Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Thank you for your time this morning. I'll just say, I will make forward-looking statements. You'll see our risk factors on our SEC filings, and I may refer to adjusted GAAP numbers, and we always provide a reconciliation on our website. So it's been a productive start to 2020 for Jazz. In addition to just announcing our 2019 results and our 2020 guidance, we've had a product approved, submitted an NDA and had another NDA accepted for filing with priority review. So that puts us well on track to achieve our objective of launching 4 new products in the next 18 months or so. So a real catalyst-rich time for the company, and we'll look forward to continuing to demonstrate through our regulatory progress, our development progress, our commercial progress, how we're diversifying the top line for sustainable growth. Coronavirus, my favorite topic. I'll just say no direct impact to us thus far. When we think about impact to the business, we start with impact to patients, making sure we can supply product on a reliable basis. We do have one production facility that's in Northern Italy, not particularly in a quarantined area at the moment, but it's certainly close by, and we do keep about 6 months of finished good inventory outside the country. So we feel confident with respect to supply of Defitelio. Second priority is health of our employees, and we're certainly monitoring where people are traveling to and from, I think, like most companies. But so far, we don't see a direct impact. We're not particularly reliant on Chinese supply in any part of our supply chain, so we don't foresee any immediate impact.

For me, I'd like to just -- would kick it off by kind of setting the stage. And when I ask you this question, a question will maybe emerge, but there's a lot of, obviously, frustrated shareholders. And I know you're, I'm sure, frustrated with the share price as well. Their frustration seems to be they want something done or activity done or maybe thoughts about maybe changing or looking at the strategy a little bit differently. Maybe more aggressive on share repurchases, maybe even thinking about going private is bandied around and things like that, led by you. Folks, obviously...

Not bandied around, led by me?

No.

Go private.

Private. And no one is upset with management, they're frustrated. And yet, on the flip side, I could see from your perspective, where were we a year ago. And we're on the cusp of launching 258. And you've signed the deal with PharmaMar, which you're going to talk about. 458 is making tremendous progress and could be on the market soon. Sunosi is early in the launch curve. There's a lot of things that seem right there and yet they're not there yet. So can you just talk through, is there a middle ground here to continue to execute the way you are? Can we accelerate share repurchases? Is there some contemplation to a change in strategy in terms of the smaller versus larger? So again, there's no one question, but can you just kind of take it along?

No, it's actually a nice setup for a critical conversation. The company is in strong financial shape, meaning if you look at our current liquidity, cash plus undrawn revolver, that sits at $2.7 billion. If you look at our cash flow, our adjusted net income last year was north of $900 million. That's not a perfect proxy for cash flow, but it's pretty close. So the company is very strong, and I think that gives us the ability to execute on our plan, make the investments we want to make in our existing commercial and development portfolio, allocate significant funds, and I'll come back to the size of transaction in a minute, for corporate development, and have money available to buy back stock opportunistically. Like most smart investors, we prefer to buy more stock when it's cheap and less stock when it's less cheap. And the stock's been really, really cheap lately, so we're more aggressively buying. If you look at what we've done since 2013, we bought back over 11 million shares for just under $1.5 billion. More of that's come over the last couple of years. That's in part because our cash flow has increased, our liquidity position has increased. And it's in part then because we think we are making progress and putting in place these additional growth drivers for the future, and it hasn't been reflected in our share price. And that makes it a more opportunistic time for us to buy. So I think we have the flexibility to do both right now, and we are doing both. But I want to emphasize, one of the ways we can create real returns for shareholders is by productively deploying the capital we can deploy. The deal we did at year-end with PharmaMar for a launch-ready product. So we've got a PDUFA date in August for a relapsed small cell lung cancer drug that we think will compete exceptionally well versus standard of care, which is topotecan. We're really excited about that. That was a deal that was $200 million upfront, up to $1 billion if you include upfront regulatory milestones and all potential commercial milestones, and that would obviously be for a very successful product. I don't know how you score that, is that a $200 million deal or a $1 billion deal. But we can certainly do deals that size or considerably larger. Our largest deal to date was $1.5 billion. The company has almost doubled in size over the past 4 or 5 years. So we can clearly do $2 billion, $3 billion, $4 billion transactions, more if we're willing to use equity or the target has cash flow of its own. So we have room to do and interest in doing larger transactions as well.

Okay. And in terms of therapeutic areas, as you've been oncology-hematology focused, although you did Sunosi obviously, a few years ago. Any thoughts on broadening that out? Or are we staying in this niche area?

No, no, good area. We've done a number of transactions of late that happened to have been in the HemOnc side of our business, but I'll also remind you, we did acquire Cavion in 2019, which is -- has a lead product, which would be a treatment for essential tremor. We're taking that into a Phase IIb later this year. Really excited about that market opportunity and what this drug can do versus the available treatments, which are not particularly effective for these patients. But that signaled, Ken, we do want to stay in sleep and neuroscience as well and are evaluating a number of opportunities there. So the way I think about 2018, 2019, as we broadened sleep into sleep and neuroscience, we broadened sort of acute leukemias into a broader HemOnc and solid tumor space. I think that gives us plenty of room to run.

Okay. And just a housekeeping, back on the share repurchase, just what are you approved for? And what have you used up until the last earnings call? I guess it's probably what you can comment on?

Yes. I don't remember the exact number we had remaining as of year-end 2019, but it's north of $500 million remaining under the existing authorization. I think there's a pattern over the last couple of years when we start to get low on that authorization, the Board tends to authorize a greater repurchase. We meet frequently as a Board. So I wouldn't worry that that's something that has a hard stop to it. But we did have capacity coming into the year.

Okay. Now turning to 258 in the Xyrem situation. So when we talk to a lot of consultants, Xyrem patients when they get to it, tend to really like it and they're well controlled. This could cut 2 ways. Just why don't you talk about 258 and converting? Or how do you want to approach the market? And then we'll dovetail that with Avadel, may or may not have good data on a once nightly. So it could, again, cut 2 ways. Let's talk about if they are able to make it to market, and I want to talk about some of the potential impediments. How do you see this market playing out over the next few years? First, with your introduction.

Sure. So Xyrem's been a mainstay of narcolepsy therapy since it was launched way back in 2002. We got involved in the product in 2005. And it's a product with some great benefits, but also some liabilities. And one of the great benefits, as you mentioned, Ken, is that when patients are on it, they find that it does control their cataplexy and EDS. They have a very positive experience on the drug. But one of its liabilities is it brings with it an enormous salt load. Xyrem's an unusual drug in that it's dosed at 4.5 to 9 grams per night, sort of with an effective dose of 6 to 9 grams a night. Most drugs you're aware of are not dosed in gram quantities. And as a result, it brings a sodium load of more than 1 gram to 1.5 grams per night. Now if you look at the American Heart Association or any of the guidelines out there for recommended sodium intake, total sodium across diet and any other source, you're already sort of at or approaching the maximum daily intake. Narcolepsy patients are known to have high cardiovascular risk. It's estimated that 70% to 80% of all narcolepsy patients are currently being drug-treated for a cardiovascular risk factor. So to take a chronic medication that brings with it 1 gram to 1.5 gram or more of unneeded sodium every day is a real problem. And we've been working at this problem for almost a decade now to engineer out that sodium while maintaining the benefit of Xyrem. And of course, we presented our 258 results at World Sleep in Vancouver in September and demonstrated that we have the efficacy of Xyrem without that salt. So we're excited to bring this product to market. We submitted the NDA last month. We used a priority review voucher, that should give us a potential approval in the third quarter. We'd have to implement a REMS change because this is a REMS product, but we think we can get it launched before year-end. And we think this represents a significant benefit to all patients who currently are on Xyrem, while also opening up the market for some patients who are not on Xyrem solely because of the salt load. And when we talk to physicians, there are patients they can't, in good conscious, put on Xyrem because of the salt load. Beyond that, we're studying 258 in idiopathic hypersomnia as well. That trial was half enrolled by the end of 2019. We expect to complete enrollment later this year. Idiopathic hypersomnia is another specialized sleep disorder, very debilitating to patients, no approved treatments. We do have evidence historically that oxybate has been used successfully in these patients, so we're certainly looking forward to getting the data from that trial. So we think we have the opportunity to continue growing the oxybate market, and Xyrem has shown volume growth and revenue growth for many years. We're anticipating that again as you'll see in our guidance for this year, but looking forward to bringing a new product to market.

And when you're -- when approved, knock on forehead, what's the message for the sales force? It's there. It's -- the clinician has the option. In terms of trying to get conversion, to what degree are we going to be pushing versus we're offering?

Yes. So as a company that's mission is to improve the lives of patients, if we have 2 products on the market that do the same thing, 1 of which has an extra 1 gram to 1.5 gram of sodium per night, you can imagine which one we're going to be suggesting to both physicians and patients as a better product for them. We'll be, obviously, the marketer of both products. We'll set the price for both products. We'll negotiate access for both products. We'll decide promotion for both products. But you can bet, our efforts are going to be to make 258 as successful as it can be.

Okay. And now Avadel is coming soon with data under the assumption, and this is all in the eyes of beholder, what is positive data and what isn't.

Yes.

Under the assumption it's positive, can we talk about some of the defenses that you still have? Do you refer to the 306 patent, the combination of sodium oxybate and valproate. Can you talk about just that patent or the genesis of it, that company? I'm telling you, you're not saying, they're claiming that they can skinny label around it. It is in the Xyrem label as a risk factor. Can you talk about difficulties in removing risk factors from labels? They are going to reference your products in their filing. Just talk about this threat in general.

Yes. So let me start by framing the issue. There's another company that has a once-nightly oxybate product in development. Now it's based on the existing Xyrem, so it's high sodium. And I'll remind you, we've -- as the company that's had oxybate on the market for a long time, we've been, we think, in the best position to evaluate how to improve that product. We chose to go in the direction of lowering salt rather than making the existing high-salt product once-nightly because we believed that was the more important thing for patients, and that came from talking to patients and talking to physicians. We also are developing a once-nightly formulation, but it won't surprise anyone in the room to know we're developing a once-nightly low-sodium version of the product. And we think once a low-sodium version of the product is on the market, it's going to be hard to convince people, they should go to a once-nightly high-salt product for convenience, and it's not particularly clear that there will be another benefit associated with once nightly. We do have, Ken, to your point, a number of patents covering Xyrem. As a 505(b)(2) pathway agent, our expectation is Avadel will need to certify 2 Orange Book listed patents that reference Xyrem. And we, of course, to the extent it's reasonable, choose to enforce our IP. If there's litigation, that, as you know, could institute a 30 -- up to 30-month stay in approval. So I think there's some question there. But the specific patent you mentioned went to work we did that showed an interaction between valproate and sodium oxybate, which are used together, where if you're on both agents, the oxybate level is actually higher in the blood than it would be if you're not on valproate. And so we discovered this and actually implemented a label recommendation that you redose reduce oxybate to account for that by a specific amount. And we think that's important safety information to have in the label. Avadel makes their own assertions about what they can do. We'll leave that to Avadel...

And the generics tried to, I think, skinny label out when they made their request to the agency.

Yes. And FDA went on record as saying they didn't think the product would be safe if you cut that important safety information out of the label.

Okay. So turning to Sunosi. All of our checks come back fantastic and interesting, both on an efficacy and a patient need. So can you frame for us the OSA opportunity? It's getting off to a good start and the scripts look good. Are we going to be able to press our advantage this year? What -- at what point can we really go out to patients and start pushing them into the clinician's office? And we see that first year guide, but can you talk about maybe a curve here and where managed care stands?

Yes. So I'm glad you've heard good things about the drug. We developed this drug to be a new weight promoting agent for patients with excessive daytime sleepiness and narcolepsy and obstructive sleep apnea. We had heard from patients that they weren't satisfied with the existing agents. And in fact, if you look at the clinical data on Sunosi, the effect size measured objectively by the Maintenance of Wakefulness Test or subjectively by the Epworth Sleepiness Scale, both showed an effect size that looked larger than other similar trials done with other agents. It's a drug where the patient feels that efficacy, right? It's noticeable to the patient and they feel it quickly. So we see a substantial effect even at week 1, sort of the maximum effect after the 12 weeks of treatment with a 9-hour duration of that improved wakefulness. So we hear good things about the product. Our challenge now is to make sure patients have access to the product. We said that would likely take 6 to 9 months post launch. We launched in July, and we were very pleased to provide an update at the end of last month that we're now covered in preferred formulary status here too in over 70% of commercial lives. So we've achieved our objective of making sure patients will have access to drug. The other really important objective for us in the near term is to generate more prescribers of Sunosi. The prescribers you talked to who have prescribed it have a good experience, but 2,200 docs have prescribed it, as of year-end. We'd like to continue that, grow that number, particularly in the OSA side. So narcolepsy is a market we've been calling on for years, with Xyrem. We know those docs well. Every doc who treats narcolepsy treats successive daytime sleepiness, like a -- virtually 100%. In OSA, that story is very different. Not all docs who treat obstructive sleep apnea use pharmacotherapy for excessive daytime sleepiness or even diagnosed excessive daytime sleepiness. They think of it as treating a nighttime disorder, disrupted breathing using airway pressure, CPAP. But we know for a large fraction of the patients being treated for OSA, they have residual excessive daytime sleepiness that requires an additional intervention. Fiddling with the mask or flow rate is not going to fix that problem. So we have some real education to do there, Ken. We want to see the number of prescribers increased, particularly on the OSA side. We'd like to see the percentage of Rxs for Sunosi start to tilt more in the direction of OSA. At launch, it was 50-50, even though the narcolepsy market is a very small fraction of the OSA opportunity. At year-end, that had moved to 60-40 in favor of OSA. We'd like to see that continue to move this year. In terms of guidance, with more access and with more prescribers, it's going to make more sense for us to ramp up our spend on activating patients and sending them into physician offices. That's not a great investment if the physician you go to see doesn't know how to prescribe the drug or the patient isn't going to get it filled at a pharmacy when they go. But with access and with a greater understanding in the prescribing base, we'll turn on more investment in DTC, up to and including TV advertising towards the back end of 2020 or early '21.

Okay. So we're going to -- we're at 70% coverage, we're at 2,200 clinicians writing. You have your internal metrics on when we think we've hit the tipping point. Then we hit DTC, Provigil and Nuvigil, and they went generic. And most folks feel, including the clinicians we talk to, this is better. And so that was about $1 billion drug at the time it went generic. Different managed care environment, but is it such a different managed care environment? Is the market changed in some way? Or has it been approached per you since they went generic? Can you talk about what we could be thinking, you said $0.5 billion, but it seems like our math may be...

Yes. We certainly think this could be a very large product. Our launch expectation setting was, we think it could be a $500 million product in the U.S. in the existing indications. Now we're also getting ready to launch in EU, rest of the world, midyear. In Germany, we're also looking to start a Phase III trial, looking at solriamfetol or Sunosi in the treatment of excessive daytime sleepiness, major depressive disorder. So we think we can expand the use. But one of the reasons, Ken, we gave that $500 million rather than something like $1 billion is there was a lot of off-label use of the agents, too. And I think the environment, to your comment, has changed. So you're unlikely to see that level of off-label use, and so we've tried to be more focused to on-label use.

Okay. Let's shift to Erwinaze. So made a lot of progress with 458. Can you just talk about PBL and any discussions? Do you know who you're supposed to be approaching at this point? I know it's been a confusing situation. But the fear I have is that if we don't work something out with PBL, it's not a near-term issue, it's -- they're left out there with supply of half the market, even if you could fulfill with 458, the greater demand. So can you just tell me why that shouldn't be something I'm worried about? Can you talk about PBL and how we resolve this? And then in the 458, where we stand? And what it could allow you to do?

Sure. So PBL is the manufacturer of Erwinaze, a product we currently sell. We just guided to roughly $200 million in revenue for 2020, but our existing arrangement with PBL will expire at the end of 2020, unless we re-up that arrangement. And PBL has said, they're running a competitive process. They're looking at us as a potential partner, but they are looking at other potential partners as well. We remain interested in being their long-term partner. We think we're best positioned to be their long-term partner, but we can't predict the outcome of that process. If the existing arrangement expires, we do have right to sell inventory beyond the end of 2020, so certainly into 2021. And we have other rights under that agreement, so there'd need to be some sort of transition arrangement. Turning to our 458 program. We've made enormous progress on that, launching our pivotal Phase II/III trial before the end of 2019 and getting our first patient in. Our objective is to finish that trial and submit a BLA as early as late 2020. So that's enormously rapid progress. And I say that progress can only happen because of the efforts of our team, but also the efforts of the Children's Oncology Group and the FDA, all of us working in partnership to fulfill this really critical need. There are children and adolescents and young adults who need this asparaginase treatment to be available for those that are hypersensitivity to E. coli-derived asparaginase. They get their best survival results if they get a full course of therapy. And we have not consistently been able to meet all patient demand from the existing supplier. So I think this is our priority to get this to market, and we're looking forward to doing that as quickly as we can.

And what about other geographies? Are their underserved areas where 458 should be able to help expand the opportunity beyond? Or can you give us some framework being left out there that you're not able to fulfill?

Yes. The existing Erwinaze supply, again, has been insufficient to meet full demand. One glaring example of that is Erwinaze has been approved for marketing in Japan and never launched because there isn't sufficient supply. That's just not a good position to be in. We know that docs are sometimes making treatment decisions based on limited supply. So when they see a Grade 2 hypersensitivity response to E.coli asparaginase, good medical practice would say, switch to Erwinaze. Some of them are not switching to Erwinaze, they're rechallenging with Oncaspar again. And I think they're doing that to spare their supply and make sure that if they have an even greater reaction down the hall of another little girl, they've got enough of vials to treat. So they're not optimizing therapy. And we also have stopped active promotion of the drug to the adolescent and young adult community, where we know that a pediatric-inspired asparaginase containing regimen actually produces better survival than the current non-asparaginase containing regimens. But we aren't out there promoting that right now because we feel it's unethical to create demand we can't fill.

Okay. And then maybe lastly, in the last couple of minutes, lurbinectedin, I don't think it's in your guidance this year, it probably is in your spend guidance, I'm assuming. But can you talk about the infrastructure you have? The launch curve or thoughts behind what we should expect from this product? And obviously, some folks are colored by the Vyxeos launch and flattening. Can you just talk about your expectations? And how maybe you all are approaching this, differently or the same?

Yes. So again, the NDA was submitted by PharmaMar in December. We just announced it was accepted for review, priority review with a PDUFA date in mid-August. We are looking forward to launch it. We do have some revenues built into our guidance, if you look at our total revenue guidance. We just didn't break it out as a specific product in our revenue guidance because we don't know an approval date yet. We haven't announced pricing yet. It's a little hard for us to get specific about those revenues we expect. We are building up our team right now, that includes hiring a solid tumor-oriented MSL team. That hiring is underway. We're also hiring key home office positions. We'll finish up our sales force sizing analysis. We want to make sure we can call in the 5,000 to 6,000 thoracic and medical oncologists. Some of those are in the community setting, where we are with Vyxeos already. So we think we'll get some synergy for our sales force, but we will be adding some to the sales force as well as we go through the year. We're really excited about this opportunity. This is another one where if you make doc calls out in the lung cancer community and ask people about the data they've seen on lurbinectedin monotherapy, it compares exceptionally favorably to topotecan, which has been the standard in second line small cell. Topotecan doesn't work very well in terms of response rate. It doesn't have a very good duration, and it's particularly challenging for the patients to take. Lurbinectedin seems to have better response, better duration, easier to tolerate, so it seems like a clear step forward for these patients. And when we call docs and when other people have called docs, they get that enthusiasm. NCCN Guidelines are important for community treaters, they often rely on those treatment guidelines. So we'll be submitting data to NCCN for their Spring meeting. Obviously, it would not go in the guidelines until it was approved with a label, but we'd like them to get that under consideration as soon as possible.

Okay. So God willing, we're sitting here a year from now, the company looks like this, and you fill in some of the blanks. Obviously, that product will be launching in the launch phase. Sunosi, you could be touching DTC at that point and really trying to accelerate it.

And that is built into our spend guidance.

258 around this time is on the market, and we're starting to convert it. 458 has been filed at this point, and we're waiting, hopefully, an accelerated approval. What are we missing? Does that sound right? All of a sudden, we're finally, you think, on lift off. And if the stock price is at the same place it is a year from now, what have we missed? Or what would change from a management perspective...

It should be. Let's start with that. No, that was a nice summary of some of the key drivers. I'll also point out, we're expecting data on 2 Defitelio trials this year, an interim analysis and the prevention of VOD and also a readout of our acute GVHD. We should be starting our trial with the essential tremor drug. We should be starting our EDS and MDD trial with Sunosi. We should be fully enrolled in our 258 idiopathic hypersomnia trial. So lots of things that we should achieve this year. But when you said, what am I leaving out? That assumes 0 additional corp debt. And I think that's a bad assumption. We have an appetite. We've got the liquidity. We've got the team, and we know we can execute both on the commercial and development side by broadening our portfolio. So expect to see that list be longer a year from now.

And $0.5 billion of share buyback, maybe, I said that. Okay. Thanks, everyone. Thanks, Bruce. Appreciate it. Thanks, Kathee.

Yes. Thanks, everyone.