Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

You may begin, sir.

Good morning, everyone. Thank you for dialing in. My name is Balaji Prasad. I cover specialty pharma for Barclays. Owing to the special circumstances we are in, this is a novel format for us to host a virtual health care conference. So thank you for dialing in. Continuing with the day's sessions, we have with us today Dan Swisher, President of Jazz Pharmaceuticals; Rob Iannone, EVP, R&D; and Kathee and Diane from the Investor Relations team. Thank you all for dialing in. Also, owing to the nature of this format, there will be no Q&A session. Rob, Dan, Kathee and Diane, good morning.

Good morning.

Good morning.

Good morning.

So to kick start our conversation, I would want to focus predominantly on 2 aspects of Jazz thread for our conversation. Firstly, capital allocation and business development, and this is something that we had discussed recently. And next on the pipeline front. Starting with maybe the business overview and your thoughts on BD and capital allocation. We had recently this conversation about your share repurchase program. I think it's a good area to pick up that thread and follow it up. So what are your current thoughts on capital allocation? Do you see the Board authorizing an more aggressive repurchase at these levels? And I hate to remind you of the fact, but I'm sure it caused a lot of ranks for your team, too, but the stock has not delivered returns to investors over the past few years. While your revenues have gone up, free cash flow has gone up, pipeline has expanded. So how do you also bridge this current disconnect?

Yes. Thanks very much, Balaji, and thank you, everybody, for joining. I think this is unique times. Sorry, we can't be with everybody in Miami, but I think this makes a lot of sense and happy that we can continue with business as normal as it can be. I will be making forward-looking statements, so I would point out that risk factors are in our SEC filings, and I may refer to adjusted GAAP numbers. There's always a reconciliation on our website. So Balaji, before I go right to that question, let me just say, we finished 2019 from an operating perspective on a very strong note. We've got very strong momentum going into 2020 as we continue on our journey to becoming a very valuable, fully integrated biopharma company. We're focused on some very important key upcoming milestones including product launches, continue to deliver top line growth, key data readouts that I'm sure we'll speak to and looking to be productive on the corporate development side as we were in 2019. So in terms of your question about capital allocation, I mean, the good news, especially in these uncertain times as the company is in very strong financial shape, the current liquidity with cash plus our undrawn revolver is $2.7 billion. Cash flow from the business with adjusted net income, which is a good close proxy in 2019, was north of $900 million. And so this has really given us the flexibility to continue to create value. Value isn't always immediately recognized, but we're really able to continue to execute on our plan, which is make investments in both the commercial and the development portfolio as well as allocate funds to both corporate development opportunities so we can continue to sustain the growth in the business, but also buy back the stock opportunistically. And like any investors, we found the stock to be a very good price at this point. So that's how we thought about it. And I think if we continue to execute and show additional growth drivers and transition our oxybate business productively and efficiently, that recognition will catch up with the stock price.

Thank you, Dan. So it almost seems like the stock is now waiting for a large transformational deal and, which kind of overnight reduces your dependence on Xyrem. And at the same time, addresses some of the competitive concerns, too. You have flagged a third area for a while, a third therapeutic area. Do you want to elaborate more on what the contours of such a transformational deal would be like, and if there's any improved clarity on timings now?

Sure. Yes. So I think in terms of what the market is probably looking for, what we're trying to execute toward is a sustainable growth model that sustains us through the next decade, honestly. So I think the upcoming product launch with JZP-258, which was recently filed with a priority review voucher, we look to be taking that low-sodium oxybate developed to be a safer product, a healthier product alternative to Xyrem. We look forward to taking that to market and making sure that all narcolepsy patients have that as a treatment option. So that's something very important and a key focus. The others are to show clarity on growth with the Sunosi, which is undergoing an ongoing launch in the U.S. and we'll be taking to Germany in the summer. And then with the recent news about the lurbinectedin deal, bringing that in and launching that in the second half of this year will be very exciting. And I think when you start to see the diversification away from Xyrem to both 258, Sunosi and lurbinectedin, just to mention a few, in addition to the other products in the portfolio and corporate development, I think we can execute on that current plan. To the extent that we're going to be opportunistic and we have done bigger transactions in the past, and we've got a strong financial balance sheet and prices, honestly, are getting much cheaper in the last week or 2. With some of the companies we've been interested in, there's always that possibility as well that we could diversify revenue further in the short term.

Okay. Maybe something a bit more of a focused question. So you had your Q4 print recently. And when I look at the last 5 to 6 quarters, you have not had such a pronouncedly negative reaction over the past many quarters, and for what seemed to be a good print overall. What were the key issues that you received in terms of feedback from your investors? And where it was, again, the disconnect in communication?

Sure. Yes. No, good questions. It's good just to address it straight on. I think again, we delivered very nice top line growth, which has been a key focus. And we've really been investing in the business to have sustainable top line growth, as I referenced. I think there was a little bit of lack of clarity on our bottom line guidance for 2020. One particular impact, which was really an accounting policy change, which accounted for an upfront payment that we'll be recording in the first quarter for the lurbinectedin deal had an impact of $3.13, and that had typically been backed out of our financials in the past and so that created a little bit of confusion. The other aspect, which we've been signaling, but this is a year of particularly heavy OpEx investment, particularly in the SG&A front, as we've got the ongoing launch with Sunosi, the preparation for a launch with 258, the European launch and rollout of a neuroscience business unit, and now lurbinectedin that we threw into the mix, which will be with strong execution will be accretive very quickly, actually. But in 2020, will be primarily an investment.

I hear you. So maybe since you've spoken of lurbinectedin, a couple of follow-ups on that itself, and then it's also a good segue into the pipeline. When I look at Jazz over the past year, I mean, there have been quite a few pipeline additions. 258 for IH, the 385 for tremors and lurbinectedin in the past couple of months. So from your management perspective, which of these pipelines are you most excited about? And do you think it's impactful from a returns perspective?

Great. I'm going to let Rob, who leads our R&D effort, tell you about which of his pipeline products is his favorite children.

I am going to -- I was going to sidestep that, Dan, by saying, "I'm excited about all of them." And...

Nice. That's the right answer.

You can't get away with that, Rob.

Well, it's part because a big reason I came here is because Jazz's commitments to really build out the pipeline end-to-end from preclinical to late development and even to bringing in assets that are already commercialized. And we really see that as a great way to utilize our revenues. So that's why I really am excited about everyone we did. I mean if we talk about the earliest thing in, say, a pan-RAF inhibitor versus lurbinectedin on the other end, which is the soonest to be approved and everything in between. But having said that, I think it is appropriate to focus a bit on the catalyst for 2020. And so I'm certainly extremely excited about lurbinectedin. I think you know my background is as an oncologist, and I've been in oncology development in one form or fashion for 15 years and over the last almost 10 years, especially in immuno-oncology. And so part of that has been lung cancer for sure, including small cell lung cancer. And so I'm really excited about lurbinectedin because, initially, it will address a huge unmet need in second line. Even now with immunotherapies, PD-L1 inhibitors being part of frontline therapy, there remains very little in the way of good treatment options for second line. So against topotecan in second line, I think lurbinectedin looks really good both in terms of what appears to be cross-study twice as high response rate but a much better tolerability, just about in every respect with fewer than -- less than 2% of patients dropping out due to AEs in the small cell cohort. And so I'm particularly excited about that. But I'm also thinking about could lurbinectedin be a good addition to the first-line therapy. And certainly, there's an opportunity to combine in that setting, where prognosis has still very poor survival rates even with PD-L1 inhibitors in the median of around a year. So clearly, an opportunity to get into earlier lines and even earlier stages of small cell. But as you know, there's other activity across different tumor types that have been published, and I'm eager to understand where we can take those forward? What combinations would make the most sense? How we can utilize biomarkers to select the most responsive patients? All the typical life cycle management for a broadly active oncology compound like this. And I think that's probably not getting the visibility and attention externally that it might a year from now when we've more clearly articulated results and plans for next steps.

Thank you, Rob. Maybe just following up on lurbinectedin itself. So you did speak about additional indications and PharmaMar recently was also highlighting a few other indications that they have seen good activity. So how will you be approaching these indications strategically and when you're considering greater investment into the drug? And any time lines around these [ indications ] to go or no-go that we can look at?

Yes. So we just closed the deal literally this year, right? And so this is an area of active discussion, and I think we'll have much more details to share a little later in the year. But certainly, I'm -- just at a high level, I'm very interested in extending some of the initial observations we had around certain key tumor types where we've seen an early signal, and that's -- there's been publications on breast cancer, sarcoma, mesothelioma, endometrial cancer. So you could see signals pretty broadly. So trying to extend our understanding there, I think there's even some tumor types that would be logical that we haven't tested yet, so probably some additional signal finding. But then mechanistically, when you think about how this drug is working, and it's -- how well tolerated it is, there's some obvious combinations that should be pursued as well, which also can present an opportunity across those tumor types. And I think that's all in addition to as what I said, getting into earlier lines and stages for small cell. So a lot of work to be done. We need a little bit of time to sort of get our thoughts together on how we would prioritize that. And I think later in the year, we'll have more to say around specifically what we plan to do.

One thing, if I can just interject, Balaji, is that -- with small cell lung cancer, the monotherapy data, which is supporting the accelerated approval priority review with an August PDUFA, that's our primary focus in investment. What Rob is saying is a lot of areas that would be additional upside, honestly to the deal model, what we saw was that small cell is an underserved market, especially in second line. Immuno-oncology is moving toward the front line. Almost every patient will relapse, and this is a preferred therapy in terms of its profile. Good response, low toxicity, easy to administer. And surprisingly, strong awareness actually. PharmaMar is without a big presence in the U.S., between ASCO and lung conferences has really reached to a lot of the lung doctors. And as we've been gearing up our efforts, we've been surprised by the level of awareness and support for bringing this program forward. So obviously, a big focus of the joint team is getting the regulatory filing approved and getting the right label. But importantly, now that we've got more infrastructure than we did in the past, we are looking toward putting a full molecule development team behind it, in combination with our licensing partner, PharmaMar, to make sure that we can fully reach the full potential of the program.

Thanks for that addition, Dan.

And just on that PDUFA, is there any upside on what is the upside for having the ATLANTIS data out before the PDUFA? And how -- what is that time line dependent upon?

So just our PDUFA date, August 16, and it's proceeding very well. There's -- we're in good interaction with the FDA. And at this point, they've indicated no need for an advisory committee. So honestly, we're preparing internally for that date or something sooner. In terms of the date for the ATLANTIS trial, which is really being conducted by PharmaMar, as they're finishing up. It's sometime in the second half, and it's likely to fall outside of the PDUFA review.

Okay. Understood. Maybe then changing gear to the other event that you're looking into -- towards the end of the year, crisantaspase. Could you compare this with your current Erwinaze program and help us understand the competitive edge you have for this product, albeit supply -- the supply quantity and the cycle time and efficacy, more importantly. How should we think about this?

Sure. So I'll start, then, Rob, and if you can fill in. But just to remind people, Erwinaze has been approximately $200 million product for us over the last several years. It's been well accepted for patients who have hypersensitivity to an E. coli-based asparaginase. The challenge has been with PBL, who's been the sole supplier. There's been a number of quality issues and supply constraints. And so we've had to limit promotion, not put any clinical development into the program. And we've had a number of days of stock-outs last year. More than half of the days in the market were stock out. And so as a life-saving medicine, we're committed to making sure that there's a high-quality available modern-based process. And so we've been investing in a recombinant version, which is our JZP-458. And we've taken it very quickly from a healthy volunteer Phase I to a pivotal trial in 2019. So we made significant progress as of August. Before we made that release, it was listed in the preclinical pipeline. So we're doing everything we can now to bring that to the market. And maybe, Rob, you could talk to the development path and then some of the advantages of the program.

Yes. Thanks, Dan. Where I would start is the healthy volunteer data, which have now been published. We published that at ASH last year. It was an extremely useful study to enable us to select doses for the pivotal trial and to predict what those doses will yield in terms of asparaginase activity over the 72-hour window, which is a typical way to look at this. We designed that study and set those targets based on all the modern information around the impact of asparaginase activity in leukemia treatment. And so I think there's even the potential with our dose selection and the data we generate for it to look even more robust than what you'd expect with standard doses of Erwinaze. So in the pivotal trial, we have the ability to look at data after 51 patients, which would represent the minimum safety database that the FDA would require. And if we've hit our target from a pharmacodynamic perspective, which we hope to do based on the healthy volunteer data we have, we could have an early submission based on that interim analysis in the U.S. And the study has the option of continuing to add more patients if that's needed, and then even a second part where we've been looking an IV formulation. So we're hopeful that we'll have useful data this year. And we already have initiated the trials, we had a first patient in last year. We continue to activate sites and pursue enrollment.

Thank you, Rob. Also just curious on this. So what would happen in the event PBL decides to stick with you as a partner beyond 2020? Do you see both these products existing in the market eventually? How would this play out in such a scenario?

Yes. No. Good question. Yes. No, we do see ourselves, and we are active in the process that continues with PBL. We've been a long-term partner of theirs. We've invested in clinical data, and we have a number of the BLA filings in our name, and we also have set up a group of partners in other markets. And so I think with both products, it's going to take some time for 458 to be fully available in all indications in both IV as well as IM and in all markets. And so to the extent that, together, we could be growing the asparaginase market and making sure that all patients in all geographies can get access to the product, that collectively, we could be investing behind the asparaginase program. And making sure that right now, probably with limited supply, people are getting rechallenged with the E. Coli-based Oncaspar more than they should because with lack of supply, physicians have to identify which patients are at the highest risk. So I think together, we could do more than a part, honestly.

Understood. We have a couple of minutes left. So I just want to focus on ultimately, Xyrem on which there is significant pushback and concerns around the longevity of the product, as you understand. So investors will speak to -- highly concerned about how this dynamic could play out with Avadel and maybe Axsome. So could you throw some color on how such a competitive landscape would look like considering the limited set of patients? And maybe help us understand the longevity of this product.

Sure. No, good question. Well, obviously, as Xyrem has been a really important product for narcoleptic patients over the last 15-plus years. And even last year, in the 15th-year plus, it's continued to show great volume growth as the increased diagnosis rates have been going up in patients who need it, ultimately get it and get a lot of benefit from sodium oxybate. Almost a decade ago, we realized as effective as the sodium oxybate Xyrem is because of the doses that it's given at, high amounts of salt are given on a chronic daily basis to these patients with a high degree of cardiovascular comorbidities. And so we invested in alternative formulations to reduce the sodium load by 92%, which at typical doses is 1 to 1.5 grams per night. You can think of it as 5 to 10 bags of potato chips that people would otherwise be consuming as they're going to bed. And so we're really pleased with the 258 data that we showed last year that we could take patients, whether naïve or on Xyrem, and immediately titrate them over with a sustained clinical benefit on to 258. So in terms of how we think about additional market dynamics, it's an underserved market. We've been the primary branded product there. So I think additional investment in the product. There's still a good degree of under-diagnosis and the patient journey is often 7, 8, 9 years before they get to diagnosis. So having additional investment in the market could help grow the overall market and make sure that patients get diagnosed and treated sooner. We think there's definitely a place long-term for oxybate. We really think it's the healthier, safer, low-sodium version. And so that's why we're investing initially in the 258 program, but we also have a once-nightly and part of the product offering. And we think we've got pre-existing relationships and expertise that we can bring to bear and be a long-term player in this market.

Thank you, Dan. I had more follow-ups on that, but we are out of time and you have a day of meetings. So we will end the call for now. Dan and Rob, thank you again for your time. Kathee and Diane, thanks for dialing in. I wish you a good day of meetings, and we'll stay in touch. Thank you.

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Thanks, everyone.

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