Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Great. Good morning, everyone. My name is Jess Fye. I'm one of the biotech analysts at JPMorgan. And we're continuing the 2020 Health Care Conference this morning with Jazz Pharmaceuticals. Speaking for Jazz is going to be the company's Chairman and CEO, Bruce Cozadd. And right after this, we're going to go across the hall to the Georgian room for a breakout session where we're going to do some Q&A. You can follow me over there. Looking forward to hearing some interesting updates from Jazz.

Great. Good morning, everyone. So I'm thrilled to be back for my 29th consecutive JPMorgan Conference, one of my favorite weeks of every year. And I've the distinct privilege of providing an update on Jazz Pharmaceuticals progress. And I have to say in 2019, thanks to the passion, the innovation, the integrity, the collaboration and the pursuit of excellence on the part of our 1,560 dedicated and talented employees, we helped more patients, we achieved record revenues, we advanced our pipeline and, I think, positioned the company for a terrific 2020. So I will start with a couple of notes. I will make forward-looking statements today. Those are subject to risks and uncertainties, please see our SEC filings for more information. I'll also refer to certain non-GAAP financial measures. We do, of course, provide a full reconciliation to GAAP in the appendix to this presentation, which is posted on our website. That version of the presentation also has extensive notes and references. And last, I will refer to guidance -- I will refer to guidance. Unless I specifically say otherwise, I'm referring to that guidance as of the time it was provided on November 5, 2019. Okay. So let's get started. I'm going to spend a few minutes at a high level, talking about the transformation of the company over the past 5 years, including a quick look at financial results. After that, I'll spend a little time on each of our 2 key therapeutic areas, sleep and neuroscience and hematology and oncology. And then I'll tell you why I'm really excited about 2020. So our strategy is to continue to diversify our product -- our portfolio of commercial products, continue to expand those, but also to continue focusing on our expanding R&D portfolio, where we're pursuing new molecules, but also new indications for existing molecules, and then to continue through corporate development efforts to broaden our portfolio. That remains a significant priority for us. We're also looking to continue our globalization, bringing our products to more markets around the world. And doing all of this with disciplined capital allocation, really making sure that whether we're investing in our existing programs, our launches, our new opportunities or even our stock repurchases that we're doing it with an eye on return to our investors. I will mention, in our ongoing stock repurchase program, we've returned over $1.3 billion to our shareholders over the past 5 years. So here's a quick snapshot on what I think, is a pretty dramatic transformation of the company over 5 years. As we've added new products and grown the products we have, we've nearly doubled revenues during this period of time and executed on 5 launches since 2016. We've approximately doubled the number of employees in the company, 1/3 of whom are outside the U.S., and we've nearly tripled our R&D portfolio. And you can see on the last line, our commitment to our innovation strategy is reflected on the fact that we've been growing R&D expense much faster than we've been growing our top line as we continue to make investments, we believe, will fuel long-term growth. We've had 6 significant approvals in the past 4 years; Defitelio in the United States, Vyxeos in the U.S., Vyxeos in Europe, the Xyrem pediatric indication in the U.S. and then just last year, in 2019, Sunosi in the U.S. and Defitelio in Japan. Even more exciting, I think, we can look forward to 4 or more approvals this year and next year with Sunosi, lurbinectedin, 258 and 458. Okay, looking at the numbers for a second, let me comment a little bit on our performance in 2019. We set guidance of projected revenue growth of double digits, approximately 11% to 15% over 2018. And I can comment today and say that Xyrem, in fact, did have net sales within our prior guidance, in fact, right at the very top end. This was excellent continued performance by Xyrem, with 5.5% revenue bottle growth over 2018. And we expect continued growth of Xyrem. Erwinaze continued to be supply challenged. We did end the year within our guidance, with very slight growth, essentially flat to 2018. Defitelio continued its growth -- double-digit growth and did have sales within our guidance. And Vyxeos had very nice growth as well, particularly in Europe, post our launch of the product. We did come in within our guidance, although at the low end for the year. So if we add all those together, we were comfortably within our guidance on top line revenues, which, if we look at the longer picture, gives us a 13% compound annual growth rate over the past 5 years. Now it's important to note that with that revenue growth, we've continued to grow the bottom line with over 40% of our top-line revenues dropping to after-tax adjusted net income. And looked at on a per share basis, we see about a 15% growth. Now I will say we haven't finished all of our accounting yet so that's still based on the prior guidance. And I think it's important to remember that, that growth in the bottom line has come as we've invested in these multiple product launches I talked about, and as we've roughly quadrupled our R&D investment over this period. So good growth over the past 5 years, but we've been making the investments that we believe will continue to fuel growth going forward. And you can see that by R&D spend as a percentage of revenues. On top of that revenue growth, we've invested a greater fraction of that into our R&D. Okay. So let's start on the 2 franchises with sleep and neuroscience. I think, for many years, Jazz has been a recognized leader in sleep disorders with on-market treatments for excessive daytime sleepiness and cataplexy and narcolepsy, and more recently, excessive daytime sleepiness and obstructive sleep apnea. Of course, we have ongoing R&D programs in idiopathic hypersomnia and are commencing a trial this year in excessive daytime sleepiness, a major depressive disorder. This year saw us expand beyond sleep into movement disorders with the Cavion transaction over the summer, bringing us into essential tremor. Our narcolepsy focus is long in the making and significant. Narcolepsy remains a serious chronic neurological disorder that must be treated over a lifetime. And despite all of our work to date, it remains undertreated and underdiagnosed. We believe there is still more undiagnosed, untreated patients than there are those who have been diagnosed. And we know during this lifelong treatment, narcolepsy patients are at increased risk for stroke, heart attack or failure and death. And that's really what fueled our desire to bring forward a novel next-generation oxybate formulation, in JZP-258. Given the lifelong treatment and the knowledge that narcolepsy patients are at increased risk of cardiovascular morbidity and mortality, we've developed what we believe is a safer product by reducing sodium by a clinically meaningful 92%. This would put the sodium in our product, 258, at 88 to 131 milligrams a night, which is approximately 5% of the recommended daily allowance. That's far different from Xyrem and would represent 1,000 to 1,500 milligrams less sodium per night for the rest of your life. We also believe it opens up an opportunity for some patients who never got Xyrem because of concerns about the high sodium load. As a reminder, our Phase III trial in 2019 demonstrated the 258 was well tolerated with an efficacy profile consistent with Xyrem. Our plans are to submit the NDA this month and redeem our priority review voucher. That would give us a PDUFA date in the third quarter. And after some time for REMS implementation, we could be on the market with this product in the fourth quarter of this year. Beyond that first indication, as I mentioned, we're studying idiopathic hypersomnia with 258, and we did achieve our objective of enrolling 50% of the IH trial by the end of 2019. So one of the most important points to make here is that our oxybate franchise will remain important to the company for years to come. Between Xyrem, 258 and royalties we get on any authorized generics of Xyrem, we're confident this will provide significant revenues to the company for many years to come. Now right behind the oxybate franchise, we have Sunosi, which we're very excited about. This product was approved last year for the treatment of EDS associated with both narcolepsy and obstructive sleep apnea. And in Europe, at the end of the year, we did get the positive CHMP opinion, and we're expecting full approval in Europe this month. Now the unmet medical need here is significant. We know that about 50% of drug-treated OSA patients fail traditional stimulants or wake-promoting agents. And in Europe, there is no drug treatment approved for EDS and OSA. This is a large population but with low current drug treatment. And it's important to recognize that patients who are compliant with CPAP still demonstrate excessive daytime sleepiness. Treating the airway is not enough for all patients. We are exploring additional indications as well, the first of which would be excessive daytime sleepiness in MDD, where we expect to start a Phase III trial in the second half of the year. In the U.S., we launched, in July, and I'm very pleased to say that just 6 months after that launch, we've now achieved commercial coverage in over half of the commercial lives in the U.S. with preferred Tier 2 formulary status at Express Scripts, Cigna, CVS Caremark and Prime Therapeutics, and those last 3 are new disclosure for us today. Since launch, we've seen steady growth in TRxs with 13,000 cumulative scripts from launch through the end of the year. And we're excited to get to Europe as well. We're building our team now. We hope to launch in Germany midyear, with France and U.K. to follow after pricing and reimbursement negotiations expected to be early 2021. And last, in sleep and neuroscience, I'll just spend a second on our program with JZP-385, our novel T-type calcium channel modulator. Essential tremor is a very prevalent and very debilitating condition. Treatment options are limited with tolerability issues and lack of efficacy. Essential tremor can range from mild to fully debilitating and profoundly affects activities of daily living, including eating, drinking, dressing and writing. It's the most common movement disorder. We believe we have first-in-class, best-in-class potential. The Phase II proof-of-concept trial was presented last year in 2019. We are currently developing a modified release formulation with once-daily administration that we believe can enhance the clinical profile and plan to take that into Phase IIb in the second half of '20. So now transitioning the hematology-oncology. Many of you know, we've been in this area through our drugs for AML, ALL and complications of stem cell therapy, but we've now moved into solid tumors, too, with some innovative approaches. I'll talk about lurbinectedin in particular, but we also have a pan-RAF inhibition program with Redx, Exosome targets through our collaboration with Codiak and our in-house CombiPlex discovery efforts. Lurbinectidin is the newest addition to our portfolio. This is for relapsed small cell lung cancer patients who have poor prognosis and low survival rates and need a more tolerable, effective second-line therapy. There are about 30,000 cases of small cell lung cancer in the U.S. each year, and we're expecting use of our product behind standard first-line therapy. The Phase II monotherapy study demonstrated strong overall response rate and favorable safety, tolerability and administration relative to historical standard of care. PharmaMar submitted the NDA for relapsed small cell lung cancer last month under accelerated approval regulations with a request for priority review. We acquired the U.S. rights to this a few days later. We're also expecting PharmaMar to report our top line data from their Phase III ATLANTIS trial midyear. Really excited to get this transaction done, really excited to partner with PharmaMar and bring this important therapy to market soon. We're also really proud of the work we've been doing in ALL. We know that L-asparaginase is an important component of ALL therapy, and the patients who don't complete all of their doses have significantly inferior results. Alternative asparaginase therapies are needed to ensure that all patients, who develop hypersensitivity, get all of their doses to complete their full treatment course. This is the most common childhood cancer with high prevalence across the U.S., the EU5, Japan and Canada, and we see in up to 30% of patients' hypersensitivity response. So where are we with our program? Our pivotal Phase II/III study in collaboration with COG is up and running with multiple sites open and our first patient in, in December. As we've previously said, we expect to enroll up to 100 patients for intramuscular administration with an IV cohort to follow. We expect to complete that full 100-patient enrollment by year-end. But it's important to remember that we have the opportunity to look at this after about half the patients are in, with the possibility to accelerate our BLA submission. We believe that could happen as early as the fourth quarter of this year. I'm really proud of what our team has accomplished with JZP-458. It was really only a little more than a year ago that we submitted an IND and to go from that into and have a patient enrolled in our pivotal Phase II/III trial by the end of 2019 was a remarkable accomplishment. But we're not done. We have work to do to get through this clinical trial, get a high-quality submission in and make sure this product is available to patients. Importantly, we will be meeting with ex-U.S. regulators as we go through 2020 as well. I don't have time to walk through our broader pipeline today, but there is a full pipeline chart in the web version of this presentation. And I'll just say it includes a number of programs across sleep neuro and hematology-oncology, and includes new molecules as well as additional broadened indications and data for our existing programs. So let's wrap up by looking at 2020, it should be a great year. JZB-258 for idiopathic hypersomnia should complete full enrollment late this year. The Sunosi Phase III trial in MDD should initiate in the back half of the year. And 385 for essential tremor should initiate its Phase IIb trial. On the HemOnc side, I've mentioned 458 already. We also will be conducting an interim analysis of our Defitelio for prevention of VOD Phase III trial. That's after the first 280 patients. Of course, we've continued to enroll as those patients have matured, so we should be at enrollment of 400 by midyear. We'll also get the Phase II top line data in Defitelio for prevention of acute GVHD. I've talked about our regulatory priorities already; the 258 submission this month, the 458 submission as early as fourth quarter, but we also have several potential product approvals. Sunosi, I hope, will see the EU approval in the next week or 2 in Europe for EDS and OSA and narcolepsy; 258, we plan to submit and get approval and potentially launch this year; and lurbinectedin, I've talked about, should be a 2020 launch as well. But it's really important to remember, we're not done. We signed a lot of transactions during 2019, and we expect that 2020 will be no different. Recall that we ended the third quarter with $1.1 billion in cash and investments, an undrawn $1.6 billion revolver, and significant positive cash flow. We look forward to continuing our aggressive corporate development activities. So let me just close by telling you that I do think 2020 will be Jazz Pharmaceuticals' best year yet. I think we'll help more patients with narcolepsy, obstructive sleep apnea; we'll help more patients with ALL, VOD, AML; we'll bring a new treatment to patients with relapsed small cell lung cancer; we'll continue to advance our pipeline, and we'll continue to diversify our future revenue streams through continued addition of products and programs. With that, I'll wrap it up, and thank you for your attention.