On April 2nd, 2009, Bruce Cozadd stepped in as CEO of Jazz Pharmaceuticals (JAZZ), a company he co-founded in 2003. He had a big decision to make. The company was a $0.53 per share, $15 million market cap microcap company, with negative equity, $120 million in long-term debt, $15 million in cash, with no ability to raise capital. He could either use the cash that was left to make the next interest payment to senior note holders or fund an ongoing clinical trial. He chose to fund the trial, and today Jazz Pharmaceuticals is a $115 per share, $7 billion market cap company.
If an investor would have been lucky enough to have bought Jazz Pharma stock the day Bruce Cozadd became CEO and held until today, you would have seen your shares appreciate by over 100x. Today, the company is one of Barclays top stock picks for 2017 with a $200 PT. What a difference seven years makes.
From 1991 until 2001, Bruce Cozadd held various positions at ALZA Corporation (acquired by Johnson & Johnson in 2001), including Vice President, Senior Vice President, CFO, and COO. Interestingly enough, ALZA was founded by intelligent fanatic Dr. Alejandro Zaffaroni, a Uruguayan born biochemist who would start several other successful ventures. Cozadd said, “I was inspired by his [Dr. Zaffaroni] company vision not only from a scientific and technical standpoint but also from a business standpoint.”
“I had nothing to do with shaping the culture at ALZA. The company had been around for decades before I joined, but it was powerful, and it was consistent. To this day almost 15 years later after the end of ALZA, people who were there still talk about the ALZA culture”
Cozadd took some time off with his family and to evaluate his next career move. He evaluated several biopharma companies that were looking for CEO’s, but couldn’t find one that had a similar culture to ALZA. He thought it would be easier to start from scratch. In 2003, Bruce Cozadd, Sam Saks, and Bob Myers founded Jazz Pharmaceuticals. Then they reached out to their former ALZA colleagues to join the company. The name Jazz came about because it’s a style of music that embraces improvisation but also cohesion.
The founders got to work immediately to try to replicate the ALZA culture. They identified five core values – integrity, collaboration, passion, pursuit of excellence, and innovation. They wanted to be as honest and transparent at all times with employees. In a 2015 interview, Cozadd said that he constantly asks himself, “Is the culture what I say it is?”. Even today, Cozadd will spend a lot of time with new employees, inviting them to hour long breakfast meetings. He also does annual anonymous surveys to all employees and reads every comment. The anonymous “honest” answers allow him to gauge the health of the organization.
By 2004, the JAZZ co-founders previous successes allowed them to raise $250 million from private equity and venture capitalists. This was a significant sum of money especially for a company that was basically a blind pool. There wasn’t a known product or R&D program, so investors didn’t even know what the company was going to do with the money.
In April 2005, the company acquired Orphan Medical for $122 million. Orphan Medical focused on orphan drugs which treat rare disorders that affect less than 200,000 patients in the US. Jazz acquired the company for its lead product Xyrem, which was the first and only treatment for cataplexy associated with narcolepsy. Now the company had revenues, but losses were mounting.
In May 2007, Jazz Pharmaceuticals priced 6 million shares at $18, and raised $108 million in an initial public offering. Over the previous three years the company had been financing itself by issuing a total of $265 million of convertible preferred debt. The company also had $115 million in senior notes. It didn’t take long until the company was in a cash crunch again.
The company launched Luvox CR in Q1 2008, a treatment they licensed from Solvay, for obsessive compulsive disorder and social anxiety disorder. They pushed back milestone payments to Solvay to buy them some time. By the end of 2008, JAZZ was in dire straits having missed an interest payment on its senior notes which pushed them into default. 75% of these senior notes was held by Lehman Brothers, which was having their own issues at this time. The company also had to make payment on a pivotal Phase III trial of JZP-6.
The financial crisis was in full effect, and the company was unable to raise additional capital. They had to cut expenses to survive and downsized its workforce by 50%. Bruce remembers addressing the employees in person and trying to be as transparent as possible:
“I said, ‘Look around the room. The people you thought of as valuable colleagues yesterday, part of your team and the fabric of this company, did not suddenly get less talented in the last 24 hours. This isn’t about them. It’s about the company’s need to survive.’”
On April 2nd 2009, co-founder Dr. Samuel Saks resigned as CEO because his wife’s musical career was taking off [Not Joking]. Bruce Cozadd stepped in to the CEO role, a position no one else likely wanted. The stock was at an all-time low. The company was teetering on the edge of disaster. He chose to fund the pivotal Phase III trial instead of making the interest payment to senior note holders. At the same time the board outlined the following objectives for 2009:
- Obtain and publicly disclose top-line results for our second pivotal Phase III trial of JZP-6 (sodium oxybate) for the treatment of fibromyalgia during the third quarter of 2009, and submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration for JZP-6 by December 31, 2009
- Secure equity and nonequity financing sufficient to achieve our corporate objectives
- Achieve total Xyrem and Luvox CR net sales of $97 million and EBITDA from commercial operations of $45 million in 2009
- Achieve an operating loss of less than $10 million, measured by EBIDTA, by the end of the first quarter of 2009, and achieve breakeven on an operating basis, measured by EBIDTA, in the fourth quarter of 2009
- Ensure that employees are aligned with the corporate objectives and that our company operates in compliance with applicable laws and regulations
- Partner a development project, secure rights to a new product opportunity and develop a revised strategic plan
Then something crazy happened. The company’s bad luck turned and turned hard. In June 2009, the second pivotal Phase III JZP-6 trial that Bruce chose to fund with the last of their cash showed positive and consistent results. A few days later the company reported their Q2 2009 financials. Revenues more than doubled, and even more importantly, JAZZ produced positive net income of $2.2 million (compared to a loss of $52 million a year earlier). Longitude Capital partners injected $7 million via private placement to further sure up the balance sheet. On June 5th, 2009, the stock was at $1, and by September it hit $10. The rest of the story can be summed up in the financial table below:
It’s how you handle situations at the lowest of lows that define you. Most of the employees that were laid off during the 2008-09-time period quickly came back and worked for Bruce and the company. “It is not how you treat your star performer whom you’re promoting but how you treat the employees you have to let go. What are they going to say about the company after they walk out the door?” Cozadd says.
Bruce Cozadd made the right decision when he had to and was transparent with all his employees every step of the way. The hardship helped to create a culture of excellence. In business and in life, it’s not the easy successes but the obstacles and struggles that you overcame that made you who you are today.
Be sure to check out our book, Intelligent Fanatics Project, to see how eight exceptional founders and operators developed a culture that allowed them to dominate their markets for decades.
In addition to SEC filings, Annual Reports, Corporate Website, I used the following sources for quotes and information:
From Foundation, To Darkest Days, To Finest Hour [Life Science Leader]
TWST Interview Bruce Cozadd
Stanford Graduate School of Business Newsletter 2002