S. Patent and Trademark Office, pricing of Xyrem, and other related documents. For more information, see the risk factor under the heading “We are subject to significant ongoing regulatory obligations and oversight, which may subject us to civil or criminal proceedings, investigations, or penalties and may result in significant additional expense and limit our ability to commercialize our products” in Part I, Item 1A. We may also become subject to similar investigations by other state or federal governmental agencies. The investigation by the U.S. Attorney’s Office and any additional investigations or litigation related to the subject matter of this investigation may result in damages, fines, penalties, financial charges to resolve the matter or administrative sanctions against us, negative publicity or other negative actions that could harm our reputation, reduce demand for Xyrem and/or reduce coverage of Xyrem, including by federal health care programs and state health care programs. In addition, from June 2020 to May 2022, a number of lawsuits were filed on behalf of purported direct and indirect Xyrem purchasers, alleging that the patent litigation settlement agreements we entered with certain generic companies violate state and federal antitrust and consumer protection laws. For additional information on these lawsuits and other legal matters, see Note 14, Commitments and Contingencies-Legal Proceedings of the Notes to Consolidated Financial Statements, included in Part IV of this Annual Report on Form 10‑K. It is possible that additional lawsuits will be filed against us making similar or related allegations. We cannot predict the outcome of these or potential additional lawsuits; however, if the plaintiffs were to be successful in their claims against us, they may be entitled to injunctive relief or we may be required to pay significant monetary damages. Moreover, we are, and expect to continue to be, the subject of various claims, legal proceedings, and government investigations apart from those set forth above that have arisen in the ordinary course of business that have not yet been fully resolved and that could adversely affect our business and the execution of our strategy. Any of the foregoing risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 79 Table of Contents Results of Operations The following table presents revenues and expenses for the years ended December 31, 2022, 2021 and 2020 (in thousands except percentages): [[GREPCENT_TABLE]] [["","2022","","Change","","2021(1)","","Change","","2020"],["Product sales, net","$","3,641,429","","","18","%","","$","3,079,001","","","31","%","","$","2,346,660"],["Royalties and contract revenues","17,945","","","18","%","","15,237","","","(10)","%","","16,907"],["Cost of product sales (excluding amortization of acquired developed technologies)","540,517","","","23","%","","440,760","","","196","%","","148,917"],["Selling, general and administrative","1,416,967","","","(2","%)","","1,451,683","","","70","%","","854,233"],["Research and development","590,453","","","17","%","","505,748","","","51","%","","335,375"],["Intangible asset amortization","599,169","","","14","%","","525,769","","","103","%","","259,580"],["Impairment charge","133,648","","","N/A(2)","","\u2014","","","N/A(2)","","136,139"],["Acquired in-process research and development","444,148","","","N/A(2)","","\u2014","","","N/A(2)","","251,250"],["Interest expense, net","288,242","","","3","%","","278,766","","","180","%","","99,707"],["Foreign exchange loss","19,014","","","337","%","","4,350","","","33","%","","3,271"],["Income tax expense (benefit)","(158,645)","","","(173","%)","","216,116","","","545","%","","33,517"],["Equity in loss of investees","9,921","","","N/A(2)","","714","","","(76)","%","","2,962"]] [[/GREPCENT_TABLE]]  _________________________ (1)The results of operations of the GW business have been included from the closing of the GW Acquisition on May 5, 2021. (2)Comparison to prior period is not meaningful. Revenues The following table presents product sales, royalties and contract revenues, and total revenues for the years ended December 31, 2022, 2021 and 2020 (in thousands except percentages): [[GREPCENT_TABLE]] [["","2022","","Change","","2021(1)","","Change","","2020"],["Xyrem","$","1,020,453","","","(19)","%","","$","1,265,830","","","(27)","%","","$","1,741,758"],["Xywav","958,425","","","79","%","","535,297","","","N/A(3)","","15,264"],["Total Oxybate","1,978,878","","","10","%","","1,801,127","","","3","%","","1,757,022"],["Epidiolex/Epidyolex","736,398","","","59","%","","463,645","","","N/A(3)","","\u2014"],["Sativex","16,825","","","32","%","","12,707","","","N/A(3)","","\u2014"],["Sunosi2","28,844","","","(50)","%","","57,914","","","104","%","","28,333"],["Total Neuroscience","2,760,945","","","18","%","","2,335,393","","","31","%","","1,785,355"],["Zepzelca","269,912","","","9","%","","246,808","","","173","%","","90,380"],["Rylaze","281,659","","","229","%","","85,629","","","N/A(3)","","\u2014"],["Vyxeos","127,980","","","(5)","%","","134,060","","","11","%","","121,105"],["Defitelio/defibrotide","194,290","","","(2)","%","","197,931","","","1","%","","195,842"],["Erwinaze/Erwinase","\u2014","","","N/A(3)","","69,382","","","(53)","%","","147,136"],["Total Oncology","873,841","","","19","%","","733,810","","","32","%","","554,463"],["Other","6,643","","","(32)","%","","9,798","","","43","%","","6,842"],["Product sales, net","3,641,429","","","18","%","","3,079,001","","","31","%","","2,346,660"],["Royalties and contract revenues","17,945","","","18","%","","15,237","","","(10)","%","","16,907"],["Total revenues","$","3,659,374","","","18","%","","$","3,094,238","","","31","%","","$","2,363,567"]] [[/GREPCENT_TABLE]]  _________________________ (1)The results of operations of the GW business have been included from the closing of the acquisition of GW on May 5, 2021. (2)Net product sales of Sunosi U.S. are included until the date of divestment to Axsome of May 9, 2022. (3)Comparison to prior period is not meaningful. 80 Table of Contents Product Sales, Net Total oxybate product sales increased by $177.8 million in 2022 compared to 2021. Total oxybate revenue bottle volume increased by 6% in 2022 compared to 2021. Average active oxybate patients on therapy were approximately 18,000 in the fourth quarter of 2022, an increase of approximately 11% compared to the same period in 2021. Xywav product sales increased in 2022 compared to 2021 primarily due to higher sales volume, with bottle volume increasing 76%. Xywav product sales were positively impacted by the launch of Xywav for IH and continued strong adoption in narcolepsy driven by educational initiatives around the benefit of lowering sodium intake. Xyrem product sales decreased in 2022 compared to 2021 primarily due to a decrease in sales volume, reflecting the continued adoption of Xywav by existing Xyrem patients, partially offset by a higher average selling price. Price increases were instituted in January 2021 and January 2022. Total oxybate product sales increased by $44.1 million in 2021 compared to 2020 primarily due to a higher average net selling price, partially offset by a decrease in sales volume. Total oxybate revenue bottle volume decreased by 1% in 2021 compared to 2020 reflecting our continued investment in patient access programs during the launch of Xywav. Average active oxybate patients on therapy were approximately 16,200 in the fourth quarter of 2021, an increase of approximately 6% compared to the same period in 2020. Xywav product sales were $535.3 million in 2021 compared to $15.3 million in 2020, following its U.S. launch in November 2020. Xyrem product sales decreased in 2021 compared to 2020 primarily due to a decrease in sales volume driven by the strong adoption of Xywav by existing Xyrem patients, partially offset by a higher average selling price. Price increases were instituted in January 2020 and January 2021. In 2020 new patient diagnoses and enrollments were negatively impacted by COVID-19. Epidiolex/Epidyolex product sales increased by 59% in 2022 compared to 2021, which included product sales from the closing of the GW Acquisition on May 5, 2021 to December 31, 2021. On a pro forma basis, Epidiolex/Epidyolex product sales increased by 12% in 2022 compared to 2021, primarily due to an increase in sales volume of 16% and, to a lesser extent, a higher average net selling price, partially offset by higher gross to net deductions. Price increases were instituted in January 2021 and January 2022. Epidiolex/Epidyolex product sales in 2021, from the closing of the GW Acquisition on May 5, 2021 to December 31, 2021 were $463.6 million. On a pro forma basis, Epidiolex/Epidyolex product sales increased by 29% in 2021 compared to 2020, primarily due to an increase in sales volume. Sunosi product sales decreased in 2022 as compared to 2021 as we completed the U.S. divestment of Sunosi in May 2022. Sunosi product sales increased in 2021 compared to 2020 primarily due to higher sales volume partially offset by higher gross to net deductions. Zepzelca product sales increased by 9% in 2022 compared to 2021 primarily due to a higher average net selling price and higher sales volume. Price increases were instituted in July 2021, January 2022 and July 2022. Zepzelca product sales increased in 2021 compared to 2020 primarily due to higher sales volume following launch in the U.S. in July 2020. Rylaze product sales increased in 2022 compared to 2021 primarily due to higher sales volume following its launch in the U.S. in July 2021. The increase in volumes reflects the significant unmet patient need for a high-quality, reliable supply of Erwinia asparaginase for patients with ALL. Vyxeos product sales decreased by 5% in 2022 compared to 2021 primarily due to higher gross to net deductions, driven by a reduction in the returns provision in 2021 due to lower than estimated actual returns, and the negative impact of foreign exchange rates, partially offset by higher sales volume. Vyxeos product sales increased by 11% in 2021 compared to 2020 primarily due to lower gross to net deductions driven by a reduction in the returns provision. Defitelio/defibrotide product sales in 2022 decreased by 2% compared to 2021 as the impact of a higher average net selling price and increased sales volume were offset by the negative impact of foreign exchange rates. Defitelio/defibrotide product sales increased by 1% in 2021 compared to 2020, primarily due to the positive impact of foreign exchange rates, partially offset by lower average net selling price due to regional mix. Price increases were instituted in July 2021, January 2022 and July 2022. We distributed our final Erwinaze inventory in June 2021 following expiration of our license and supply agreement. We expect product sales, net will increase in 2023 over 2022, primarily due to an increase in sales of Xywav due to continuing growth in IH and as patients continue to transition to Xywav from Xyrem, expected growth in Epidiolex and our oncology products, primarily Rylaze, offset by a decrease in sales of Xyrem as patients transition to Xywav and the impact of the entry of the authorized generic versions of Xyrem. Royalties and Contract Revenues Royalties and contract revenues increased in 2022 compared to 2021 primarily due to higher royalty revenues. Royalties and contract revenues decreased in 2021 compared to 2020 primarily due to lower contract revenues from out-licensing agreements. We expect royalties and contract revenues to increase in 2023 compared to 2022 primarily due to increased royalty revenues arising from the launch of an authorized generic version of Xyrem. Cost of Product Sales Cost of product sales increased in 2022 compared to 2021, primarily due to an increase in the acquisition accounting inventory fair value step-up expense, or fair value step-up expense, of $50.3 million, driven by the inclusion of a full year expense in 2022 and an expense for past royalties payable under a settlement agreement reached with Otsuka Pharmaceutical Co., Ltd, or Otsuka. Cost of product sales increased in 2021 compared to 2020, primarily due to the cost of product sales acquired in the acquisition of GW, including fair value step-up expense. Gross margin as a percentage of net product sales was 81 Table of Contents 85.2%, 85.7% and 93.7% in 2022, 2021 and 2020, respectively. The decrease in our gross margin percentage in 2022 compared to 2021 was primarily due to an increase in the fair value step-up expense and the Otsuka royalty expense and the decrease in our gross margin percentage in 2021 compared to 2020 was primarily due to the impact of the fair value step-up expense. We expect our cost of product sales to decrease in 2023 compared to 2022 primarily driven by a reduction in the fair value step-up expense. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased in 2022 compared to 2021 primarily due to lower GW related integration expenses of $207.9 million and lower Sunosi related costs, partially offset by restructuring costs of $22.1 million and costs related to program terminations of $42.6 million, the loss on disposal of Sunosi of $40.8 million, an increase in compensation related expenses driven by the inclusion of GW related headcount costs for the full period in 2022, and increased investment in sales and marketing spend relating to Xywav and Epidiolex. Selling, general and administrative expenses increased in 2021 compared to 2020 primarily due to transaction and integration-related expenses of $229.0 million in 2021, an increase in compensation-related expenses driven by higher headcount as a result of the GW Acquisition and increased investment in sales and marketing spend primarily related to Sunosi, Epidiolex and Xywav. We expect selling, general and administrative expenses in 2023 to decrease compared to 2022, primarily due to the removal of costs relating to the Sunosi business following its disposal, together with synergies realized following the GW Acquisition, continued disciplined approach in our capital allocation and our focus on operational efficiencies. Research and Development Expenses Research and development expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, milestone expenses and other research and development costs. Clinical study and outside services costs relate primarily to services performed by clinical research organizations, materials and supplies, and other third party fees. Personnel expenses relate primarily to salaries, benefits and share-based compensation. Other research and development expenses primarily include overhead allocations consisting of various support and facilities-related costs. We do not track fully-burdened research and development expenses on a project-by-project basis. We manage our research and development expenses by identifying the research and development activities that we anticipate will be performed during a given period and then prioritizing efforts based on our assessment of which development activities are important to our business and have a reasonable probability of success, and by dynamically allocating resources accordingly. We also continually review our development pipeline projects and the status of their development and, as necessary, reallocate resources among our development pipeline projects that we believe will best support the future growth of our business. The following table provides a breakout of our research and development expenses by major categories of expense (in thousands): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2022","","2021","","2020"],["Clinical studies and outside services","$","270,008","","","$","234,462","","","$","169,904"],["Personnel expenses","223,603","","","193,716","","","127,794"],["Restructuring expenses","10,284","","","\u2014","","","\u2014"],["Milestone expense","6,250","","","15,000","","","1,000"],["Other","80,308","","","62,570","","","36,677"],["Total","$","590,453","","","$","505,748","","","$","335,375"]] [[/GREPCENT_TABLE]] Research and development expenses increased by $84.7 million in 2022 compared to 2021. Clinical studies and outside services costs increased in 2022 compared to 2021 primarily due to the addition of costs related to clinical programs for zanidatamab, JZP898 and JZP441, and increased costs for JZP150, offset by a reduction in costs related to JZP458 (Rylaze). Personnel expenses increased by $29.9 million in 2022 compared to 2021, primarily due to increased compensation related expenses driven by the inclusion of GW related headcount costs for the full period in 2022. We incurred restructuring costs of $10.3 million in 2022. Milestone expenses of $6.3 million in 2022 primarily related to a milestone expense of $5.0 million made under our asset purchase and collaboration agreements with Redx. Research and development expenses increased by $170.4 million in 2021 compared to 2020. Clinical studies and outside services costs increased in 2021 compared to 2020 primarily due to the addition of costs related to clinical programs for nabiximols, Epidiolex and cannabinoids and an increase in costs related to suvecaltamide (JZP385) and JZP150. Personnel expenses increased by $65.9 million in 2021 compared to 2020, primarily due to increased headcount primarily driven by the GW Acquisition. Milestone expense of $15.0 million in 2021 primarily related to milestones expense of $13.0 million made under our asset purchase and collaboration agreements with Redx. 82 Table of Contents For 2023, we expect that our research and development expenses will continue to increase from previous levels as we prepare for anticipated data read-outs from clinical trials, initiate and undertake additional clinical trials and related development work primarily relating to zanidatamab and JZP441 and additional spend on new product candidates acquired. Intangible Asset Amortization Intangible asset amortization increased by $73.4 million in 2022 compared to 2021 primarily due to the inclusion of the amortization for the full period in 2022, of the intangible assets arising from the acquisition of GW, primarily related to Epidiolex, offset by a decrease relating to the Erwinaze intangible asset that was fully amortized in June 2021. Intangible asset amortization increased in 2021 compared to 2020 primarily due to the commencement of amortization on the intangible assets arising from the GW Acquisition in May 2021, primarily related to Epidiolex. Impairment Charges In 2022, we recorded an acquired in-process research and development, or IPR&D, asset impairment charge of $133.6 million as a result of the decision to discontinue our nabiximols program. In 2020, we recorded an acquired IPR&D asset impairment charge of $136.1 million following the decision to stop enrollment in our Phase 3 clinical study of defibrotide for the prevention of VOD due to a determination that the study was highly unlikely to reach one of its primary endpoints. Acquired In-Process Research and Development Acquired IPR&D expense in 2022 primarily related to the upfront payments made in connection with our licensing and collaboration agreements with Zymeworks and Werewolf of $375.0 million and $15.0 million, respectively, and our licensing agreement with Sumitomo of $50.0 million. In 2020, acquired IPR&D expense primarily related to an upfront payment of $200.0 million to PharmaMar in connection with our license agreement for Zepzelca. Interest Expense, Net Interest expense, net increased by $9.5 million in 2022 compared to 2021, primarily due to the inclusion of interest expense for the full period in 2022, on the $1.5 billion in aggregate principal amount of 4.375% senior secured notes, due 2029, or the Secured Notes and the seven-year $3.1 billion term loan B facility, or the Dollar Term Loan, which were used, in part, to finance the cash portion of the GW Acquisition, and higher interest rates on the Dollar Term Loan in 2022, offset by a decrease in non-cash interest expense relating to the 1.50% exchangeable senior notes due 2024, or the 2024 Notes, and our 2.00% exchangeable senior notes due 2026, or the 2026 Notes, collectively known as the Exchangeable Senior Notes, following the adoption of ASU No. 2020-06, “Debt—Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, or ASU 2020-06, on January 1, 2022. Interest expense, net increased by $179.1 million in 2021 compared to 2020, primarily due to increased interest expense incurred on the Dollar Term Loan, the seven-year $625.0 million term loan B facility, or the Euro Term Loan and the Secured Notes and higher non-cash interest expense following the issuance of our 2.00% exchangeable senior notes due 2026, or the 2026 Notes, in June 2020. We expect interest expense, net to increase in 2023 compared to 2022 primarily due to the cash interest expense on the Dollar Term Loan as the interest rate is expected to rise in line with anticipated increases in the US Federal Reserve base rate. Foreign Exchange Loss The foreign exchange loss is primarily related to the translation of euro and sterling-denominated net monetary liabilities, primarily intercompany balances, held by subsidiaries with a U.S. dollar functional currency and related foreign exchange forward contracts not designated as hedging instruments. 83 Table of Contents Income Tax Expense (Benefit) Our income tax benefit was $158.6 million in 2022 and our income tax expense was $216.1 million and $33.5 million in 2021 and 2020, respectively, relating to tax arising on income or losses in Ireland, the U.K., the U.S. and certain other foreign jurisdictions, offset by deductions on subsidiary equity, originating tax credits, and, in 2022 and 2021, foreign derived intangible income, or FDII, benefits. Our income tax benefit in 2022 increased primarily due to payments for acquired IPR&D made in the year and the impact of the impairment of our acquired IPR&D asset as a result of the decision to discontinue our nabiximols program. Our income tax expense in 2021 included an expense of $259.9 million arising on the remeasurement of our U.K. net deferred tax liability, which arose primarily in relation to the GW Acquisition, due to a change in the statutory tax rate in the U.K. following enactment of the U.K. Finance Act 2021. Our income tax expense in 2020 included the impact of the disallowance of certain interest deductions and a provision for a proposed settlement reached with the French taxing authorities. Equity in Loss of Investees Equity in loss of investees relates to our share in the net loss of companies in which we have made investments accounted for under the equity method of accounting. Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents of $881.5 million, borrowing availability under our revolving credit facility of $500.0 million and a long-term debt principal balance of $5.8 billion. Our long-term debt included $2.8 billion aggregate principal amount Dollar Term Loan, $1.5 billion principal amount of the Secured Notes, $575.0 million principal amount of the 2024 Notes, and $1.0 billion principal amount of the 2026 Notes. During 2022, 2021 and 2020, we generated cash flows from operations of $1,272.0 million, $778.5 million and $899.6 million, respectively, and we expect to continue to generate positive cash flow from operations which will enable us to operate our business and de-lever our balance sheet over time. In 2022, we made voluntary repayments of $300.0 million of the Dollar Term Loan principal outstanding and €208.3 million, or $251.0 million, of the Euro Term Loan, which represented the remaining principal amount. We have made voluntary repayments of €625.0 million, or $753.0 million, relating to Euro Term Loan and voluntary and mandatory repayments of $300.0 million and $46.5 million, respectively, relating to the Dollar Term Loan since the closing of the acquisition of GW in May 2021. We have a significant amount of debt outstanding on a consolidated basis. For a more detailed description of our debt arrangements, including information relating to our scheduled maturities with respect to our long-term debt see Note 12, Debt, of the Notes to Consolidated Financial Statements, included in Part IV of this Annual Report on Form 10‑K. This substantial level of debt could have important consequences to our business, including, but not limited to the factors set forth in in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10‑K under the heading “We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position, and our business would be adversely affected if we are unable to service our debt obligations.” We believe that our existing cash and cash equivalents balance, cash we expect to generate from operations and funds available under our revolving credit facility will be sufficient to fund our operations and to meet our existing obligations for the foreseeable future. The adequacy of our cash resources depends on many assumptions, including primarily our assumptions with respect to product sales and expenses, as well as the other factors set forth in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10‑K under the headings “Risks Related to our Lead Products and Product Candidates” and “To continue to grow our business, we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate and grow our business.” Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash resources, and we may not be able to generate sufficient cash to service our debt obligations which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business. To continue to grow our business over the longer term, we plan to commit substantial resources to product acquisition and in-licensing, product development, clinical trials of product candidates and expansion of our commercial, development, manufacturing and other operations. In this regard, we have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our strategy to acquire or in-license and develop additional products and product candidates. Acquisition opportunities that we pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. We regularly evaluate the performance of our products and product candidates to ensure fit within our portfolio and support efficient allocation of capital. In addition, we may pursue new operations or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations or for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt 84 Table of Contents or equity financings, collaborations or partnering arrangements. However, our ability to raise additional capital may be adversely impacted by worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the effects of inflationary pressures or otherwise. Accordingly, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments. In addition, under Irish law we must have authority from our shareholders to issue any ordinary shares, including ordinary shares that are part of our authorized but unissued share capital, and we currently have such authorization. Moreover, as a matter of Irish law, when an Irish public limited company issues ordinary shares to new shareholders for cash, the company must first offer those shares on the same or more favorable terms to existing shareholders on a pro rata basis, unless this statutory pre-emption obligation is dis-applied, or opted-out of, by approval of its shareholders. At our annual general meeting of shareholders in July 2022, our shareholders voted to approve our proposal to dis-apply the statutory pre-emption obligation on terms that are substantially more limited than our general pre-emption opt-out authority that had been in effect prior to August 4, 2021. This current pre-emption opt-out authority is due to expire in December 2023. If we are unable to obtain further pre-emption authorities from our shareholders in the future, or otherwise continue to be limited by the terms of new pre-emption authorities approved by our shareholders in the future, our ability to use our unissued share capital to fund in-licensing, acquisition or other business opportunities, or to otherwise raise capital could be adversely affected. In any event, an inability to borrow or raise additional capital in a timely manner and on attractive terms could prevent us from expanding our business or taking advantage of acquisition opportunities, and could otherwise have a material adverse effect on our business and growth prospects. In addition, if we use a substantial amount of our funds to acquire or in-license products or product candidates, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose. Furthermore, any equity financing would be dilutive to our shareholders, and could require the consent of the lenders under the Credit Agreement and the indenture for the Secured Notes for certain financings. In November 2016, our board of directors authorized a share repurchase program and as of December 31, 2022 had authorized the repurchase of up to $1.5 billion, exclusive of any brokerage commissions. Under this 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 depend on a variety of factors, including the price of our ordinary shares, alternative investment opportunities, restrictions under the amended 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. In 2022, we spent a total of $0.1 million to purchase 338 of our ordinary shares at a total purchase price, including brokerage commissions, of $160.70 per share. In 2021, we did not repurchase any of our ordinary shares under the share repurchase program. As of December 31, 2022, the remaining amount authorized under the share repurchase program was $431.2 million. 85 Table of Contents The following table shows a summary of our cash flows for the periods indicated (in thousands): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2022","","2021","","2020"],["Net cash provided by operating activities","$","1,271,977","","","$","778,507","","","$","899,648"],["Net cash used in investing activities","(446,230)","","","(5,212,143)","","","(1,007,670)"],["Net cash (used in) provided by financing activities","(529,491)","","","3,970,522","","","528,073"],["Effect of exchange rates on cash and cash equivalents","(6,222)","","","(3,207)","","","374"],["Net increase (decrease) in cash and cash equivalents","$","290,034","","","$","(466,321)","","","$","420,425"]] [[/GREPCENT_TABLE]] Operating activities Net cash provided by operating activities increased by $493.5 million in 2022 compared to 2021, primarily due to cash received from increased sales of our products and decreased transaction and integration-related costs associated with the GW Acquisition. Net cash provided by operating activities decreased by $121.1 million in 2021 compared to 2020, primarily due to the payment of transaction and integration-related costs related to the GW Acquisition. Investing activities Net cash used in investing activities decreased by $4,765.9 million in 2022 compared to 2021, primarily due to the following: •$6,234.8 million outflow in 2021 related to the net cash paid for the GW Acquisition; and •$53.0 million upfront payment from Axsome in 2022 relating to the Sunosi U.S. disposition; offset by •$1,069.2 million decrease in net proceeds from maturity of investments, primarily time deposits; and •$444.1 million in upfront payments in 2022 for acquired IPR&D primarily driven by the $375.0 million, $50.0 million and $15.0 million payments to Zymeworks, Sumitomo and Werewolf, respectively. Net cash used in investing activities increased by $4,204.5 million in 2021 compared to 2020, primarily due to the following: •$6,234.8 million outflow in 2021 related to the net cash paid for the GW Acquisition; partially offset by •$1,710.9 million increase in net proceeds from maturity of investments, primarily time deposits; •$251.3 million in upfront payments in 2020 for acquired IPR&D primarily driven by the $200.0 million and $35.0 million payments to PharmaMar and SpringWorks Therapeutics, Inc., or SpringWorks, respectively; and •$95.1 million decrease in acquisition of intangible assets primarily related to our $100.0 million milestone payment to PharmaMar on FDA approval of Zepzelca in 2020. Financing activities Net cash (used in) provided by financing activities decreased by $4,500.0 million in 2022 compared to 2021, primarily due to: •Net proceeds from issuance of borrowings under the Credit Agreement of $3,719.9 million and the Secured Notes of $1,471.5 million in 2021 that were used to fund, in part, the cash consideration payable in connection with the GW Acquisition; offset by •Repayments of long-term debt of $582.0 million in 2022, compared to $1,320.6 million in 2021. Net cash provided by financing activities increased by $3,442.4 million in 2021 compared to 2020, primarily due to: •An increase of $3,279.1 million in debt financing due to: 86 Table of Contents •Net proceeds from issuance of borrowings under the Credit Agreement of $3,719.9 million and the Secured Notes of $1,471.5 million, partially offset by $1,101.8 million in repayment of long-term debt and payments for repurchase of our 1.875% exchangeable senior notes due 2021, or the 2021 Notes, of $218.8 million in the year ended December 31, 2021; compared to •Net proceeds from issuance of the 2026 Notes of $981.4 million, partially offset by payments for partial repurchase of the 2021 Notes of $356.2 million and repayment of long-term debt of $33.4 million in the year ended December 31, 2020; and •The impact of share repurchases of $146.5 million in the year ended December 31, 2020. Credit Agreement On May 5, 2021, the Company, Jazz Financing Lux S.à.r.l., or Jazz Lux, and certain of our other subsidiaries, as borrowers, (collectively with the Company and Jazz Lux, the “Borrowers”), entered into the Credit Agreement, that provides for (i) the Dollar Term Loan which was drawn by Jazz Lux on the Closing Date in U.S. dollars (ii) the Euro Term Loan which was drawn by Jazz Lux on the Closing Date in Euros, and, together with the Dollar Term Loan, collectively known as the Term Loan and (iii) the Revolving Credit Facility, which is available to be drawn by any Borrower in U.S. dollars. We used the proceeds from the Term Loan (i) to repay in full $575.9 million under that certain credit agreement, dated as of June 18, 2015 (as amended) among the Company, and certain of our other subsidiaries as borrowers, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, or the Existing Credit Agreement, (ii) to fund, in part, the cash consideration payable in connection with the GW Acquisition and (iii) to pay related fees and expenses. Upon the repayment in full of loans under the Existing Credit Agreement, it was terminated and all guarantees and liens thereunder were released. In 2021, we made voluntary prepayments on the Euro Term Loan totaling €416.7 million, or $502.0 million, and in March 2022 we repaid the remaining outstanding principal of €208.3 million, or $251.0 million. The Euro Term Loan bore interest at the Euro Inter-Bank Offered Rate, or EURIBOR, plus an applicable margin. The applicable margin for the Euro Term Loan was 3.50%. During the term of the Euro Term Loan, the interest rate and effective interest rate were 4.43% and 4.93%, respectively. Loans under the Dollar Term Loan and Revolving Credit Facility bear interest at a rate equal to, at the applicable Borrower’s option, either (a) London Inter-Bank Offered Rate, or LIBOR or (b) the prime lending rate. The applicable margin for the Dollar Term Loan is 3.50% (in the case of LIBOR) and 2.50% (in the case of borrowings at the prime lending rate). The applicable margin for the Revolving Credit Facility ranges from 3.25% to 2.75% (in the case of LIBOR borrowings) and 2.25% to 1.75% (in the case of borrowings at the prime lending rate), depending on our first lien secured net leverage ratio level. The Dollar Term Loan is subject to a LIBOR floor of 0.50% and loans under the Revolving Credit Facility are not subject to a EURIBOR or LIBOR (as applicable) floor. The Revolving Credit Facility has a commitment fee payable on the undrawn amount ranging from 0.50% to 0.40% per annum based upon our first lien secured net leverage ratio. As of December 31, 2022, the interest rate and effective interest rate on the Dollar Term Loan were 7.88% and 4.56%, respectively. As of December 31, 2022, we had an undrawn Revolving Credit Facility totaling $500.0 million. The Borrowers’ obligations under the Credit Agreement and any hedging or cash management obligations entered into with any lender thereunder are guaranteed by the Company, the other borrowers, and each of the Company’s other existing or subsequently acquired or organized direct and indirect subsidiaries (subject to certain exceptions), or the Guarantors. We refer to the Borrowers and the Guarantors collectively as the “Loan Parties”. The Loan Parties’ obligations under the Credit Agreement are secured, subject to customary permitted liens and other exceptions, by a security interest in (a) all tangible and intangible assets of the Loan Parties, except for certain excluded assets, and (b) all of the equity interests of the subsidiaries of the Loan Parties held by the Loan Parties. We may make voluntary prepayments at any time without payment of a premium or penalty, subject to certain exceptions, and are required to make certain mandatory prepayments of outstanding indebtedness under the Credit Agreement in certain circumstances. Principal repayments of the Dollar Term Loan, which are due quarterly, began in September 2021 and are equal to 1.0% per annum of the original principal amount of $3.1 billion with any remaining balance payable on the maturity date. In September 2022, we made a voluntary repayment on the Dollar Term Loan totaling $300.0 million. The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of junior indebtedness and dividends and other distributions. The Credit Agreement contains financial covenants that require the Company and its restricted subsidiaries to (a) not exceed a maximum 87 Table of Contents first lien secured net leverage ratio and (b) not fall below a minimum interest coverage ratio, provided that such covenants apply only to the Revolving Credit Facility and are applicable only if amounts are drawn (or non-cash collateralized letters of credit in excess of $50 million are outstanding) under the Revolving Credit Facility. The Credit Agreement also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations. 2029 Senior Secured Notes 2029 Notes. On April 29, 2021, Jazz Securities Designated Activity Company, or Jazz Securities, our direct wholly owned subsidiary, closed the offering of the Secured Notes in a private placement. We used the proceeds from the Secured Notes to fund, in part, the cash consideration payable in connection with the GW Acquisition. Interest on the Secured Notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2022, at a rate of 4.375% per year. The Secured Notes mature on January 15, 2029. The Secured Notes are jointly and severally guaranteed by us and each of our restricted subsidiaries, other than Jazz Securities, that is a borrower, or a guarantor, under the Credit Agreement. The Secured Notes and related guarantees are secured by a first priority lien (subject to permitted liens and certain other exceptions), equally and ratably with the Credit Agreement, on the collateral securing the Credit Agreement. Except as described below, the Secured Notes may not be optionally redeemed before July 15, 2024. Thereafter, some or all of the Secured Notes, may be redeemed at any time and from time to time at a specified redemption prices, plus accrued and unpaid interest, if any, to, but excluding, to the redemption date. Jazz Securities may redeem all but not part of the Secured Notes at its option at any time in connection with certain tax-related events and may redeem some or all of the Secured Notes at any time and from time to time prior to July 15, 2024 at a price equal to 100% of the principal amount of the Secured Notes to be redeemed plus a “make whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, Jazz Securities may redeem up to 40% of the aggregate principal amount of the Secured Notes at any time and from time to time prior to July 15, 2024, with the net proceeds of certain equity offerings at a price of 104.375% of the principal amount of such Secured Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, during each of the three consecutive twelve-month periods commencing on the issue date of the Secured Notes, Jazz Securities may redeem up to 10% of the original aggregate initial principal amount of the Secured Notes at a redemption price of 103% of the principal amount of such Secured Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If we undergo a change of control, Jazz Securities will be required to make an offer to purchase all of the Secured Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase, subject to certain exceptions. The indenture governing the Secured Notes contains customary affirmative covenants and negative covenants applicable to us and our restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of junior indebtedness and dividends and other distributions. If Jazz Securities or our restricted subsidiaries engage in certain asset sales, Jazz Securities will be required under certain circumstances to make an offer to purchase the Secured Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. As of December 31, 2022, the interest rate and effective interest rate on the Secured Notes were 4.375% and 4.64%, respectively. Exchangeable Senior Notes 2026 Notes. In the second quarter of 2020, Jazz Investments I Limited, our wholly owned subsidiary, completed a private placement of $1.0 billion principal amount of the 2026 Notes. We used a portion of the net proceeds from this offering to repurchase for cash $332.9 million aggregate principal amount of the 1.875% exchangeable senior notes due 2021, or the 2021 Notes, through privately-negotiated transactions concurrently with the offering of the 2026 Notes. Interest on the 2026 Notes is payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on December 15, 2020, at a rate of 2.00% per year. In certain circumstances, we may be required to pay additional amounts as a result of any applicable tax withholding or deductions required in respect of payments on the 2026 Notes. The 2026 Notes mature on June 15, 2026, unless earlier exchanged, repurchased or redeemed. The holders of the 2026 Notes have the ability to require us to repurchase all or a portion of their 2026 Notes for cash in the event we undergo certain fundamental changes, such as specified change of control transactions, our liquidation or dissolution or the delisting of our ordinary shares from any of The New York Stock Exchange, The Nasdaq Global Market, The Nasdaq Global Select Market or The Nasdaq Capital Market (or any of their respective successors). Additionally, the terms and covenants in the indenture related to the 2026 Notes include certain events of default after which the 2026 Notes may be due and payable immediately. Prior to June 15, 2026, we may redeem the 2026 Notes, in whole but not in part, subject to compliance with certain conditions, if we have, or on the next interest payment date would, become obligated to pay to the 88 Table of Contents holder of any 2026 Notes additional amounts as a result of certain tax-related events. We also may redeem the 2026 Notes on or after June 20, 2023 and prior to March 15, 2026, in whole or in part, if the last reported sale price per ordinary share has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the notice of redemption. The 2026 Notes are exchangeable at an initial exchange rate of 6.4182 ordinary shares per $1,000 principal amount of 2026 Notes, which is equivalent to an initial exchange price of approximately $155.81 per ordinary share. Upon exchange, the 2026 Notes may be settled in cash, ordinary shares or a combination of cash and ordinary shares, at our election. Our intent and policy is to settle the principal amount of the 2026 Notes in cash upon exchange. The exchange rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain make-whole fundamental changes occurring prior to the maturity date of the 2026 Notes or upon our issuance of a notice of redemption, we will in certain circumstances increase the exchange rate for holders of the 2026 Notes who elect to exchange their 2026 Notes in connection with that make-whole fundamental change or during the related redemption period. Prior to March 15, 2026, the 2026 Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. 2024 Notes. In 2017, our wholly owned subsidiary Jazz Investments I Limited, completed a private placement of $575.0 million principal amount of 2024 Notes. We used the net proceeds from this offering to repay $500.0 million in outstanding loans under the revolving credit facility under the amended credit agreement and to pay related fees and expenses. We used the remainder of the net proceeds for general corporate purposes. The 2024 Notes are senior unsecured obligations of Jazz Investments I Limited and are fully and unconditionally guaranteed on a senior unsecured basis by Jazz Pharmaceuticals plc and will rank pari passu in right of payment with the existing 2021 Notes. Interest on the 2024 Notes is payable semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on February 15, 2018, at a rate of 1.50% per year. In certain circumstances, we may be required to pay additional amounts as a result of any applicable tax withholding or deductions required in respect of payments on the 2024 Notes. The 2024 Notes mature on August 15, 2024, unless earlier exchanged, repurchased or redeemed. The holders of the 2024 Notes have the ability to require us to repurchase all or a portion of their 2024 Notes for cash in the event we undergo certain fundamental changes, such as specified change of control transactions, our liquidation or dissolution or the delisting of our ordinary shares from The Nasdaq Global Select Market. Prior to August 15, 2024, we may redeem the 2024 Notes, in whole but not in part, subject to compliance with certain conditions, if we have, or on the next interest payment date would, become obligated to pay to the holder of any 2024 Notes additional amounts as a result of certain tax-related events. We also may redeem the 2024 Notes on or after August 20, 2021, in whole or in part, if the last reported sale price per ordinary share has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the notice of redemption. The 2024 Notes are exchangeable at an initial exchange rate of 4.5659 ordinary shares per $1,000 principal amount of 2024 Notes, which is equivalent to an initial exchange price of approximately $219.02 per ordinary share. Upon exchange, the 2024 Notes may be settled in cash, ordinary shares or a combination of cash and ordinary shares, at our election. Our intent and policy is to settle the principal amount of the 2024 Notes in cash upon exchange. The exchange rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain make-whole fundamental changes occurring prior to the maturity date of the 2024 Notes or upon our issuance of a notice of redemption, we will in certain circumstances increase the exchange rate for holders of the 2024 Notes who elect to exchange their 2024 Notes in connection with that make-whole fundamental change or during the related redemption period. Prior to May 15, 2024, the 2024 Notes will be exchangeable only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. 89 Table of Contents Contractual Obligations Our primary contractual obligations relate to our outstanding indebtedness, as described above. We also have obligations under lease agreements and third-party manufacturing agreements. For information relating to our scheduled maturities with respect to our long-term debt and our lease liabilities see Note 12 Debt and Note 13 Leases, respectively, and for information relating to our noncancelable purchase commitments due within one year see Note 14 Commitments and Contingencies, included in the Notes to Consolidated Financial Statements, included in Part IV of this Annual Report on Form 10‑K. Our long-term noncancelable purchase commitments were $36.1 million at December 31, 2022, primarily related to agreements with third party manufactures. We also have potential future milestone payments or royalty obligations to third parties under asset purchase, product development, license and other agreements as the timing and likelihood of such milestone payments are not known, and, in the case of royalty obligations, as the amount of such obligations are not estimable. Our contingent obligations to third parties, in the form of development, regulatory and sales-based milestone payments, as of December 31, 2022 included $1,387.5 million under our license and collaboration agreement with Zymeworks, $1,260.0 million under our global license and collaboration agreement with Werewolf, $1,090.0 million under our license agreement with Sumitomo, $1,025.0 million with our strategic collaboration agreement with Codiak, $681.0 million under our amended license agreement with PharmaMar, $595.0 million under asset purchase and collaboration agreements with Redx, $375.0 million under the asset purchase and exclusive license agreement with SpringWorks, $260.0 million in connection with our acquisition of Cavion, $155.5 million under our license agreement with Ligand and $345.4 million related to other agreements. Critical Accounting Policies and Significant Estimates A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part IV of this Annual Report on Form 10‑K, we believe the following accounting estimates and policies to be critical. Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product Sales, Net Product sales revenue is recognized when control has transferred to the customer, which occurs at a point in time, which is typically on delivery to the customer or, in the case of products that are subject to consignment agreements, when the customer removes product from our consigned inventory location for shipment directly to a patient. Items Deducted from Gross Product Sales. Revenues from sales of products are recorded net of government rebates and rebates under managed care plans and commercial payor contracts, estimated allowances for sales returns, government chargebacks, prompt payment discounts, patient coupon programs, and specialty distributor and wholesaler fees. Calculating certain of these items involves estimates and judgments based on sales or invoice data, contractual terms, historical utilization rates, new information regarding changes in applicable regulations and guidelines that would impact the amount of the actual rebates, our expectations regarding future utilization rates and channel inventory data. We review the adequacy of our provisions for sales deductions on a quarterly basis. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that adjustment is appropriate and to reflect actual experience. The most significant items deducted from gross product sales where we exercise judgment are rebates, sales returns and chargebacks. 90 Table of Contents The following table presents the activity and ending balances for our sales-related accruals and allowances (in thousands): [[GREPCENT_TABLE]] [["","Rebates Payable","","Sales Returns Reserve","","Chargebacks","","Discounts and Distributor Fees","","Total"],["Balance at December 31, 2019","$","82,853","","","$","3,462","","","$","1,133","","","$","14,120","","","$","101,568"],["Provision, net","288,052","","","18,448","","","45,550","","","69,332","","","421,382"],["Payments/credits","(260,020)","","","(3,542)","","","(41,390)","","","(66,659)","","","(371,611)"],["Balance at December 31, 2020","110,885","","","18,368","","","5,293","","","16,793","","","151,339"],["GW Acquisition","53,872","","","5","","","1,322","","","3,260","","","58,459"],["Provision, net","440,776","","","(1,765)","","","91,425","","","125,859","","","656,295"],["Payments/credits","(409,818)","","","(794)","","","(86,651)","","","(124,104)","","","(621,367)"],["Balance at December 31, 2021","195,715","","","15,814","","","11,389","","","21,808","","","244,726"],["Provision, net","630,295","","","13,222","","","135,854","","","186,609","","","965,980"],["Payments/credits","(528,209)","","","(2,872)","","","(132,622)","","","(190,062)","","","(853,765)"],["Balance at December 31, 2022","$","297,801","","","$","26,164","","","$","14,621","","","$","18,355","","","$","356,941"]] [[/GREPCENT_TABLE]] Total items deducted from gross product sales were $966.0 million, $656.3 million and $421.4 million, or 21.0%, 17.6% and 15.2% as a percentage of gross product sales, in 2022, 2021 and 2020, respectively. Included in these amounts are immaterial adjustments related to prior-year sales due to changes in estimates. Such amounts represented approximately 1% of net product sales for each of the years ended December 31, 2022, 2021 and 2020. Rebates We are subject to rebates on sales made under governmental and managed-care pricing programs and commercial payor contracts in the U.S. The largest of these rebates is associated with sales covered by Medicaid. We participate in state government-managed Medicaid programs as well as certain other qualifying federal and state government programs under the terms of which discounts and rebates are provided to participating government entities. We offer rebates and discounts to managed health care organizations and commercial payors in the U.S. In estimating our provisions for rebates, we consider relevant statutes with respect to governmental pricing programs and contractual sales terms with managed-care providers, commercial payors and group purchasing organizations. We estimate the rebate provision based on historical utilization rates, historical payment experience, new information regarding changes in regulations and guidelines that would impact the amount of the actual rebates, our expectations regarding future utilization rates and channel inventory data obtained from our major distributors in accordance with our inventory management agreements. Estimating these rebates is complex, in part due to the time delay between the date of sale and the actual settlement of the liability. We believe that the methodology we use to estimate rebates on product sales made under governmental and managed-care pricing programs is reasonable and appropriate given current facts and circumstances. However, estimates may vary from actual experience. Rebates were $630.3 million, $440.8 million and $288.1 million, or 13.7%, 11.8% and 10.4% as a percentage of gross product sales, in 2022, 2021 and 2020, respectively. Rebates as a percentage of gross product sales increased in 2022 compared to 2021 primarily due to the entry into additional contracts with commercial payors and a full year of Epidiolex in our product portfolio. Rebates as a percentage of gross product sales increased in 2021 compared to 2020 primarily due to the entry into additional contracts with commercial payors and the addition of Epidiolex to our product portfolio. Rebates as a percentage of gross product sales are expected to increase in 2023 compared to 2022, primarily due to rebate rate increases and new government rebates. Sales returns For certain products, we allow customers to return product within a specified period before and after the applicable expiration date and issue credits which may be applied against existing or future invoices. We account for sales returns as a reduction in net revenue at the time a sale is recognized by establishing an accrual in an amount equal to the estimated value of products expected to be returned. The sales return accrual is estimated principally based on historical experience, the level and estimated shelf life of inventory in the distribution channel, our return policy and expected market events including generic competition. Sales returns were $13.2 million, $(1.8) million and $18.4 million, or 0.3%, (0.1)% and 0.7% as a percentage of gross product sales in 2022, 2021 and 2020, respectively. Sales returns as a percentage of gross product sales increased in 2022 compared to 2021 driven by a 2021 reduction in the returns provision due to lower than estimated actual returns. The decrease in sales returns in 2021 compared to 2020 was due to this reduction in the returns provision. Sales returns as a percentage of gross product sales are not expected to change materially in 2023 compared to 2022. 91 Table of Contents Chargebacks We participate in chargeback programs with a number of entities, principally Federal Supply Schedule, Group Purchasing Organizations, and other public parties, under which pricing on products below wholesalers’ list prices is provided to participating entities. These entities purchase product through wholesalers at the contract price and the wholesalers charge back to us the difference between their acquisition cost and the lower negotiated price. We record the difference as allowances against accounts receivable. We determine our estimate of the chargebacks provision primarily based on historical experience on a product and program basis, current contract prices under the chargeback programs and channel inventory data. Chargebacks were $135.9 million, $91.4 million and $45.6 million, or 2.9%, 2.4% and 1.6% as a percentage of gross product sales in 2022, 2021 and 2020, respectively. Chargebacks as a percentage of gross product sales increased in 2022 compared to 2021 primarily due to higher chargeback utilization and a full year of Epidiolex in our product portfolio. Chargebacks as a percentage of gross product sales increased in 2021 compared to 2020 primarily due to the addition of Epidiolex to our product portfolio. Chargebacks as a percentage of gross product sales are not expected to change materially in 2023 compared to 2022. Discounts and distributor fees Discounts and distributor fees comprise prompt payment discounts, patient coupon programs and specialty distributor and wholesaler fees. We offer customers a cash discount on gross product sales as an incentive for prompt payment. We estimate provisions for prompt pay discounts based on contractual sales terms with customers and historical payment experience. To help patients afford our products, we have various programs to assist them, including patient assistance programs, a free product voucher program and co-pay coupon programs for certain products. We estimate provisions for these programs primarily based on expected program utilization, adjusted as necessary to reflect our actual experience on a product and program basis. Specialty distributor and wholesaler fees comprise fees for distribution of our products. We estimate provisions for distributor and wholesaler fees primarily based on sales volumes and contractual terms with our distributors. Discounts and distributor fees were $186.6 million, $125.9 million and $69.3 million, or 4.1%, 3.4% and 2.5% as a percentage of gross product sales in 2022, 2021 and 2020, respectively. Discounts and distributor fees as a percentage of gross product sales increased in 2022 compared to 2021, primarily due to a full year of Epidiolex in our product portfolio. Discounts and distributor fees as a percentage of gross product sales increased in 2021 compared to 2020 primarily due to the addition of Epidiolex to our product portfolio. Discounts and distributor fees as a percentage of gross product sales are not expected to change materially in 2023 compared to 2022. Acquisitions and Valuation of Intangibles We make certain judgments to determine whether transactions should be accounted for as acquisitions of assets or as business combinations. If it is determined that substantially all of the fair value of gross assets acquired in a transaction is concentrated in a single asset (or a group of similar assets), the transaction is treated as an acquisition of assets. We evaluate the inputs, processes, and outputs associated with the acquired set of activities. If the assets in a transaction include an input and a substantive process that together significantly contribute to the ability to create outputs, the transaction is treated as an acquisition of a business. We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed generally be recorded at their fair values as of the acquisition date. Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed. We test goodwill for impairment annually in October and when events or changes in circumstances indicate that the carrying value may not be recoverable. We have determined that we operate in a single segment and have a single reporting unit associated with the development and commercialization of pharmaceutical products. In performing the annual impairment test, the fair value of the reporting unit is compared to its corresponding carrying value, including goodwill. If the carrying value exceeds the fair value of the reporting unit an impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. We have determined the fair value of our single reporting unit to be equal to our market capitalization, as determined by our traded share price, plus a control premium. The control premium used was based on a review of such premiums identified in recent acquisitions of companies of similar size and in similar industries. We performed our annual goodwill impairment test in October 2022 and concluded that goodwill was not impaired as the fair value of the reporting unit significantly exceeded its carrying amount, including goodwill. As of December 31, 2022, we had $1.7 billion of goodwill resulting from acquisitions accounted for as business combinations. In transactions accounted for as acquisitions of assets, no goodwill is recorded and contingent consideration such as payments upon achievement of various developmental, regulatory and commercial milestones generally is not recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date are expensed unless there is an alternative future use. In addition, product development milestones are expensed upon achievement. 92 Table of Contents Valuation of Intangible Assets We have acquired, and expect to continue to acquire, intangible assets through asset acquisitions or business combinations. When significant identifiable intangible assets are acquired, we engage an independent third party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Discounted cash flow models are typically used in these valuations, which require the use of significant estimates and assumptions, including but not limited to: •estimating the timing of and expected costs to complete the in-process projects; •projecting regulatory approvals; •estimating future cash flows including revenues and operating profits resulting from completed products and in-process projects; and •developing appropriate discount rates and probability rates by project. We believe the fair values that we assign to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates. No assurance can be given, however, that the underlying assumptions used to estimate expected cash flows will transpire as estimated. In addition, we are required to estimate the period of time over which to amortize the intangible assets, which requires significant judgment. Impairment of Intangible Assets Finite-lived intangible assets consist primarily of purchased developed technology and are amortized on a straight-line basis over their estimated useful lives, which range from five to eighteen years. The estimated useful lives associated with intangible assets are consistent with the estimated lives of the products and may be modified when circumstances warrant. Intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a product in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Estimating future cash flows related to an intangible asset involves estimates and assumptions. If our assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense. In-process research and development, or IPR&D, is not amortized but is tested for impairment annually or when events or circumstances indicate that the fair value may be below the carrying value of the asset. If the carrying value of the assets is not expected to be recovered, the assets are written down to their estimated fair values. As of December 31, 2022, we had $5.8 billion of finite-lived intangible assets, of which $3.9 billion related to the Epidiolex intangible asset which we acquired in the GW Acquisition and $1.3 billion related to the Vyxeos intangible asset which we acquired in the Celator Acquisition. As part of our annual impairment assessment, we reviewed these intangible assets as of December 31, 2022 and determined the carrying value is recoverable. Cash flow models used in our assessment are based on our commercial experience to date and require the use of significant estimates, which include, but are not limited to, patient-related assumptions, including patient population and segmentation, patient growth and treatment rates, and long-range pricing expectations. In 2022, we recorded an acquired IPR&D asset impairment charge of $133.6 million as a result of the decision to discontinue our nabiximols program. We did not recognize an impairment charge related to our intangible assets in 2021. In 2020, we recorded an acquired IPR&D asset impairment charge of $136.1 million following the decision to stop enrollment in our Phase 3 clinical study of defibrotide for the prevention of VOD due to a determination that the study is highly unlikely to reach one of its primary endpoints. Please refer to Note 10, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements included in Part IV of this Annual Report on Form 10‑K, for further information about our intangible assets and the remaining useful lives of our finite-lived intangible assets as of December 31, 2022. Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amount and the tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance when it is more-likely-than-not that deferred tax assets will not be realized. 93 Table of Contents Our most significant tax jurisdictions are Ireland, the U.K. and the U.S. Certain estimates are required in determining our expense for income taxes. Some of these estimates are based on management’s interpretations of jurisdiction-specific tax laws or regulations and the likelihood of settlement related to tax audit issues. Various internal and external factors may have favorable or unfavorable effects on our future effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, the impact of accounting for share-based compensation, changes in our international organization, likelihood of settlement, and changes in overall levels of income before taxes. Realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including cumulative income in recent fiscal years, our forecast of future taxable income exclusive of certain reversing temporary differences and significant risks and uncertainties related to our business. In determining future taxable income, we are responsible for assumptions utilized including the amount of state, federal and international pre-tax operating income, the reversal of certain temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income in applicable tax jurisdictions, which are based on our commercial experience to date and are consistent with the plans and estimates that we are using to manage our underlying business. We maintain a valuation allowance against certain other deferred tax assets where realizability is not certain. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. This determination depends on a variety of factors, some of which are subjective, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, carryforward periods available to us for tax reporting purposes, various income tax strategies and other relevant factors. If we determine that the deferred tax assets are not realizable in a future period, we would record material changes to income tax expense in that period. We have also provided for unrecognized tax benefits that we believe are not more-likely-than-not to be sustained upon examination by tax authorities. The evaluation of unrecognized tax benefits is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate unrecognized tax benefits on a quarterly basis and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for unrecognized tax benefits can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the more-likely-than-not threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense (benefit). Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, please see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part IV of this Annual Report on Form 10‑K.