Case Study: Jazz Pharmaceuticals

jazz pharmaceuticals logo

"The team really understood our business and financing needs. We worked with them to structure an investment that met both of our needs and expanded the investment over time."

– Bruce Cozadd, Co-Founder, Chairman,
and CEO of Jazz Pharmaceuticals

Background – Initial Investment: February 2004

Jazz Pharmaceuticals ("Jazz") was formed to identify, develop and commercialize innovative products in focused therapeutic areas. The core Jazz team had worked together very successfully at ALZA Corporation before it was acquired by Johnson & Johnson.

In February 2004, while at Lehman Brothers Global Trading Strategies ("GTS"), members of the Athyrium team participated in the $250 million Series B Preferred equity financing of Jazz Pharmaceuticals. The financing was led by KKR.

After our initial investment, we reviewed a number of commercial stage acquisition opportunities with the Jazz management team before Jazz announced its intention to acquire Orphan Medical for ~$150 million in April 2005. Orphan Medical marketed three products, including XYREM. The acquisition closed in June 2005.

Structured Investment – Growth Capital: June 2005

In order to finance the acquisition of Orphan and to provide working capital for internal research and development, GTS served as the lead arranger and collateral agent for an $80 million structured financing. The financing was structured as a senior secured term loan with warrants. The loan was made to a subsidiary of Jazz Pharmaceuticals that contained the newly acquired Orphan products. The loan was guaranteed by the parent company but was not secured by Jazz's other assets. The structure allowed the Jazz team to pursue out-licensing and other activities needed to execute its business plan.

Key covenants included a minimum cash balance and a restriction on additional indebtedness. Jazz was allowed to obtain a pre-agreed amount of inventory and receivable financing. The notes were subject to pre-payment penalties.

The loan had a bullet maturity in June 2011 which allowed Jazz to make maximum use of the capital for a 5-year period of time when Jazz was investing heavily in its business and before Jazz had become a profitable company.

Capital providers received a quarterly cash coupon as well as warrants which helped to create an alignment of interests with the management team and equity sponsors.

Growing with Jazz – Additional Growth Capital: March 2008

In May 2007, Jazz Pharmaceuticals successfully completed an IPO on NASDAQ.

In March 2008, GTS agreed to expand its relationship with Jazz as Jazz's business continued to grow. We agreed to increase the structured financing from $80 million to $120 million and provided a contingent option to borrow an additional $30 million of capital. The expanded structured investment was provided on similar terms as the original investment. The proceeds were partially used to finance milestone payments due to Solvay Pharmaceuticals related to the acquisition of LUVOX CR.

Overcoming Adversity

Today, Jazz is a large and profitable company but there were setbacks along the way.

After acquiring Orphan Medical in 2005, the Jazz team learned that the Department of Justice had been investigating certain marketing practices of Orphan Medical. Jazz worked with GTS to reach a settlement solution that worked for all involved parties.

The Credit Crisis of 2008 presented unprecedented challenges for many life sciences companies including Jazz. The Jazz team worked through the tough environment to achieve profitability and make good on the company's obligations.

The Athyrium team believes it is important that any structured capital investment be able to survive both good times and tough times. A strong working relationship is critical to meeting these types of challenges.


As Jazz's business continued to grow, other less costly financing options became available and, in June 2010, Jazz announced the full repayment of the Jazz secured notes due June 2011.