Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Hello. This webcast presentation is for Bank of America clients only. If you are a member or representative of the press or media, please disconnect now. And now I would like to turn the call over to the moderator. Thank you very much, and have a good day.

Thank you, and good day, everybody, and thanks for joining us for our next company presenter. I'm pleased to be joined by Jazz Pharmaceuticals and CEO, Bruce Cozadd; and CFO, Renée Galá. Thank you both for joining us at our virtual Las Vegas conference, which doesn't sound nearly as exciting as it sounds. But thank you both for joining us.

Yes. Happy to be here, Jason.

Thank you.

Yes. So maybe my discussion points really starts with some general corporate strategic and then we can jump into some questions around each of your therapeutic verticals in Sleep and hematology/oncology. But Bruce, maybe to kick things off, can you speak to your company's long-term growth strategy? And I asked the question in lieu of an important 2023 loss of exclusivity event. And I know that investors can debate the longevity of your core sodium oxybate franchise. But wondering from your perspective, where you think the company stands on its diversification objective. And there's obviously a range of scenarios that could play out around your core sodium oxybate business. But where do you feel like you currently stand in terms of having the assets in place to diversify your business away from the sodium oxybate business?

Yes. Thanks for the question, Jason, and thanks, everyone, for joining us. I will say since we're being webcast that I will make forward-looking statements here, see risk factors in our SEC filings. And if I refer to non-GAAP measures, see reconciliations we provide on our website. On the strategy question, I think there are 3 main pillars to our strategy right now that get to your question of diversification. Oxybate remains a major driver of our business, and we believe is a significant long-term contributor to the value at Jazz and to be clear beyond 2023. So when we talk about 2023, a loss of exclusivity, of course, we have negotiated settlements of ANDA filers that allow for authorized generic entry, 1 volume unlimited authorized generic; and then 3 very volume-limited AGs in the period '23 to '26. Of course, we have meaningful economics in each of those AGs as well. But oxybate value remains central to our story, whether that's Xyrem's current growth, the upcoming launch of JZP-258 that reduces sodium and Xyrem by 92% or between 1,000 and 1,500 milligrams a day, which we think is very important for the long-term health of these patients that we know have high cardiovascular comorbidities. But beyond the JZ-258 launch, which could come as early as the fourth quarter of this year, we're looking at expanding use of oxybate. We've got the idiopathic hypersomnia trial completely enrolled. And then I'll remind you, we do have our own once-nightly low-sodium program earlier in development as well. But beyond that oxybate value, we want to make sure people understand we have other good revenue growth drivers in our business. Sunosi just launched in the U.S. and being launched this month in Europe. Lurbinectedin, with the scheduled launch in the third quarter, upcoming here very soon. 458 that's completing its pivotal clinical trial. We've said we'll get to a BLA submission as early as the end of this year as well as a range of other things that are earlier in development, including the Cavion deal we announced just last summer for a Phase II asset. So we've got a lot that we think is visible to our shareholders now that will diversify our top line. But the last -- the third and last piece of the value strategy is around continued corporate development. And we entered the second quarter with $2.6 billion in cash, investments and available revolver. And we think that positions us well to continue to add to our marketed portfolio but also our development portfolio, early stage to late stage, as we continue to build toward that 2023 to 2026 period that I referenced earlier.

Do you think you have enough to be stable through that 2023 to 2026 period with what you have? Or do you feel like business development is needed to fill a gap or is BD more about driving growth through that period?

Yes. I don't think of business development as defensive to fill a gap. I view it as an opportunity to continue to put capital to work to earn returns for our shareholders. We think there are lots of good opportunities out there, both in sleep neuroscience and hematology/oncology, including our more recent move into solid tumors. And shame on us if we don't use our strong financial position, whether that's our balance sheet or ongoing cash flow to continue to put capital to work in ways that both diversify the business but also add return.

Got it. Okay. Now shifting gears to your sleep franchise. You obviously had some recent competitor data in the sodium oxybate space from Avadel's once-nightly FT218. Obviously, from your 1Q call, it sounds like you're still very excited about JZP-258 and view that as I presume the likely standard of care in the future. So I'm curious if you can share with us your thoughts on ability to convert patients over to sodium oxybate. You guys have done -- generated some data that I think makes it easier for physicians to seamlessly transition from dose of one product to another. So can you share with us a little bit more detail in terms of how you're thinking about the conversion?

Sure. Well, just as a reminder, we started developing a low-sodium version of oxybate almost 10 years ago. We had gone out and asked patients and physicians what the most important improvement we could make to our existing Xyrem product would be. And the overwhelming answer was that reducing the sodium content of Xyrem was critically important to these patients. It's estimated that 70% to 80% of narcolepsy patients have a cardiovascular risk factor that they're currently being drug treated for. And given that this therapy is a chronic lifelong therapy, the importance of reducing sodium by between 1,000 to 1,500 milligrams a day is critically important. So we think all patients will benefit from JZP-258, be they existing Xyrem patients or perhaps patients who were prescribed Xyrem because of the high salt load and physicians tell us there's a fraction of their narcolepsy patients they don't prescribe Xyrem for solely because of the sodium content of Xyrem. We're coming up on a PDUFA date in July. We will take a couple of months to put a revised REMS in place that can handle both Xyrem and JZP-258, and then we think we should be ready to launch in the fourth quarter. Given the choice of Xyrem and JZP-258, we don't think there's an advantage to any patient staying on Xyrem. In other words, there isn't a way in which the high sodium benefits patients. And as we demonstrated in the Phase III trial that was presented at World Sleep Congress in September, we had really excellent data across the endpoints and we also showed, as you referenced, Jason, the ability to move patients directly over dose to dose from Xyrem to JZP-258. If you're on Xyrem at a given dose on Tuesday, on Wednesday, you can go to JZP-258 at that same dose maintain efficacy. That's important because if you ask physicians about switching patients, they often have in their mind a couple of assumptions. One, that, that new product might be more expensive or harder to get from a payer standpoint. We don't think that will be the case with JZP-258. Or they have in their mind that to switch a patient means weaning a patient off a product where they're well controlled and then bringing them back up, titrating them up on a new product. And patients don't like being interrupted in an effective therapy. But in our case, of course, they can transition directly from Xyrem to JZP-258.

Got it. Great. And I guess in the past, it seems as though Jazz has deprioritized its once-nightly sodium oxybate, which is a profile pretty similar to what your competitor Avadel has. I firmly believe you've done a ton of market research on this. What proportion of the market do you think that once-nightly profile might appeal to?

Well, just to be clear, our once-nightly program is once-nightly and low sodium. So what we effectively did is we prioritized getting a healthier product to market as quickly as we could. And we thought doing that with the current more short half-life flexible dosing sort of twice nightly was the fastest way we could get that healthier product to patients. We do have in development the possibility of a once-nightly program as well, but that, to us, was less important. When we talk to narcolepsy patients about once-nightly dosing, there are things that appeal to patients about the convenience of once-nightly dosing, but there are limitations to that as well. Remember that we're dosing here in oxybate, a sedative hypnotic, right? This is a form of the date-rape drug. It really knocks patients out. And there are patients for whom the idea of being knocked out all night is not attractive, whether that's fear of inability to get up and go to the bathroom in the middle of the night which a number of our patients tell us they do before they take their second dose of Xyrem or whether it's the ability to check on young children in the middle of the night. A number of patients say they're less comfortable being knocked out all night without the ability to be up in the middle of the night. The other thing about fixed dosing over the course of the entire night is you don't have the controls the patient to shorten that dosing interval. So with Xyrem if you're out late, if you're out in an event, you don't get home as early as you normally would to take your Xyrem at your normally scheduled time, of course, you can forgo the second dose in the middle of the night. That allows you to get up at a normal time in the morning and go to work. If you have a longer dosing interval that's already been dialed in when you take the drug, there are obviously dangers associated with getting up, driving a car early in the morning when you still have blood levels of this drug. So that flexibility in dosing is something that a lot of patients say is important to them.

Got it. What role do you think payers play in how we see the market evolve here? You guys started contracting early this year on your oxybate franchise and your launch in the fourth quarter. So can you provide us any color on how you think the payers may see the value as you see it for the low-sodium formulation? And also, we also see the new player to market oftentimes struggle to get formulary access.

Yes. So as we were coming up on the launch of Sunosi last year, we recognized that the narcolepsy space was going to move from being sort of one branded promoted product in Xyrem to a multiproduct market. Sunosi being the first new entrant in that market but soon to be followed by pitolisant and then by our JZP-258 product at a minimum. And so having a relationship with payers as we bring these new products to market is important. We wanted to maintain the excellent access we've had for Xyrem historically, where about 80% of coverage is commercial lives, but prepare for these new launches as well. We updated people recently on our Sunosi coverage at more than 80% of commercial lives covered and with excellent formulary status, typically Tier 2 with one step-through of a generic. But we also were contemplating that we'd be coming to market with 258 as well. I think from a payer perspective, they care about what the product does. And we'll obviously look at that when it's fully approved. And they also care about what it's going to cost their patients. And we certainly don't want price to be a reason not to switch from Xyrem to 258. And we think if we take away reasons not to switch, the obvious benefit of the health advantage of the lower sodium should be compelling to payers, to physicians and the patients.

All right. Well, maybe we can shift gears to Sunosi. I'm going to spare you the -- having to define what a market acceleration clause is and jump right to Sunosi. You had some early formulary wins in 2020, but it seems like COVID probably just unfortunate timing as it pertains to the launch of this product. So can you talk about how you're thinking about navigating this COVID-19 dynamic and making sure this is a successful launch?

Yes. We like a lot of things about how the launch was proceeding pre-COVID-19. In that, as we talked about, we were getting to excellent payer coverage. We have said at the time of launch last July, expect us to take 6 to 9 months to get to good coverage. So that would have put us in the first quarter, and we were happy that both entering and leaving the first quarter. We had achieved our objectives on access to patients. We also wanted to engineer good trial of the product so that both patients and physicians would understand the benefit that this drug provides these patients. And in fact, we've seen good trial, and we've seen good refill rates, which tell us both that patients are benefiting from the drug and that there's no barrier to them staying on it in terms of their out-of-pocket costs. We saw good growth in TRx’s from fourth quarter 2019 to first quarter 2020, up over 40%. So a lot of things were going well. Unfortunately, for us, we grounded our field-based teams as of mid-March, along with all our employees worldwide. And at the same time, we saw the number of visits from patients to physicians go down. So both the patient physician interaction and the Jazz sales rep physician interaction have been impacted by COVID-19. And while we anticipate things will get back toward normal, as we move through the second, third and fourth quarter of the year, that did interrupt a key time for us, particularly in terms of growing our prescriber base on the OSA side. Remember that this drug is indicated to treat EDS in both narcolepsy and OSA. It's estimated that OSA market potential is probably 10x what we have in narcolepsy, just given the sheer number of patients. And so pulmonology is a key audience for us. Pulmonologists have notably been attending to COVID-19-related respiratory issues in the past few months as we can understand. So we do feel there's been some pause in that launch in terms of progress. We stand ready to go back at it when our reps can be face-to-face with docs and when patients are coming to see those docs, and we'll meter out our investments in that launch to make sure we're putting them to good use when those investments will pay off. DTC is something we had contemplated for 2020 to drive patients into physicians' audiences. That's going to work better when things are back toward normal. And those physicians will see those patients, have time for them, be well educated on EDS and OSA, drug treatment for EDS and OSA and the benefits of Sunosi therapy.

Got it. Okay. Well, it seems like it's a story that is fluid, and we'll obviously be monitoring the COVID-19 situation. But I guess more to come on that front over time. So maybe let's just shift gears in the last 12 minutes that we have. As I know lurbinectedin is an interesting asset that you guys were able to acquire and seeming replacement for topotecan in the second-line setting of small cell lung cancer. So can you discuss for us some of the regulatory dynamics at play here? Because you have the ATLANTIS trial, which I think will read out in front of the lurbinectedin PDUFA. And so I guess that raises a question of could we see this continued trend of early oncology-accelerated approvals ahead of PDUFA date or if the ATLANTIS trial may be something that regulators want to see.

Yes. So we're obviously prosecuting this NDA in collaboration with PharmaMar, who's taking the lead. So I'm probably not going to say more than they said historically. But the anticipated time line for top line data from ATLANTIS is second half of the year, and we believe most likely after the PDUFA action date of August 16. You're right, Jason, to point out that we've seen some early approvals in this space. In fact, our launch team is operating under the premise that they should be ready to go early. That doesn't mean the approval will come early. But if it does, we don't want to be surprised by that. We want the product to be in the hands of physicians and helping patients as soon as possible. We think FDA got a look at the data that's currently in the NDA last fall and encouraged PharmaMar to submit it, which they did in December. That's what gives us the August PDUFA date. And to be clear, we don't think there'll be a need to wait for ATLANTIS data to act on that NDA. We think the ATLANTIS data could prove to be confirmatory, meaning to check the box and turn lurbinectedin accelerated approval into a full approval, but we don't think it's on the critical path to time line.

So it could be the confirmatory, but if it doesn't go positive, it's not the -- it's not an outcome that takes away the accelerated approval, to be clear?

Right. We think there's upside to the extent that combination data demonstrates added benefit and might give physicians a different way to use lurbinectedin in combo rather than monotherapy. But if it's not a positive, we just think that means a different confirmatory trial would be needed. Under our arrangement with PharmaMar, that would be PharmaMar's responsibility.

Got it. And can you talk about some of the market dynamics at play here in terms of academic versus community, where you see the low-hanging fruit for adoption versus what were going to be some of the key uphill battles to changing old habits with perhaps community oncologists who've been used to using topotecan?

Yes. In terms of the setting for most of this care, it is the community setting when you're talking about lung cancer. And remember, we're talking about second line small cell lung cancer. So these are patients who've already obviously been diagnosed, been through a first-line treatment and relapsed. And in terms of changing old habits, there is an old habit, which is using topotecan, but nobody has been particularly happy with that in terms of its efficacy or its tolerability. So as we talked to treaters, in all settings what we hear is enthusiasm for having a new option that seems to offer additional benefit on the efficacy side and actually easier to tolerate and easier to administer it to patients.

And so for a largely community oncology prescriber base, I think in the past, you've commented about your Vyxeos sales force and being able to leverage that and maybe being focused amongst maybe more of a hospital-based oncologists. So can you give us a sense of what you can target currently with your sales force? And how big of a commercial build out are we looking at in order to realize the full value of the lurbinectedin opportunity?

Yes. So you'll remember that with our existing sales force, we've actually recently expanded to have better coverage of the community setting, which is what I just described is the setting for a lot of lurbinectedin opportunity. We are adding a couple dozen more folks, particularly with lung cancer-specific experience to our team to gear up for this launch. But we think we're largely in the right place, and we're cross-training our existing team to be ready to go for the lurbinectedin launch. And I think we gave those exact numbers. I don't have them in front of me, Kathee, on size of sales force, but it's added a couple dozen.

28. 28 new to the 44 we have.

Great. Thank you.

Got it. Great. And then the other question is more tricky question to answer. But oncology, we typically think of it as a hypercompetitive space for assets and derisk commercial stage assets or near to commercial assets. Why do you think you were able to get this asset to late in its development, seemingly more of a modest upfront payment? I mean, great, you guys are giving a pretty attractive royalty on the back end. And maybe some of the competitor companies were not willing to give that sort of royalty in the back end. And that's how you were able to compete from a currency perspective.

Yes. So I think PharmaMar wanted a good partner. And part of that, for sure, was financial terms, but part of that was the ability to execute. And I think we made it clear to PharmaMar this would be an important priority for our organization now and moving forward. I think they wanted a partner who would prioritize this launch, which obviously is a fairly short time line between announcing the deal last December and the upcoming PDUFA date. I'm not sure we won it because we offered more money than other people. I think PharmaMar believes in this asset and its value going forward and wants to participate in that and was willing to go with a deal that -- where they took some of the risk, as I just described. So I think it was a good match for us

Got it. Great. And then maybe just shifting gears to the market dynamics in the ALL space and JZP-458. I believe that you guys in the past have commented that there's the possibility of an early interim analysis that could be the basis for a filing, which was, I think, roughly half of the study subjects. Are you still expecting an interim sometime middle of the year as an interim analysis already occurred? Any color you can provide on that front?

Yes. We did talk about our discussions with FDA and about this trial. Of course, we've been working hand in glove with both FDA and the children's oncology group and making sure we can bring this needed therapy to patients as quickly as possible. And part of that is an interim look after 51 patients in our trial. I don't think we gave exact timing on when we expect that to happen this year other than we thought it could lead to an end of the year BLA submission. So that is built into our plan. Remember, this is a single-arm open-label trial, where we're trying to demonstrate that we have safely administered active enzyme that remains at a level above a specified trough over a certain period of time. So the endpoint of this trial really is a PK endpoint as opposed to measuring survival over a multiyear period. And that's one of the reasons we think this can move fairly quickly to the market. Remember that we move from IND to patient enrolled in a pivotal Phase III trial in about a 12-month period. And we're equally interested in moving quickly from where we are now to get this product to market.

Got it. And there's some discussion that we get from investors, obviously, regarding how big this market could ultimately be. So we know in the past Erwinaze reached sales levels in the slightly above $200 million level. But that was sort of a not fully supplied marketplace. It didn't have the benefit of Japan. It didn't have perhaps the benefit of AYA. So I think where investors struggle with is understanding how underutilized Erwinaze was and potentially just how big the market could be. So do you have a sense, is the market potentially double what we've seen at its prior kind of $200 million threshold. Just sort of curious if you can give us any sense of how to think about the ultimate size here.

Yes. Well, we think past revenues are not an indicator of how big this opportunity can be. And I'll think -- I'll talk about that in sort of 5 dimensions. The first is we've actually seen a pullback in use of Erwinaze when people see an allergic reaction to first-line E. coli-based asparaginase. We're seeing docs hesitate to switch to Erwinaze because they're not convinced there's reliable supply there. So we want to restore that confidence. The second opportunity would be to move into the adolescent and young adult market, where we've stopped promotion now. It doesn't make sense for us to generate demand that we can't supply. But we think use in that adolescent and young adult population is important. Because the survival data is better in the pediatric-inspired regimens that do include asparaginase therapy. Third opportunity would be go back to something we've talked about previously, which is silent inactivation. Where we know the body can produce antibodies against the E. coli-derived asparaginase, even if you're not seeing a frank hypersensitivity response. There are assays now that will pick that up. Of course, if you're inactivating the enzyme, you're not getting the benefit of the therapy and you should switch to a non-E. coli-derived asparaginase. The fourth opportunity would be geographic expansion. We've got an approval of Erwinaze in Japan and have never launched there for supply reasons alone. We've also turned off distributor markets of late for Erwinaze because we can't ensure that each vial is going directly to treat an ALL patient. We think it's unethical at this point to have supply that we can't assure ourselves is going directly to help a patient. And then the fifth and probably the hardest to define opportunity for growth would be use of asparaginase beyond ALL. And the other thing we've had to turn off in recent years is any meaningful clinical investigation of the agent because, again, we thought it was unethical to supply clinical trials when we couldn't supply patients with a demonstrated need in ALL.

Got it. So it sounds like directionally, a lot of different things. But cumulatively, don't want to put a number on it per se. Is that sort of a fair synopsis?

Yes. I mean we had said there was very meaningful upside from the $200 million even without doing additional clinical investigation before we ran into supply constraints with PBL as the manufacturer. The advantage of this program we've got going now is some modern production technology should also be higher margin for Jazz shareholders in terms of what our arrangements are around that technology and the fact that we developed the IP with tax in mind. So both from a gross margin and tax perspective, it should be a higher-margin product. But mostly, we're excited about having a reliable, high-quality supply unconstrained product that can meet the needs of patients.

Got it. Great. Well, I know we're up against our time. So Bruce and Renée, thank you so much for joining us at our conference. And looking forward to next year, hopefully, doing it in Las Vegas, actually.

We'll look forward to that. Thanks, Jason.

Great. Thanks for having us.

Great. Thanks a lot. Bye.