Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you very much for joining us on Day 2 for the 2020 Cantor Fitzgerald Virtual Health Care Conference this year. I am Brandon Folkes, and I'm a biopharma analyst here at Cantor. Next up, we have a formal presentation from Jazz Pharmaceuticals. And joining me today from Jazz is CEO, Bruce Cozadd. Bruce, thank you very much for joining us today. Before I turn it over to you, I just want to let investors know who may be joining us. It's likely we're probably going to run short of time for Q&A. And what we've been doing with a lot of the Q&A., if you just e-mail that directly to me, I'll get that across to Bruce and the company, and they can get back to you. So Bruce, thank you very much for joining us. Please take it away.

Well, thank you, Brandon, for the opportunity to present today at your Global Healthcare Conference, and thank you all for joining us. I'm really excited to have this opportunity to update you on the tremendous progress we've made in pursuing our mission of innovating to transform the lives of patients. Coming into 2020, we anticipated a year of significant achievement, and it's certainly been a great one so far. Those of you who've been following the company for years are likely to notice a distinct change in our management team, our product portfolio, our pipeline, our execution and our messaging around our strategy to create value for shareholders. The vision we've been pursuing has come into sharper focus with the milestones achieved over the past few months. So let's dive in. Next slide, please. So let me remind you that I'll be making forward-looking statements in today's presentation. These are, of course, subject to risks and uncertainties, which we detail in our SEC filings under risk factors. I'll also refer to certain non-GAAP measures, which we believe are helpful to investors. We do provide a full reconciliation to GAAP in slides included in the appendix to this presentation, which is available on our website. Any guidance I refer to is as of the date it was provided in early August, and I am not updating it today. Next slide, please. So Jazz is well positioned for transformative growth. We have strong commercial franchises with the leading treatment for narcolepsy, several new oncology treatments and a bottom line that has grown substantially over the past decade. Behind that commercial portfolio, we have a robust and productive pipeline, which is yielding 5 potential product launches this year and next. We've quadrupled the number of programs in R&D in the past 5 years and have achieved 9 product approvals during this period, and we're not finished. With our strong liquidity, over $3 billion in cash and investments and undrawn revolver, strong cash flow, nearly $1 billion over the past 4 quarters and a track record of licensing and M&A, including a recent deal to bring in Zepzelca in the U.S., we will continue to deploy capital to diversify our near and long-term opportunity set. Patient-centric innovation drives our strategy in neuroscience and oncology, 2 TAs with significant opportunity. Both our franchise is focused on patient populations with high unmet needs and target addressable physician audiences for efficient commercialization. We identify and develop durable and differentiated products that will leverage our capabilities and our global infrastructure, which now allows us to supply more than 90 markets directly or through partners. As we look at the evolution of our commercial portfolio over time, we're seeing both growth and diversification. We expect our top line, which we've guided to be approximately $2.25 billion this year to grow over the next few years, while the proportion of that top line coming from new products Sunosi, Zepzelca, Xywav and JZP-458 will rapidly expand to nearly 50% by 2022. As I mentioned, expect us to continue to invest in delivering increased value for the mid- and long term. We'll take our $1.7 billion in cash, our billions of dollars in cash flow over the next few years and our significant leverage capacity well beyond our $1.6 billion undrawn revolver and use it in a disciplined way to advance and expand our pipeline to pursue new indications and geographic expansion for existing products to continue to acquire additional products and companies and to repurchase shares opportunistically. Beyond our diversified and growing base of revenues and our differentiated pipeline to support future growth, we are focused on operational excellence to maximize returns. So far this year, our execution has been strong, delivering strong financial and operating results despite the pandemic. Our second quarter results exceeded consensus on the top and bottom line, and we generated $450 million in cash flow from operations in the first half of the year. We're on track for 5 launches this year and next. With our recent approval and launch of Sunosi in the EU, our recent approval 2 months ahead of PDUFA and the launch of Zepzelca in the U.S., our recent approval of Xywav with launch coming next quarter and our clinical progress with JZP-458, our recombinant Erwinia asparaginase for ALL and Xywav for IH with Phase III results expected next quarter, both JZP-458 and Xywav in IH could be launched next year. As I said at the outset of this presentation, future value creation is becoming more visible through this catalyst-rich time. Let me now summarize some of the excitement around our neuroscience business. Xyrem, our treatment for excessive daytime sleepiness and cataplexy in narcolepsy has continued its strong growth in recent years, and we believe our momentum in neuroscience will continue with Sunosi and Xywav just launched or about to launch. With our move into obstructive sleep apnea with Sunosi, potential additional indications for that product, our work in additional sleep disorders with high unmet medical need such as idiopathic hypersomnia, our expansion into movement disorders with an essential tremor program and a pipeline with early innovative programs with mechanisms of -- new mechanisms of action, we believe we are poised for sustainable growth. We've executed well with Xyrem over a long period of time, developing support services for patients, ensuring good access with payers, communicating value, addressing safety concerns, supporting improved diagnosis, operating a complex and effective restricted distribution system to ensure safe use of the product while minimizing abuse, misuse or diversion. I'll point out Xyrem does have a box warning. Oxybate is the established standard of care for the treatment of excessive daytime sleepiness and cataplexy in narcolepsy. Xyrem's continued performance will push neuroscience top line to between $1.7 billion and $1.8 billion this year, but our oxybate focus will soon shift to Xywav, which is nearing launch. Xywav is an oxybate product that contains 92% less sodium than Xyrem, and this is important in narcolepsy, a lifelong disease associated with numerous cardiovascular and cardiometabolic comorbidities. Xywav has a differentiated label. It allows for more flexible dosing, carries no sodium warning and includes information about seamlessly transitioning patients to Xywav. Xywav does have a box warning as well. We have announced that Xywav will be priced at parity to Xyrem when launched next quarter. And existing oxybate patients can transition to Xywav at their current dose. Xywav will allow additional patients to receive oxybate if they were previously not prescribed Xyrem based on sodium concerns. We expect strong payer access for our new product. And beyond narcolepsy, we look forward to reporting top line data from our pivotal Phase III study of Xywav in idiopathic hypersomnia next quarter. There is no approved treatment for IH today. We believe this represents a substantial market opportunity. We are excited about bringing Xywav to patients and believe this will be the leading oxybate treatment of the future, with the majority of all oxybate patients on Xywav by 2023. Our other products and programs in neuroscience includes Sunosi, the only dual-acting DNRI to treat EDS in adults with narcolepsy or OSA. Launched last year, Sunosi now enjoys strong U.S. payer coverage with more than 85% of commercial lives covered as of midyear. We saw a 12% increase in prescriptions second quarter over first quarter and continued strong refills. Sunosi has significant potential, particularly in obstructive sleep apnea, where the drug treatment rate is currently low. We just launched in Europe and are excited about this geographic expansion as well as the opportunity to look at Sunosi and other sleep and CNS disorders. JZP-385 is our Phase II essential tremor program. We anticipate a Phase IIb study to initiate early next year. This is a very large market opportunity with limited treatment options. And JZP-324 is our Phase I program for a lower sodium extended-release product. We'll have more to say about this program after we've launched Xywav. Now let me update you on our oncology portfolio. Our oncology portfolio is growing at a double-digit rate and is poised for even more meaningful growth in the years ahead. With new approvals and launches, the opportunity for expanded treatment and further globalization and a pipeline of innovative targets, our oncology business will contribute to substantial revenue diversification. Each of the products in our oncology portfolio represents an important advance in treatment. We expect our oncology business to contribute approximately $500 million in 2020, continuing its strong growth, which in recent years has been driven by Defitelio and Vyxeos. With our launch in July of Zepzelca and a JZP-458 launch targeted for mid-2021, we look forward to great momentum in this business. Zepzelca was improved in June for the treatment of adult patients with metastatic small cell lung cancer with disease progression on or after platinum-based chemotherapy. This is the first new treatment in second-line small cell lung cancer in over 20 years, provides us expansion into solid tumors and is synergistic with our existing portfolio. We believe this will be a multi-hundred million dollar product in the U.S. There are currently 17,000 patients each year treated in second line plus another 8,000 patients who have historically elected to forgo additional treatment due to poor options. Zepzelca's clinical profile relative to prior standard of care offers better response, better tolerability and easier administration. Along with our partner, PharmaMar, we're looking forward to top line data later this year from the ATLANTIS trial where Zepzelca is used in combination in second-line small cell lung cancer, and we'll have more to say soon about our joint development plan, looking at combination use in first-line small cell lung cancer and evaluation in other tumor types. We think Zepzelca's launch exemplifies our team's focus on execution. We licensed U.S. rights to the drug in December. And after an important publication in March and accelerated approval in June, we launched in July with Zepzelca almost immediately included in NCCN Guidelines. We had strong uptake at launch and look forward to reporting our results for the third quarter. We're also excited about the progress we're making with JZP-458, a development program we accelerated due to the patient need for reliable life-saving therapy for ALL patients with a hypersensitivity response to E. coli derived asparaginase. We took this program from IND to first patient enrolled in a pivotal Phase II/III study in approximately 12 months. We're continuing to enroll in that trial with the goal of submitting a BLA and launching the product by mid-2021. We see a significant opportunity to grow this market with a modern recombinant product that's reliably supplied and can fully address current demand, while also further penetrating the adolescent and young adult patient population, allowing for supply to more geographies and enabling exploration in additional indications. So let's take a moment to review our financial results and our approach to value creation. Our revenues have a double-digit compounded growth over this period, while our adjusted EPS has also grown nicely. I'll remind you that this year, our adjusted EPS was reduced by a $200 million payment to PharmaMar in the first quarter. That lowered our adjusted EPS by $3.13. Given our track record with successful studies, regulatory approaches, rapid advancement and approvals, we believe this represents a highly productive pipeline that has high value and will fuel growth through 2025 and beyond. I mentioned our corporate development efforts earlier and want to remind people how productive those efforts have been across adding new molecules to early development, or providing molecules that can be explored in clinical trials or molecules we progressed through launches, new indications and new geographies. We have a great team across R&D, commercial, legal, finance that takes an integrated approach to search and evaluation, and we have the financial and operating capacity to deploy billions of dollars in capital in the near to medium-term to continue adding significant value drivers to our R&D and commercial portfolios. So let me close now with a review of upcoming catalysts and our investment thesis. We are in a busy and productive time for the organization with the upcoming launch of Xywav, idiopathic hypersomnia pivotal data, additional Zepzelca data from ATLANTIS, additional Defitelio data in prevention of acute GvHD and a target JZP-458 BLA submission to be followed shortly by our Phase IIb essential tremor trial initiation and launches of both JZP-458 and Xywav for idiopathic hypersomnia next year. Our top line revenue growth story and our more diversified and durable revenue mix will become increasingly evident during this period. I think we have the right patient-centric innovation strategy and the right team to execute that strategy. We've added or promoted 4 new members of our Executive Committee since March and now have a team that, with the exception of me, has all joined in the past several years and was chosen for their ability to lead us through the next phase of growth. With our neurology and oncology commercial products, our operating capabilities, our pipeline and our financial strength and capital deployment opportunities, this promises to be an exciting time for Jazz. Let me conclude by thanking our employees for remaining mission-focused and achieving our major objectives during this unique time. And let me conclude also by thanking you for your time and attention. Thank you very much. That concludes my presentation.

Thanks, Bruce. We do have some time. Do you mind if I ask a few questions?

I'd be happy to take questions.

Fantastic. All right. So I guess maybe one of the pertinent questions we received, probably closer to April, right, when this all sort of began with new patient diagnosis, right, within the sleep franchise, right? Now we've all sort of adapted. And I think a lot of people have sort of got to probably a level of comfort that I'd imagine that going to a sleep center, one is comfortable it's not a hospital. So how should we think about, obviously, the challenges that persist with new patient diagnosis within sleep, yet maybe some of the misconceptions that now, as we go forward and as COVID drags on that you and Jazz have sought to address?

Yes. So well, that's a great question, of course, across all diseases and all products. I think you're specifically referring to narcolepsy and maybe obstructive sleep apnea in some of your comments. We certainly saw a slowdown in diagnosis and new patient starts as we move through April and early May. And then we started to see recovery even as early as the end of the second quarter and that has continued. I'm still not sure we're back at anything that approximated normal beforehand, but we continue to see new patients getting diagnosed and starting treatment. And I think this is an exciting time in both narcolepsy and obstructive sleep apnea. In narcolepsy, really, there hadn't been many promoted products other than Xyrem for many years. And of course, we're out now with Sunosi. Soon to be out with Xywav. There have been other products launched as well. And so there's more noise about getting to the right diagnosis and getting on effective treatment. And I think that's good for patients and ultimately good for Jazz. We saw a slowdown in certain other procedures, even stem cell transplants. During that initial period of COVID, we've seen that come back again and approach normalcy. And particularly with these serious diseases, and I'll use small cell lung cancer as an example, the biggest danger to these patients is not getting their disease treated. That's a much bigger danger to them right now than the risk of contracting COVID by getting medical care. So we haven't seen a slowdown in treatment in the societies that govern some of those groups of physicians have been very clear about their priorities. I will say it's helpful in the case of the Zepzelca launch that our product is easy to administer. It requires a 1-hour infusion every 3 weeks, and that's a little bit easier in this environment perhaps than prior therapy.

Great. And maybe just staying on sleep before moving to Zepzelca, but I think something that, again, we've discussed a lot with investors and obviously, you've got tremendous amount of questions about this is the switch from Xyrem to Xywav or how that will happen. Will you switch patients? And I think a lot of the thinking has been that it won't be a hard switch, it will probably be data driven over time. And I think you put out a press release -- I believe it was this week, I apologize if it was last week, but about your collaboration with the American Heart Association. Now I think that with the backdrop of a lower sodium product, I think, was a very interesting collaboration and a very important collaboration. Can you just talk a little bit more about that collaboration?

Yes. Well, let me zoom back up and just, in general, talk about what we know about sodium. Sodium is not just something that Jazz Pharmaceuticals is talking about in relation to oxybate therapy. Sodium is at the top of the list of health concerns at a national and an international level. If you talk to government officials about what they can do to improve health of the American population, this generally is near the top of the list as something to be focused on. There are guidelines out there for recommended daily maximum sodium intake. And unfortunately, for narcolepsy patients, Xyrem, while a very effective treatment for their disease also brought with it up to 1,600 plus milligrams of sodium per night in addition to any dietary sodium. So understanding what that feels like for a chronic lifelong treatment, because this is a lifelong disease and treatment, and then looking at the underlying cardiovascular and cardiometabolic health of the narcolepsy population, in particular, we see that it's a group with higher risk than your normal population. It's estimated that 70% to 80% of narcolepsy patients today are currently being drug treated for a cardiovascular risk. So in this patient population, particularly with a treatment like this, engineering out that excess sodium, which is an effort we undertook starting at about 10 years ago, has proven to be a challenge, but one we were ultimately up to in our formulation of Xywav, which, of course, then completed a Phase III trial in narcolepsy and was recently approved. So we're excited to make sure people understand the implications of this for their health. And in terms of your comment about how we get patients on to Xyrem by announcing parity pricing, by now having the information about the label, we're able to talk a little bit more about this product. We're out talking to payers to make sure we have good access. And then we want to make sure both physicians and patients understand why this would be a good choice for a lifelong therapy.

Great. Thank you very much. Maybe just moving on to Zepzelca. I think it's fantastic to hear that, that product is off to a good start because I think it is really something that is truly needed for these -- for that patient population. I think it can make a big difference for them. You mentioned perhaps looking at first-line or other tumor types. Can you just remind us what your current agreement with PharmaMar contemplates in terms of what you have licensed versus what we may see licensed in the future?

Yes. So what we've licensed from PharmaMar are the U.S. commercial rights to Zepzelca, and that's independent of indication. Under that agreement, we have joint responsibility for moving a development program forward. We get to agree on what studies we're going to do and how to conduct those studies. And so as I mentioned in my presentation, we, together, will have more to say later in the year about some of our plans to further the investigation of this agent in combination as well as in monotherapy, both in second-line and first-line and then in other tumor types as well where we're seeing signals of activity in the basket trial or other investigations. So we're really excited about the product in its existing indication. I don't want to miss that, but we do think there are broader opportunities for Zepzelca beyond that.