Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you so much for joining us for the session with Jazz Pharmaceuticals. It's very much my pleasure to welcome Bruce Cozadd, who's Chairman and CEO. He cofounded Jazz in 2003 and has served as the Chairman and Chief Executive Officer since 2009 and also joining him is Rob Iannone, who is the Executive Vice President and Head of Research at Jazz, which has obviously become a much more important role given the company's pipeline progress. I do need to refer you to disclaimers at www.morganstanley.com/researchdisclosures. And if you're a member of the press, we ask you to disconnect and reach out to the Morgan Stanley Public Relations team. And so with that, why don't I turn it over to you, Bruce, to provide some opening comments and then we'll take it from there?

Yes. Happy to do that, David, and thank you for the opportunity today. I'll do my disclaimers, too. Hopefully, I will make forward-looking statements. And if I do, those are, of course, subject to risk factors and you can learn more about those in our SEC filings. And I may also refer to non-GAAP numbers. And if so, please see a complete reconciliation of non-GAAP to GAAP in a presentation that's being uploaded to our website as we speak. And I don't usually do this, but I've encouraged people to go look at it. We just updated our deck in a most significant way, given all the recent developments at the company. And so I'd encourage you to take a look-through that. In terms of my opening comments, David, I'd just say, we knew 2020 was going to be an exciting year when we started. And I don't think we had any idea exactly how exciting it would be. And I'm happy to say we're really on track with our major deliverables despite COVID-19. We said we'd get approval of and launch Sunosi in Europe, and we got approval in January and launched in Germany in May. We said we'd get approval of and launch Zepzelca and that approval came in June, 2 months ahead of PDUFA, and we successfully launched the product in July, immediately added to NCCN Guidelines for the treatment of second-line small cell lung cancer. We said we'd submit and get approval and launch Xywav. And the first 2 of those have been accomplished with a January submission and a July approval. We're getting ready to launch in the fourth quarter once we complete our REMS implementation. And that's a major new development for us. We also said we'd progress our JZP-458 program, and I'm really proud of what our R&D team has done by continuing to open sites and enroll patients in this pivotal Phase II/III trial that we think should allow us to be on market with our new improved recombinant Erwinia asparaginase program by mid-next year. So if you look at the visibility of our story and the diversification of our top line, the durability of our top line, we're really in an unprecedented period here in the midst of launching up to 5 products in a 2-year period that we think will produce about 50% of our revenues by 2022. So a marked change in the trajectory of the company, and I look forward to your questions, so we can dig into that a little bit over the balance of our time.

Excellent. Well, thank you very much. And any specific things that you would call out in the new slides that you've posted, positive or negative relative to your last slide deck?

Yes. Well, it really reflects our strategy and the rapid evolution of the company and some of our newer disclosure. As you remember in our second quarter earnings call, which was just last month, we, for the first time, gave a time line for our idiopathic hypersomnia pivotal Phase III data, which we expect in the fourth quarter this is Xywav for a treatment of a new sleep disorder, where there are no approved treatments. And we also gave launch timing expectations for that. It was the first quarterly call where we had approval of Xywav in hand, so we were able to talk about the label, and we were able to talk about our pricing strategy and the market opportunity in a little more depth. It was the first call since the Zepzelca approval. So we were able to talk about that label. We were able to talk about initial customer reaction, ordering patterns, reordering and what we see about future development opportunities for Zepzelca. And the other thing I would say in our slide deck, aside from the specific things I'm talking about today are -- we really try to outline how much our approach to corporate development has historically enabled us to stock a commercial portfolio and an R&D portfolio with new opportunities and how -- as I think about how to model Jazz over the years to come, I think, if we ignore the ability to put billions of dollars of additional cash flow to work to continue rounding out our portfolio. I think we're missing a major part of the story. As we look back all the products I'm talking about now that are turning into successful commercial launches came to us through corp dev activities over the past 4 or 5 years. So I would expect nothing different going forward. We've got a great team on the corp dev side. We've got the operating capabilities now to seamlessly bring things into development, whether early stage or late-stage and to pivot and do a launch quickly as we did with Zepzelca. Remember, this was a deal we only signed in December, and we were actually launching a product in July. So I have a lot of confidence in our management team, which, as you know, has turned over in the last couple of years. So we've got an entirely new executive team since 2018 that's really purpose-built to execute on the next chapter of our strategy. So hopefully, all of that comes through in the new deck. I'll let you be the judge.

All right. Thank you. That's extremely helpful. So you've touched on idiopathic hypersomnia. So that's a market that may be underappreciated. Could you just speak to sort of the high level opportunity you see and then if you could contextualize how much incremental opportunity you think there might be and I ask the question or ask you to discuss it because there may be some patients on Xyrem today that have idiopathic hypersomnia already or might have that as a comorbidity. And so any color you can provide would be great.

Yes. No, really good question, David. We're really excited about idiopathic hypersomnia. This is a severe sleep disorder, another hypersomnolence disorder unlike narcolepsy that shares similar disease characteristics and symptoms such as excessive sleepiness, but we also see some differences in the idiopathic hypersomnia space. And with no approved treatment today, we see little reason to complete the diagnosis. And we're relatively confident this is an underdiagnosed condition. In claims databases, we can see 37,000 idiopathic hypersomnia diagnoses and treatments in the U.S., but we think that far underrepresents the actual IH population. You specifically asked, are we seeing use of oxybate in this patient population today? We know that there has been some use historically, and that's led to some data on use of oxybate in idiopathic hypersomnia, but our belief is, without the current labeled approval and payer hurdles, that often require a prior authorization or even reauthorization. With a confirmed narcolepsy diagnosis, we think the actual use in practice is very low today.

That's helpful. And then just to contextualize that 37,000, how would that compare to the narcolepsy figures and narcolepsy with cataplexy?

Yes. So narcolepsy, it's assumed there are probably 170,000 to 180,000 people in the United States living with narcolepsy, but we think only about half of them are actually diagnosed and treated today. So the comparable figure to the 37,000 would be about double that for narcolepsy, which would give you a spot estimate of maybe idiopathic hypersomnia is half the opportunity that narcolepsy is. We also know though that the idiopathic hypersomnia diagnosis has been growing faster than narcolepsy diagnosis. And we think an approved treatment would only accelerate that trend. So we do think it's a sizable additional opportunity. There is historical evidence that in patients with IH treated with oxybate, you saw similar improvements in some of their core symptoms, as you saw in narcolepsy patients treated with oxybate. So we think there's good reason to be excited about this. We certainly saw strong enrollment in our pivotal Phase III trial, which enrolled ahead of schedule, completing in the first quarter of this year. So we're optimistic that we're going to see a nice impact for these patients who are really desperate for an effective therapy.

And just to round it out, how many patients have both -- have narcolepsy with cataplexy?

Yes. It's not particularly clear what percentage of narcolepsy patients have cataplexy. I see estimates all over the place, I'll say, 70% is sort of where I see most of the estimates, whether that means the rest don't have cataplexy at all or whether the cataplexy they have is mild and hasn't been noticed yet or will progress over time is a different question. But we do see, particularly over the life of this chronic disease, which requires lifelong treatment, we do see cataplexy often emerge.

Okay. That's very helpful. So The Street debates the durability of Xywav. And it would seem that for any patient that is certainly on Xywav, they would not want to switch to a drug that is -- that has 10x the amount of sodium. But also just for general health reasons, it would seem to me that Xywav would be preferred for new patients starts on oxybate. But could you speak to just that general debate topic of the durability of Xywav?

Yes. Well, first of all, let's talk about the differentiation of Xywav from Xyrem. So Xywav now approved with an approved label we can look at doesn't have the salt warning, the sodium warning that you see in the Xyrem label. It has a little more flexible dosing and it allows for seamless transition of patients from Xyrem to Xywav at equal dose. In other words, without the need to titrate off one drug and titrate on to the other. So we think a very favorable label. That sodium reduction is really significant. There aren't many drugs used in clinical practice in the United States that are dosed in gram quantities. And Xyrem's therapeutic -- or therapeutic effective dose range is 6 to 9 grams per night. That brings with it an enormous sodium load of more than 1,600 milligrams of sodium per night at that 9-gram dose. We've engineered out 92% of the sodium as we move to Xywav. So we've reduced that substantially by more than 1 gram to 1.5 gram per night. So to your question, David, imagining that we go out a couple of years and there's now an authorized generic of Xyrem available. The question is, will patients want to transition to something that, as you said, would have more than 10x the sodium. When we know the sodium load they'd be getting is above what the American Heart Association would recommend, and that's even before I take into account dietary sodium, of course. And in a population that's known to be at high risk for cardiovascular disease. So it's estimated that 70% to 80% of narcolepsy patients today are drug treated for at least 1 cardiovascular risk. And this is lifelong therapy. So the thought that every night, these patients would be ingesting an extra 1,000 to 1,500 milligrams of sodium, given their cardiovascular risk seems like something that would not be an easy switch back. Given that -- given the time we've got to establish Xywav, given the potential additional indication for Xywav, we believe that if you fast forward out to 2023, Xywav will be the leading oxybate product that it will command more than 50% of all oxybate prescriptions.

That's helpful. And could you just repeat what you had said? You said 70% to 80% of people treated with Xyrem?

No, I was talking about all narcolepsy patients. So I think the same thing would be true for Xyrem, to be clear, but I was making a broader statement that in the narcolepsy population, we believe about 70% to 80% of the patients are currently being drug treated for a cardiovascular risk.

Can you get that data on Xyrem in terms of just the polypharmacy or the prescriptions that patients that Xyrem are on, on other medications? I mean, can you get that de-identified information?

Yes. I don't have it at my fingertips today, David, but I wouldn't expect it to be significantly different. We know there are -- we do know there are some patients whose physicians are not comfortable prescribing Xyrem because of the sodium load alone. In other words, they think the patients would benefit from oxybate, but they haven't wanted to confer that additional sodium on them. We think that opens up an additional opportunity for Xywav moving forward.

That's great. Okay. And then before I turn to some questions for Rob, maybe we could just talk at a high level, Bruce, about your near-term M&A agenda. Obviously, you have significant access to capital, if you could speak to that as well. And I ask about near-term because valuations are very high, obviously, in the biotech field. And just generally speaking, in terms of asset values, given where interest rates are. So do you see opportunities for meaningful near-term M&A? Or do you still have to take your time?

So we do see opportunities to continue to push forward with significant corporate development. As you know, our position, and you referenced this as strong. We ended the second quarter with over $3 billion in cash and investments and undrawn revolver. That's sort of immediate liquidity. We obviously could borrow beyond that if we wanted to. So we've got that plus our cash flow, which should be measured in the billions of dollars over the next several years, really gives us a lot of assets we can invest in continuing to diversify our portfolio. But we're looking across neuroscience and oncology. We're looking across the U.S. and Europe, rest of world, we're looking across early development, mid-stage to late-stage development and commercial. And so if you're looking at a broad enough set of opportunities, it's usually true that they're not all high-price simultaneously. From time to time, we see areas that got hot, as you do. And maybe those would be a little harder to make the claim that you could get a purchase at a price that allows you to earn a great return for your shareholders. But we are convinced that over time, we can deploy a meaningful additional capital that continue growing that set of opportunities that's visible to our shareholders as we think about sustainable growth over the longer term.