Jazz Pharmaceuticals Inc. is a specialty pharmaceutical company focused on identifying developing and commercializing innovative products to meet unmet medical needs in neurology and psychiatry. Company's goal is to build a broad portfolio of products through a combination of internal development and acquisition/in-licensing activities and to utilize our specialty sales force to promote products in our target markets. They apply novel formulations and drug delivery technologies to known drug compounds and compounds with the same mechanism of action or similar chemical structure as marketed products to improve patient care by improving efficacy reducing adverse side effects or increasing patient compliance relative to existing therapies. Based in Palo Alto California the company is committed to working closely with patients patient advocacy groups and healthcare professionals. Jazz Pharmaceuticals Inc. has a market cap of $234.1 million; its shares were traded at around $7.56 with and P/S ratio of 3.5.
Highlight of Business Operations:We did not timely make the quarterly interest payment of $4.5 million that was due on December 31, 2008 or the quarterly interest payments of $5.1 million due on each of June 30, 2009 and March 31, 2009 to the holders of the $119.5 million principal amount of senior secured notes, or the Senior Notes, which constituted events of default under our agreement with the holders of the Senior Notes, or Senior Note Agreement, and permitted LB I Group Inc., as the holder of more than 50% of the principal amount outstanding, to accelerate payment of the Senior Notes. As a result of the default, interest on the Senior Notes accrued on the outstanding principal amount at an annual default rate of 17% (instead of 15%) effective January 1, 2009. On July 7, 2009, we paid $14.6 million to the holders of the Senior Notes which represented all of the accrued and unpaid interest as of June 30, 2009. On September 29, 2009, we paid our quarterly interest payment of $4.5 million to the holders of the Senior Notes which represented interest calculated at the default rate of 17% for the period from July 1 to July 7, 2009, and at the non-default rate of 15% for the remainder of the quarter.
We receive royalties primarily from international distributors of our products, typically based on their net sales of our products. Royalty income was $532,000 and $440,000 in the three months ended September 30, 2009 and 2008, respectively, and $1.5 million and $1.3 million in the nine months ended September 30, 2009 and 2008, respectively. Although we do not expect royalty revenues to comprise a substantial portion of our revenues, we expect royalty revenues to increase as sales of Xyrem by UCB increase.
Almost all of our contract revenues consist of upfront or milestone payments received from UCB. During the nine months ended September 30, 2009, upon the completion of the last patient in our second Phase III pivotal clinical trial of sodium oxybate for the treatment of fibromyalgia, we recognized as revenue a $10.0 million nonrefundable milestone payment we received from UCB in July 2008 that was previously recorded as deferred revenue. In addition, we recognized contract revenues of $280,000 in each of the three months ended September 30, 2009 and 2008 and $840,000 in each of the nine months ended September 30, 2009 and 2008 related to previously deferred upfront payments which are being recognized as contract revenue ratably through 2019, the expected performance period under the agreement.
In February 2009, we amended our product license agreement with Solvay for the rights to market Luvox CR and Luvox in the U.S. such that the then existing $14.0 million current payment obligation, a $5.0 million obligation related to a milestone of uninterrupted supply of Luvox CR and future royalty and other obligations were replaced with an obligation to pay a total of $19.0 million. As a result we recorded an addition of $5.0 million to the gross carrying amount of the intangible asset related to Luvox CR developed technology during the nine months ended September 30, 2009.
UCB made a nonrefundable milestone payment of $10.0 million in July 2008 which, upon the completion of the last patient in our second Phase III pivotal clinical trial of sodium oxybate for the treatment of fibromyalgia, was recorded as contract revenue in the nine months ended September 30, 2009 and was previously recorded as deferred revenue. In addition, we recognized contract revenues of $285,000 and $284,000 in the three months ended September 30, 2009 and 2008, respectively, and $854,000 in each of the nine months ended September 30, 2009 and 2008, primarily related to previously deferred upfront payments which are being recognized as contract revenues ratably through 2019, the expected performance period under our agreement with UCB.
On September 30, 2009, we amended our existing accounts receivable line of credit agreement and borrowed $3.0 million. Pursuant to the terms of the amended agreement, we may borrow up to 75% of eligible accounts receivable up to a maximum of $3.0 million in borrowings subject to certain other limitations. The maximum may be increased to $15.0 million at the lenders discretion. Borrowings under the line of credit are secured by a first priority security interest in our accounts receivable and inventory and bear interest at a variable rate which was 6.5% at September 30, 2009. In addition, a minimum monthly interest payment of $14,000 and a collateral monitoring fee up to 0.15% per month on the outstanding principal amount are payable. Borrowing under our line of credit had previously been suspended as a result of the events of default under our Senior Note Agreement.
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