Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Great. Thanks, everybody, for joining us, and good afternoon. I'm Randall Stanicky, pharmaceuticals analyst here at RBC Capital Markets. And our next company we're pleased to have again at our conference, Jazz Pharmaceuticals. And we have the company's President and Chief Operating Officer, Dan Swisher with us. So Dan, first, thanks for joining us. Really appreciate you guys joining. Let me kick off...

Randall, great to be here. I appreciate RBC's support.

Great. And let's maybe kick off with a bigger picture question, and I'll jump right in. The Jazz story, I think of it around 3 things: the oxybate franchise, number one; number two, growth and diversification from new products; and then number three, business development. Obviously, there's a lot going on beyond that. But if we think about Jazz in those 3 buckets, I want to start with the oxybate franchise. It's still about 75% of the revenue base, so a very important focus here. You guys are preparing for approval in July and maybe a Q4 launch of JZP-258, this has been where most investors have been focused. This is your low-sodium version of Xyrem. How do you guys get investors comfortable that it can protect the franchise from generics, which again, aren't expected to come until 2023 unless you trigger the revenue level?

Yes. No, good question. So first, again, thanks, Randall, for having us, and thanks, everyone, for joining. I'm just going to say quickly because we're being webcast. I will be making forward-looking statements here, so please see our risk factors in our SEC filings. If I do refer to any non-GAAP measures, see the reconciliations we provide on our website. But you framed it really nicely, which is we do see those 3 main pillars of growth for Jazz to tap into the oxybate franchise, both now and longer term, the growth drivers with what's on market, near market or in the pipeline. And then the access to corporate development and capital and capabilities we have on that side. So starting with oxybate, which is our top corporate priority as well. We've been market leaders here with narcolepsy for 15-plus years, and we've been working on a low-sodium version with the profile we've provided for the last 10 years because we had heard from physicians and patients about the importance for lifelong therapy to get on a safer, healthier treatment option when many of these patients have chronic comorbidities and other complications, cardiovascular and metabolic, where taking 1 gram, 1.5 of sodium per day on top of dietary intake is more than you would like. And so we're really pleased with the 258 clinical profile that we provided last year as a Phase III data read out. And importantly, we took patients from all segments. So we had naive patients who came in and rapidly got to good clinical benefit on 258. But importantly, for this market as well, where we have 15,000-plus patients on active Xyrem treatment, we took patients who were on Xyrem, were getting good treatment benefit, and we could dose next day, dose for dose onto 258 and maintain similar clinical efficacy whether measured in or co-primary endpoints of EDS or cataplexy. So we're actively engaging with the FDA to pull the regulatory filing through. We're under a priority review voucher, so expect a PDUFA action date in July. Importantly, we'll be modifying the REMS and bringing that into our existing REMS. We expect that will take us approximately 4 months. And then we should be on the market, launching the product in the fourth quarter. And the way we are going to position this and the feedback we've gotten from the field is it's the ideal long-term therapy for patients who are both on Xyrem or new to oxybate, and that's where we're looking to both convert over the market that's on Xyrem, but also patients who might have been diagnosed and the treatment choice should have been Xyrem but because of cardiovascular complications concerned about the sodium warning and then new patients who are coming into the funnel.

If a patient is on Xyrem and well-controlled and doing well, do you -- are you going to go after those switches? I mean, how do you get a physician to switch a well-controlled patient on to a low-sodium alternative, if they don't have those comorbidities?

Yes. I think there's several factors there. I mean, one is that the -- all patients, even younger patients who don't currently have a comorbidity, overtime that level of sodium exposure, particularly with the underlying condition of narcolepsy is a bad set of risk factors. And so being on a chronic lifetime therapy, it'd be much better to be on the low-sodium versus the high-sodium in terms of this chronic disease. But the other component, of course, is given that you can convert so easily, and we showed in that Phase III study, for people to be educated and know they can go dose for dose without sort of need for further titration or weaning them off the therapy before going to the new therapy, it makes that conversion pretty readily doable. The other factor will be just as physicians get experienced then with doing that in their practice, they'll feel increasingly comfortable. So physicians are going to be a major focus. We've been working with payers on our SLEEP franchise to make sure that market access is not a barrier. We've got good market access at this point in time with Xyrem, and we look to maintain that level of market access for 258. And then lastly, you've got patients who are highly motivated about their care as well, and they can be an important lever here, too, in terms of what choice of therapy they want to be on.

One of the questions that I've gotten quite a bit from investors and you guys are getting the same question is, you've spoken more about the protection -- the economic protection to Jazz given some of the generic limitations if you trigger that revenue threshold with the 258 launch. How do we think about that potential degradation of the franchise. There's economics that come back to you from the generics, obviously, for the contracts. But how do we think about the potential risk to Xyrem, the economic risk to Xyrem?

Well, clearly, the best sort of win-win for all for patients, physicians and for us is to get the treatment onto the low-sodium version, healthier treatment option as well as equally efficacious from what we've seen in the clinical studies. So -- and that's also got durability in terms of exclusivity, et cetera. So the more patients that are on it and the more new patients and converted patients, that's going to be our focus. In terms of market dynamics. As you know, in 2023, there's authorized generics that come in. Hikma being the first and then a couple of volume-limited generics, we actually have substantial economics that come from that relationship. So to the extent that there's AG therapy for those sort of mid-2023 to 2026 time frame will gain a fair amount of economics. Again, the hope is we've got an increasing number of patients that are on the low-sodium version.

One of the opportunities for you that I think has gotten some attention, but not as much as I would have expected perhaps at this stage, is idiopathic hypersomnia. How do you guys think about that opportunity and can you remind us on the timing?

Yes. No, it's definitely an area of focus for us. So with our low-sodium 258 program, we started the study a couple of years ago, and it's a -- it's got very similar manifestations to narcolepsy other than right now, it gets excluded by payers and does not get paid for. But similar sort of serious sleep disorder conditions, whether it's sleep paralysis or excessive daytime sleepiness. And so we started the study, we had prior good anecdotal data on Xyrem when market access had not been as much of an issue, but we got that study started. And we're actually -- enrolled it faster than we had internally anticipated. So I think as of the last earnings call, we gave the update that we were fully enrolled with the study. So we still have patients very much on active treatment and working through the protocol. And in the COVID situation, we're making sure to do everything we can to support the sites and investigators and keep the patients on. So hopefully, we'll have clinical data from that study in the not-too-distant future. So we are focused on, with a positive study, what could that mean? It would mean sort of first-approved therapy in that treatment setting. It would open up market access for that very important patient group. There's a couple of patient advocacy groups that support these patients, but they're relatively not as well resourced and supported as we would like. So we would like to partner with patients and caregivers to ensure that these patients are getting needed therapy. I think I always find when you're in a study that goes faster than expected in terms of enrollment despite very strict inclusion/exclusion and protocol-related factors, that does speak to a bigger market opportunity. So we're excited and we're sizing up what that's going to be. It's the same treatment group. So it creates a lot of leverage within the commercial organization. But we think it could be a significant growth driver to the franchise.

So we've made it 10 minutes without talking about COVID-19, which I think is pretty good. But on a serious note, and we can talk about the impact, shorter-term impact to the business, but actually more interested in how this could impact or not impact the 258 launch going back to the upcoming approval. Presumably, if you're seeing a ramp in new patients coming out of the pandemic, it's easier to get new patients started up on a new product than to switching patients who are currently on Xyrem. Does that factor into how you're thinking about that launch at all? And then maybe just talk to us about what you're seeing with respect to the reopenings. There's been a number of companies coming out at our conference today and over the last week or so and putting out metrics that have been really encouraging in terms of unit volume starting to pick back up. And I'm curious as to what you guys are seeing as well?

Sure. Yes. And we've given some updates on our various conference calls. I mean, the most recent was our last earnings call, where we did have some revised revenue and an operating plan based on some impact from COVID. Yes, the expectation is we're going to see most of that impact this quarter, less of it in the third quarter and back to more of a normal operation in the fourth quarter. The good news for the oxybate business is, we had a very robust first quarter. We had good growth, whether it was patients or bottle volume. And because so much of the revenue is driven by that chronic base of patients, that continues to be well supplied during the midst of the COVID situation that we've had good patient adherence, but we've also had good refill rates and good product supply through our pharmacy to those patients. We've also had PEs, but they -- it's patient enrollments or new patients on therapy, but that has been somewhat affected because the sleep labs had been closed across the nation. They're just starting to come back online and yes, we anticipate more and more coming back online, if not the vast majority by the end of the second quarter. And that does fuel sort of the new patient growth to the extent that we were still getting patients who had been diagnosed pre-COVID, pre the close of the sleep labs that were coming on to therapy in the second quarter. The way we think about it from a customer engagement perspective, is, fortunately, because of our long-standing relationships with the narcoleptic treaters, even with COVID, we've had an opportunity to continue to engage through virtual and digital channels. And we expect of course, in the second half as does most of pharma, that it will be safe to be back in the field. In fact, we think in a lot of parts of the country, could be back in the field over the next month or so. And so in terms of our launch planning, everything continues as is. And when we get to the launch, we'll be focused clearly on new patients coming through, but also on the existing Xyrem patients as we mentioned. And really kind of working on both sides of that equation. So don't really see COVID necessarily impacting the launch at all at this point. But if, for some reason, there was another second wave of infection and we had to be more on a virtual basis, we've gained a lot of muscle and experience there on how to do that, and it will be with a group of physicians who we've got good long-standing relationship and experience with.

That's helpful. Let's jump over to JZP-458 because it could be a big opportunity for you, and it's one that The Street has started to focus on a lot more. We could see an interim read. I think you guys have said before end of summer and that could be followed by a BLA filing, that would be probably on the quicker side. And then the question is, how FDA would prioritize that review, given that there's a lot of need for this product? It ultimately could make a first half 2021 launch possible? How do you think about that timing? And then I'm not asking for guidance on the product, but presumably, you know the size of this market from what you weren't able to fill with Erwinaze. So how big could this market be or in terms of what you can go after from a revenue perspective?

Yes. No, I'm glad you brought up 458, Randall, because it is one of our most important corporate priorities and in part because over the last several years having a life-saving condition, particularly for pediatric cancer patients having such unreliable supply and quality issues has -- it goes to the heart of what we don't want to be as a company. We really want to serve our customers and make sure that these medicines get there. So really excited with the quality and robustness of the process. We've got the recombinant approach with 458, and clearly, with the support now at the FDA and the children's oncology group, there's a lot of interest to bring this new therapy to the market and have an alternative to the issues we've had with Erwinaze. And we do have a fairly streamlined pivotal study, and we moved quickly last year from an IND to the start of that pivotal trial within 12 months, which is a really fast timeline. And then with the pivotal study, we've got the understanding with the FDA that there could be -- there will be an interim readout. And if that's positive and sufficiently showing a PK endpoint, we can move forward with the BLA filing. We haven't given a specific timing. So I know you've mentioned sort of midyear, but it's in a time frame this year that if that's a positive readout, we can lean into it and be prepared for a BLA submission as early as the fourth quarter. And I think given the condition and the alternative to Erwinaze and the supply conditions we're still in, with lack of supply, I think the FDA could move pretty quickly on that application. And so we're preparing everything we can on the CMC side and other factors so that we can slide in that clinical data with the support of the COG and move that to a 2021 launch.

And it could be a huge 2021 launch for you because I assume that the ramp here, given that the magnitude of unmet need in Japan as an example, but there's a lot of geographies, and to your point, peds that could immediately see uptake. How quick could the ramp be in your mind? And the other part of the question is, do you see JZP-458 taking from the Erwinaze market or kind of growing around it, understanding that you're going to lose Erwinaze, I guess, at some point in 2021?

Yes. No. And I didn't really touch on that part just in terms of the market opportunity. We see multiple dimensions to that. I mean, one is because of this lack of supply, physicians and institutions have had to try to manage around allergic reactions to first-line E. coli-based asparaginase. And so having reliable supply, that's not something you want to keep rechallenging patients and potentially having prophylactic or having anaphylactic reactions, too. So with confidence in the supply, I think we can grow back that market, including silent inactivation, which physicians are probably not looking for at this point because they don't have enough asparaginase to go around. And then penetrating into the adolescent young adults. So we've been supply-constrained, and it's kept us to around a $200 million market opportunity. So you can do some math and see we'll be beyond that. And then you're right, there's geographies like Japan, which is a really important market for us where the KOLs are desperately in need of the therapy, but we just haven't had the product supplier quality conditions that have enabled that launch. So growing geographically into all the areas that we're currently in, but opening up new markets that Erwinaze is not in will be a priority for the program as well.

Any reasons Sunosi still can't do more than $500 million plus? And just maybe really briefly how COVID-19 has impacted that launch?

Sure. Yes. So we're excited about a number of things with the Sunosi launch. Number one was getting high-quality market access. And so we announced that we've got more than 80% of commercial lives with high-quality access, generally, a Tier 2 single step through with generic. And so that's come as early as we would have hoped in the launch, and that was really there in the first quarter. We did see in that first quarter, quarter-over-quarter growth, 40% in terms of scripts. Sales were impacted by gross to net adjustments, which we expect to ameliorate over time, particularly now with the increase in market access. We had done great on our initial beachhead, which was establishing Sunosi as an important treatment, in combination with treatments like Xyrem for the treatment of EDS in narcolepsy. But really the expansion opportunity to get to the $500 million opportunity that we had referenced for 2025 was expanding the treatment rates and penetration into the pulmonology office and the primary care office for the treatment of excessive daytime sleepiness in combination with patients that have OSA. And we were making some progress there, but that's definitely been impacted near term by COVID to not be in those offices and establishing the reach in frequency and education in that physician audience. So we're hopeful we'll be back to sort of full promotion in the second half of the year. And given the market access -- and what I will say is, the clinical profile is really translating into good trial adoption. So the physicians who are writing the scripts, even without the personal promotion, continue to write the scripts over -- we've seen it over the last 8 weeks, and the refill rates have been very high as well, which point to good satisfaction with the clinical profile. So it's just basic blocking and tackling for us to get back into the field and educate and really pushing the pulmonology office and increase awareness. And then at some point, we'll be turning on in 2021 and later DTC. So patients will be activated and asking for therapy and making sure that EDS is being addressed.

And then in the last 2 minutes -- these 25-minute chats go quickly, but I did want to ask about the third pillar or third bucket that I highlighted in terms of business development. I mean you guys have been -- you've gotten a lot of pushback and focus on this. There's a cohort of investors who would love to see you do a sizable transaction diversified from Xyrem, LBL, add another therapy to play. And your strategy seems to have been, look, we're blocking and tackling, we're building our pipeline, we're bringing in assets in a balance sheet effective way and moving them forward. A, is that the right way to think about the Jazz business development outlook from here, just continued blocking and tackling in terms of what you're doing? And number two, what are you seeing in this environment? You have an underlevered balance sheet, so you have the firepower to continue to pull the trigger on more opportunities. Are you seeing those out there?

Yes. Just starting broadly with corporate development, it's always been a key strength of Jazz and a key area we see for further growth of revenue diversification pipeline. We're really pleased with the performance we had last year. So it translated to 4 announced deals, a couple on the early-stage transformative side, both with Codiak and exosomes with Redx for a pan-RAF program, where early clinical data could be transformative, bringing in expansion from sleep into neuroscience and movement disorders with the Cavion program for essential tremor, which is in the Phase II proof-of-concept stage. And then obviously, lurbinectedin. I mean I'd love to do 3 or 4 lurbinectedin deals every couple of years, but those are hard to find. So a NDA-filed product on the priority review track into an area of unmet need that could be very accretive very quickly for us. So we're -- we would love to do -- continue to do those type of deals. I think it does add a lot of pipeline as well as near-term revenue opportunity with lurbinectedin. That being said, we've got access to $2.6 billion in cash investments, available revolver as well as still a very, very cash flow positive business. So how do we tee that up and look at additional opportunities. And I do think because of the COVID uncertainty, even though biotech has done fairly well overall, the uncertainty does create more concern about future access to capital. And so a lot of great companies with interesting products are rethinking the strategies of do they always want to go it alone? Or would they be better off in either a partnership or a straight out acquisition with Jazz. And we're looking forward to being part of those conversations.

That's great. We're up on time. But just for investors on the line in terms of what the focus on for the rest of this year, you have the JZP-258 PDUFA, I think, it's July 21. The potential for an interim read on JZP-458. Lurbinectidin launch is coming up. Anything else that I'm missing?

That's -- those are definitely the right priorities. So we're focused on the same thing. Obviously, 458 execution, as you say, and then corporate development and continued growth with Sunosi later in the year.

Okay. Well, that's a good place to stop. Dan and Kathee, I just want to say thank you to you guys for joining. Really happy to have you as part of the conference. And for everybody on the line, thanks for joining, and we'll talk to you all soon.

Thanks very much.

Thanks very much, Randall.