Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Jefferies Healthcare Conference. I'm Dave Steinberg, Specialty Pharma Analyst at Jefferies. And we're delighted to have with us the management team of Jazz. With us today is Bruce Cozadd, long time CEO and one of the founders and Chairman. So Bruce, good afternoon and welcome.

David, good to be with you.

So let's start with Xyrem. We'll start right at the top. So Xyrem outperformed in 2019, and it was tracking to do so in the first quarter until March -- mid-March when COVID hit, unfortunately. And on the Q1 call, you lowered guidance due to the impact COVID was having on your business in April. So a couple of questions, Bruce. What are you seeing in the field in terms of how COVID's impacting diagnosis and new patient starts with Xyrem? And second, now that certain states are opening up and allowing for more in person physician/patient interactions, have you been -- have you been seeing any rebound from the depths of COVID? And if so, by how much?

Yes. Thanks, David, and good to be with everyone today. I'll just say I may make forward-looking statements during this. If so, see our risk factors in our SEC filings. So we did update in our call early last month, early May, that we had seen some decrease in new patient starts and diagnosis starting at the end of March and more pronounced in April. It didn't go to 0, but it certainly was a dip from baseline. And we were seeing it start to come back, even as we hit early May, we've certainly seen increased signs of that, David. And that's a reflection of a couple of things. Number one, sleep labs reopening to administer overnight sleep tests or polysomnograms that are required for a diagnosis of narcolepsy. But also increased interaction between physicians and patients as people resume a more normal medical practice visit, and that's typically an important part, both of diagnosis but of starting a new treatment.

Got it. Okay. Thanks. So the next question is, I guess, is it tracking -- are things tracking now with your expectations that you laid out on the quarterly call or ahead or behind or no comment?

Yes. I mean so we updated annual guidance for Xyrem, and we updated it for 2 things. The issue we just talked about but also a potential change in payer mix over the balance of the year, which could impact gross to nets. And yes, we think we're tracking to that, but we're early in the rest of the year. And we try to give ourselves some room from a conservative standpoint because no one's been through a pandemic like this, both in terms of how the practice of medicine changes, but also the economic impacts and the change in payer mix. But as we said at the time of our call in May, our existing business is doing really well. Remember, our existing business is primarily chronic patients who are already on therapy, it's that leading edge of new patients and how that tracks over time that we're watching carefully.

Right. Okay. So in addition to patients and [ bottle ] volume growth, pricing has historically been a nice contributor for the company as well. But for the first time, Jazz entered into a managed care contract with ESI, why did you decide to do that, Bruce, after years and years of no contract? And how long will this contract last? And how do you see contracting impacting pricing or patient volume given improved access?

Yes. So we've long had excellent access for Xyrem really across payers but we saw a change coming to the narcolepsy landscape in 2019, which was moving from essentially 1 promoted product to multiple promoted products. And as we went to put in place contracts on Sunosi, a new launch in the summer of 2019, we also proactively moved to cover Xyrem under those arrangements. And to be clear, that's now more than ESI, that's really across all the major payers. Not only did we have Sunosi entering in 2019, we saw the potential for pitolisant to enter, which it did later in the year. And then, of course, for our upcoming JZP-258 launch later this year. So it was really looking at that change in the marketplace that caused us to think having an ongoing relationship with payers was important. It wasn't so much to improve access, we had good access, but to make sure we maintain good access through these changes in the marketplace.

Great. So that's a perfect segue into JZP-258. It's currently under review at the FDA and has a PDUFA date coming up quickly on July 21. Any sense, Bruce, of the review process, most recent interactions with the agency? And assuming the approval comes through in July, how quickly can you launch the product? And for those people relatively new to the story, what's the typical time line for getting a REMs scheduling in place?

Yes. So we submitted earlier this year and used a PRV on our JZP-258 filing, which gives us a priority review at a July 21 PDUFA date. We think FDA has been tracking to that. You may have seen the recent FDA guidance that said they may miss some PDUFA dates, but they would notify sponsors if they thought they weren't tracking to that date. We've received no such notification and believe we'll get back to an on-time PDUFA as we sit here today. In terms of getting to launch, we do need to put in place for REMs. The REMs is part of our NDA submission. It will be approved as part of the NDA, but then we need to implement it. We had experience with that recently with our pediatric launch of Xyrem. We're aiming to do it in roughly the same time line later this year. So we've said, expect to launch in the fourth quarter.

Okay. Great. So speaking of 258, when we speak with narcolepsy docs, they definitely like the concept of low-sodium Xyrem, but many still don't know about JZP-258 specifically. And given how close the company is to these specialists, why is this? Is this by design? And as a follow-up, can you walk us through the mechanics of how you envision the switch taking place? It seems like part of the strategy will be based on the Xyrem to 258 switch data you presented at the World Sleep Congress last year.

Yes. So if you talk to a number of the KOLs in the field, they've been well aware of issues related to high sodium content in Xyrem for a long time. And in fact, some of our interactions with those folks and our interactions with patients are what drove us to prioritize the development of a reduced sodium oxybate program. We've actually been working on this for almost 10 years now. It turned out to be a little harder to achieve than we thought when we started. But we have successfully engineered 92% of the sodium out of Xyrem to get us to JZP-258. Why are the broader set of sleep specialists aware? Well, the data presentation you just referenced at World Sleep at the end of September in Vancouver was really the first time we had unveiled our Phase III results. Those results we think were very strong on a number of measures. We're now doing more medical education to make sure people understand the role of sodium in cardiovascular health, and in particular, the cardiovascular profile of most narcolepsy patients. It's estimated that 70% to 80% of narcolepsy patients not only have high cardiovascular risk but are being currently drug treated for at least one of those risks.

Okay. Great. So one of the main or probably the main investor concern in the past few years is what does the tail of Xyrem look like. Could you help frame the oxybate franchise and how we should think about the tail as 258, new market entrants and authorized generics become available? Specifically, we're under the impression that if you aggressively switch to 258, i.e., pull the Xyrem NDA, there are certain triggers for the authorized generic. And after the first 6 months of the AG, Hikma would be able to launch their own generic product. And so what would be the benefit detriment to them in doing so? I know that's a lot of questions in one, but I thought I would roll them all up into 1 question.

It's actually helpful to ask it that way because you're essentially saying, help us understand the shape of the oxybate franchise going forward. Before 258, I think people looked at Xyrem and the potential entry of ANDAs. We do, of course, have settlement agreements with all of the ANDA filers. First filer Hikma has the right to enter with an AG at the beginning of 2023. We have meaningful economics in that authorized generic. Those economics actually improve over time. A few other ANDA filers have the right to sell a very limited volume also of an AG also with substantial economics to Jazz 6 months after Hikma enters. That's all through our REMs. Starting in 2026, a broader set of generics have the right to enter, not with an authorized generic, no economics to Jazz, but they need to develop their own REMs. There's, of course, a paper REMs that was approved at the time of the waiver. That has not been operationalized, and we have to find a way to connect to the Jazz REMs. So we think the economics of the authorized generic between 23 and 26 provides meaningful revenue to Jazz. But more important, we're expecting to bring a better product to market later this year. This is a chronic medication. It treats symptoms well, but is not curative. Patients are often diagnosed early in life in their 20s and are looking at a lifetime of therapy and the cardiovascular comorbidities we talked about earlier. So engineering out 1 gram to 1.5 gram of salt per day for the rest of their life is a really important improvement. I'll also say, as we look to continue growing our oxybate business, in addition to continuing to make progress toward better diagnosis of narcolepsy and better treatment with Xyrem, we're also investigating JZB-258 beyond narcolepsy in idiopathic hypersomnia as well. We had a target of completing enrollment of that trial this year. We actually finished it early in the first quarter. So we're looking forward to seeing those Phase III results in IH, which could actually be an additional market for 258.

Okay. Very helpful. So also in the debate is the once-nightly oxybate product from Avadel. And we've gotten lots of questions about it, and I'm sure you get 100 more times the questions that I get on it. So let's discuss it. So the data looks solid, no question about it. Many doctors we've spoken to very much like the concept of once a night Xyrem with a good number preferring it over low-sodium product, if you ask them to compare. Why wouldn't Avadel's product, Bruce, take significant share from Xyrem and 258 in your view? And given what you've indicated by your own once a night low-sodium Xyrem, which I would imagine would be the Holy Grail, combining the 2 elements. Might it be too late to the party?

Yes. So again, we think 258 is a really important advancement in therapy for these narcolepsy patients. And once you've engineered out that salt, if somebody comes along and says, I can get you to once-nightly dosing, and I'll come back and talk about the pros and cons of that in a minute, if I can get you to once-nightly dosing, but you need to go back up on your sodium by 10x to a level that's considered above the daily recommended maximum sodium intake, all sodium, not just medication, medication and diet for these patients, again, with high cardiovascular risk for chronic medication. The question is, does once-nightly now sound as good. In terms of the once-nightly feature itself, if you ask most people on the street, would you rather take a product once a night or twice a night, once-nightly sounds like the right answer. Remember that we're taking patients with a chronic sleep disorder who are used to getting up 8, 10, 12 times a night, and we're putting them on a therapy that allows them to sleep well and maybe get up once a night. What our patients tell us is that getting up in the middle of the night allows them to go to the bathroom, allows them to check on their children, right? This is a deep sedative hypnotic. And so the idea of being knocked out all night has pros and has cons. And the last thing I'll say on the dosing side is the flexibility of twice nightly dosing is important to many of our patients. If you come home late, you're out at an event one evening, and you're not ready to take Xyrem at your normal time. And you take it late, you can choose not to take the second dose that night. And that means when you wake up in the morning, you don't have to worry about operating a car, you don't have to worry about going to work. If you take that 1 fixed-dose that's going to last all night and you take it late, it's going to have impact into the morning hours and there are potential issues with respect to that. So if you ask, not the person on the street, but a narcolepsy patient who's on Xyrem, would you like to have it once a night or twice a night, a fair number of them say they prefer it twice nightly. I'm not saying no one would prefer once nightly, but there is an argument for both. But again, to us, and we had the opportunity to prioritize these programs years ago we prioritized low-sodium because we believe it is, in fact, the better treatment option for patients.

Well, you do have other products besides Xyrem. So I'm going to get to those after 1 more question, brief question. Assuming you -- just a time line question. So assuming you do launch 258 in the fourth quarter. If you work out the math, you should have about 1.5 years before Avadel's product gets approved and launched. What do you think your switch rate could be from Xyrem to 258 in those -- in that 1.5-year period?

Yes. So we haven't given a particular forecast of that yet. What we have said is that we think 258 would be a better product for all current Xyrem patients, not just some of them. In other words, if you ask, who would benefit from having the higher sodium? We don't think there are any patients that fall into that category. So we think all of them are eligible and could benefit from 258. We've also said we don't want to create disincentives for people to try 258. So when it comes to our pricing and access strategy, we're taking that into account. Beyond the existing Xyrem patients, we know there are patients out there whose doctors don't feel comfortable putting them on the current Xyrem product because of the sodium load. And what they've said to us is, but for that, these patients would be on Xyrem. So we think not only is there an opportunity for the existing Xyrem patient set, but an opportunity to broaden beyond that. And then in terms of the Avadel timing, there are a number of things that could impact that so I don't think it's crystal clear when they'd be coming to market.

Great. Let's move on to other products. The first will be in the same general category of sleep. Let's talk about Sunosi. How's the launch going? Clearly, it's been impacted by COVID as new patients need to be seeing their physicians. When should we see further payer coverage? And obviously, you're supporting patient access heavily and gross to nets are still very high. When should we expect to see an improvement in gross to nets? And where do you see them ending up once you're out of the initial launch base?

Yes. So we've been pleased with the number of aspects of the Sunosi launch. If you go back to our launch investor meeting, we said expect us to achieve a couple of things: good trial and experience with the product, good patient access, which probably takes 6 to 9 months. And then increasing number of prescribers for the product, not just in narcolepsy, where excessive daytime sleepiness is always present and virtually always drug treated. But also in OSA, where excessive daytime sleepiness is not always diagnosed and is not always drug treated. So on the first, we've had really good experience. Patients who have tried Sunosi like it. We know that by their refill rate that's telling us they find the therapy beneficial to them, but also that they don't have trouble accessing it in terms of monthly out-of-pocket costs. So we hear a lot of good data that suggests the drug really works. Of course, we saw it in our clinical trials, but this is real world. Second, on the access side, we really feel good about where we are on access. We announced that at the end of the first quarter, we recovered in a good way, which generally means Tier 2 formulary coverage with 1 generic step through in 80% or more of Commercial [ live ]. So we really feel good about the coverage. In terms of prescribers, we have been making progress. We've moved from about 60% of prescribers being in the narcolepsy world at year-end to, as we went through the fourth quarter, more like 50-50. And we'd expect, over time, that to continue to change in favor of OSA, which is a much larger patient and prescriber population. The COVID-19 impact has been that patients aren't seeing their doctors as much and sales reps aren't making in-person calls to doctors. And I think both of those have an impact on that rate of growth of new prescribers of the product. In terms of gross to nets, we did see high gross to nets, meaning unfavorable gross to nets in the first quarter. Of course, our coverage improved as we went through the quarter. But also that's typically the worst quarter for gross to nets as patients reset deductibles under their plans or switch plans. So we do expect gross to nets to narrow as we move through the rest of the year. Our guidance at the time of launch, and we don't have different guidance now, as a good long-term range for that is probably in the 40% to 60% range.

Okay. So you have some inline products, Vyxeos, Defitelio. I'm going to jump ahead of those to what I think will be your second -- well, should be your second really important launch of the year, which is lurbinectedin. Bruce, there hasn't been a second line drug approved in just about 35 years for small cell lung cancer. In talking to oncologists, we're hearing very positive things about it. Assuming approval, how do you see the launch playing out? And what learnings have you taken from Vyxeos that will help you with that launch? Vyxeos had some very mixed launch metrics. And you've indicated your launch -- you plan to launch lurbinectedin with your Vyxeos sales force. Will you be able to do that with just the current group? Or will you expand your oncology sales force?

Yes. We are expanding, as we speak, our sales force to give us even broader reach. Although a lot of the community presence we have with Vyxeos is very relevant to where lung cancer is treated for lurbinectedin. We do think this is a really important advance for patients. You mentioned there hasn't been a new treatment in a really long time. And we think both from an efficacy and a tolerability and dosing convenience perspective, lurbinectedin offers real advantages over the prior standard of care. In terms of lessons learned from Vyxeos, I think this is a very different situation. That was a more crowded space, lots of AML approvals about the same time. And with real different ways to look at how to carve up AML patients? Are they fit? Are they unfit? Exactly what are the age cutoffs? Are they high risk? Are they AML-MRC? And making sure docs understood which patients would benefit from the therapy became an important part of launch, a little simpler to look at treatment of small cell lung cancer, where just about everyone is going to fail frontline therapy, and they're looking for a good alternative in second line, and this will be the first new option they've had in a long time. So we're hearing the excitement. Other people we know that have made calls are also hearing excitement about bringing this new product to market.

Great. So just a question on your balance sheet and capital allocation. Jazz continues to generate a lot of cash flow. This year, you still may generate up to $800 million despite COVID-19. So what are your priorities for capital development? Some investors are anticipating a fairly large transaction, in fact, on the Q1 call, you noted that the company had drawn down $0.5 billion from your revolving credit line. Maybe you could discuss that in the context of prioritizing R&D investments, corporate development and share repurchases?

Yes. So we remain very interested in corporate development, putting our capital to work in a way that can earn returns for our shareholders and opportunities that align with our strategy, be they on market or near market products, or in some cases, things earlier in development that will offer us a good return for taking that risk of continued development and launch. So expect us to stay busy on that front. We did draw down some of the revolver just to make sure we had assurance that we had as much flexibility as we could to do corp dev. Things were looking a little rocky at the time we drew that down in terms of being certain that, that revolver was available at any moment. We do continue to invest in our existing business, too. We're in the fortunate position of having many launches, as we were talking about earlier, but also having an advancing pipeline. We have been growing, although slowly, the percentage of the top line that we devote to R&D as we broaden that [ pay ] point, and we'll look forward to continuing to doing that as well. We've been a purchaser of our stock for a number of years. We think it was attractive. We think it remains attractive. We think we'll continue to do that. But in terms of prioritization, we want to ensure that we don't limit our flexibility on the corp dev side.

Okay. I looked in the Q&A queue. There are a lot of people listening, but I don't see any questions. So we have a couple of minutes left, and I'll ask a question. So Bruce, if you look at the stock price in the last 5 or 6 years, it's been a pretty big underperformer. The tail of Xyrem has weighed on folks. How much are you going to keep, how much are you going to give up? And you've had some mixed launches, some good, some mix, some not so good. What would you say to investors? What are the most important value drivers for Jazz that you think investors are underappreciating?

Yes. Thanks for the question, David. I think there are 3 big value drivers people should focus on. The first is oxybate, and we talked about that extensively at the beginning of the call. The value of that ongoing franchise, not just Xyrem, but the authorized generics, 258, idiopathic hypersomnia, our once-nightly program, we think is going to provide a lot of value for shareholders. The second is the rest of our products. And the great news is we have a lot of new products. The launch of Sunosi last year, the launch of Sunosi in Europe this year, the launch of lurbinectedin this year. 258 I already mentioned, 458, which we haven't talked about here, where we're talking about getting the BLA in at the end of this year. So we have a lot of new value drivers that are on market or coming to market and the last is corp dev that we talked about. We are generating over the next few years, billions of dollars in cash flow, and we have the opportunity to invest that to diversify the business of Jazz and continue to drive extra return for our shareholders.

Fair response. Thank you. So we're out of time. Bruce, thank you so much for your time. It's very comprehensive. Excellent presentation. And for everyone in audience, thanks for listening in and participating in the Jefferies Healthcare conference. And I hope everyone has a nice rest of the day.

Thank you, David.

Thank you. Take care.

Bye-bye.