Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Thank you. Hello, everyone, and thanks for joining the London virtual conference this year. Hopefully, next year we'll all be in London together. We are delighted to have with us the senior management team of Jazz Pharmaceutical. With us are 3 members of the team. First, we have Dan Swisher, who's President and Chief Operating Officer; we also have Sam Pearce, Senior Vice President, Europe and International; and Hugh Kiely, Vice President, Global Taxation. So thank you, all 3 of you, for joining us today. So Dan, I'll start with you. It's really an interesting time for Jazz at the moment. You have a lot of new launches, a lot of excitement. Before we delve into Q&A, perhaps you could briefly make some opening comments.

Yes. Thanks, David. Thanks for having us to the conference. Again, sorry, we can't be here in person, but happy we can do it nonetheless. Yes, it's been a very exciting year. I'm also very excited about the future for Jazz. I think the success we've had this year, despite COVID, is remarkable, and we're well positioned to change the lives of patients and deliver shareholder value. So as you know, our overarching priority is to focus on life-changing medicines to patients with areas of a high unmet need. And we've made great progress this year with 3 important product launches underway. And these were launched effectively in a virtual setting, some face-to-face engagement. The most recent being Xywav early November, as we transition the Xyrem business to Xywav; but also Zepzelca in small cell lung cancer in the U.S.; and then a rolling launch in Europe with Sunosi. And it really speaks to the opportunity to get to diversified long-term revenue growth for the company. And we've done that in addition to advancing our product pipeline and bringing new programs into the pipeline. So really well positioned for where Jazz could be as an integrated, innovative biopharma, delivering significant top line growth and disciplined capital to put that to work, both through pipeline and corporate development.

Terrific. Thanks, Dan. So let's first discuss Xywav, your most recent launch. Can you talk about how the launch is going? I know it's only been a couple of weeks, but how is it going? What impact is COVID having? And what progress are you making with payers?

Yes. Thanks, David. So Xywav has been a multi-year in the making, as you know. We started working on Xywav almost 10 years ago, and it was a concept to creation all internally. Given the patients are on this therapy with comorbidities for lifelong, we were looking to significantly reduce the sodium load with Xyrem, which is the standard of care for patients with cataplexy and EDS and narcolepsy. And so we were able to engineer out 92% of that sodium load, which is a major benefit for these patients. So within the first 2 weeks of launch, we've been reaching out to our top prescribers, which represent 80% of the current oxybate business. And the reception has been very strong, very positive. There was already awareness that Xywav was coming, that both patients and physicians are interested in considering this treatment option. To ensure smooth transition, we're working hard on the payer side. As of beginning of the launch in November, we had ESI with preferred formulary. So that represents more than 20 million lives. And we have a suite of services, both coupons and bridging programs, to ensure that transition can be seamless for those patients. And we're confident that within 6 to 9 months, we'll have a very strong commercial coverage for patients. But in the meantime, eliminate any friction in the system and ensure patients who could benefit from Xywav can come over to the therapy.

So your concept of reducing friction to the system, you obviously are offering more subsidies for new Xywav patients than when you had for Xyrem, at least in the short term, things like patient access programs, co-pay buydowns. What sort of discount do you expect from Xyrem to Xywav? And how long, Dan, will these wider net -- gross nets occur for? Or will they just be a couple of quarters in the early launch phase? Or will they be longer than that?

So as you know, we priced on a gross price WACC basis at parity, Xyrem to Xywav. And we expect over time that the net price will also be very similar between the products. In the near term, as you say, we're going to have some more couponing and ensuring that patients get access to it. So some will be in the form of what would otherwise be revenue paying patients are going to be on bridging free drug for some period of time. We don't think it's more than a month, 2 months, 3 months, depends on how long it takes to work the patient through prior authorization and getting full coverage. And then we've also got some couponing programs that will have some impact on gross to net, but not necessarily material. So a little bit more fluctuation probably in the first half of the year than the second half. But again, the most important thing for us is ensuring that patients who could benefit, which include existing Xyrem patients, but also new patients, get offered that treatment choice. So we think it's an investment well worth making.

For sure. So could you frame the oxybate franchise and how we should think about the tail as Xywav, new market entrants and authorized generics become available? You've talked about Xywav achieving a majority share of oxybate formulations by 2023, which seems to be ahead of Street expectation. For example, we've modeled nearly 40% penetration by the end of '22. How do you get there?

Well, it's, one, having a superior product. So we think it's really the best treatment choice for patients who are looking for benefit on their EDS and cataplexy. And given that oxybate has been the standard of care, we believe Xywav should be the treatment of choice within the oxybate universe. And so there's a lot of education efforts going on with physicians, and really thinking about not only treating now the sleep disorder, but really the total health benefit of those patients over a lifelong journey with the disease. And given the cardiovascular risk factors that these patients are at a higher level than the normal population, it really makes a significant benefit to be on that therapy. There's also an omnichannel approach to patients, both patients who are currently on Xyrem but also narcoleptic patients. And so we've got targeted approaches there to educate them. And then as I mentioned, with market access, looking for similar high-quality commercial coverage and a suite of services to support those patients. So yes, we feel very good about our vision for a majority of patients being on Xywav by 2023.

Okay. And also impacting the environment, Dan, will be the authorized generic. So we're under the impression that if you aggressively switch, 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. What would be the benefit detriment to them in doing so?

So the market decline provision is, if there's a substantial decline in Xyrem revenues, and that could be triggered by a very good product launch in Xywav revenues. If that gets triggered earlier than beginning of 2023, we take that as a really good sign that Xywav is being broadly adopted. And our view is that once patients and physicians have the benefit of being on a low-sodium product, it's going to be hard to go back to a high sodium product, which from Xywav to Xyrem or an AG would be 10x the sodium load. So that's sort of the way we think about it is, that being said, for any patients who are still on Xyrem and for the AGs, we'll support them with our REM system, and we do get substantial economics from that. And so that will be part of the overall economic pie. But clearly, Xywav is the most important part of the durability and end tail for the product -- for the franchise.

Sure. Another major recent positive is the strong data you generated for Xywav in treating idiopathic hypersomnia, which arguably is underappreciated by the Street. In your view, how much of Xyrem use in patients is there right now? And the claims data indicate about 37,000 patients annually, and you think the diagnosis rate is likely too conservative. In your estimation, what is more likely the true IH patient population? And how will you layer this indication onto the oxybate franchise tail?

Yes. David, thanks for the question. Great -- and great sort of context there for that. We do think it's a very significant new market opportunity and substantially not getting served by current treatments, including Xyrem, in part because of PBMs and commercial payers putting significant restrictions on those patients. Now that being said, we've looked into this space. And doing a chart review over the last several years, there's 37,000 diagnosed patients in the U.S., which is approximately half of the diagnosed number of patients currently on narcolepsy that are narcoleptic. That, we think, is an underrepresentation of the market, given that there's been no real market education or product available. And so we do see it as a very substantial. What we're happy to share was the top line results that we had very positive Phase III data across our primary and secondary end points. We look forward to presenting that data at a medical conference next year, really substantial benefit there. And then taking it to the FDA agency in the first quarter, and hopefully, having market approval and launch by the end of next year.

Okay. Great. So obviously, there's a lot of interest in Xyrem, but there's also concern related to it given some pending competitions. So there are 2 competitors. The first is, are you concerned at all with the uptake of WAKIX, and it seems strong so far? And what do you think will have the impact on Xyrem or Sunosi, especially now that they've received a formal cataplexy indication, that being WAKIX?

Yes. And just to put the market in context, you referenced that there's 75,000 diagnosed narcoleptic patients. There's probably 150,000 patients in total. So more market investment with more companies is a good thing for the growth in the market. And then we think giving a full range of treatment options for patients who are getting therapies, both on and off label is also a benefit. But those who are more severe narcoleptic patients who have cataplexy and EDS definitely benefit from oxybate. And we've seen that over now a nearly 20-year period where 60,000 patients have been treated with Xyrem. So we kind of think the other therapies coming through have their role, and good to see that WAKIX is doing well, but we're not seeing any impact to our business at this point. If anything, we're hearing anecdotally that WAKIX will sometimes get used in combination with sodium oxybate. And now with the -- now with Xywav on, we have an opportunity to also address patients who might have had some concerns about sodium or the sodium load and the warning because of their cardiometabolic risk factors not being candidates and now having that available new option.

Okay. So last question related to Xyrem and Xywav. There's another competitor, potential competitor, Avadel. They're on track for submitting their NDA by the end of this year, suggesting they could be on the market sometime in early 2022. It seems they have an approval once-nightly oxybate product. According to their internal market research, they believe there's a 50% discontinuation rate for the twice-daily oxybate, yours; and 60% of eligible patients do not receive oxybate therapy due to dosing-related issues. Most experts we've spoken don't think there's much of an issue, actually, though, with twice-nightly dosing. Obviously, Jazz has been in the market a long time, and we're curious to hear your view of the competition from this once-nightly dose product.

Sure. Yes. So as market leaders and having worked closely with physicians and patients, we do have some very strong insights into that market. And our insights are very different than what Avadel is referencing. There is a drop off from initial treatment to pull through in that first year because going on oxybate does require some significant changes to your lifestyle and ensuring through the REMS process that you can comply with that therapy. And then through the titration, there's some side effects to work through. And the more the physician has experience and the patient is committed, there can be very good benefit that gets derived through that titration, but there is some dropout that occurs there. And once patients are on, they're on for quite some time, they can be on for life. And the twice nightly is not a significant factor there. We do think low sodium is going to be very important, and that will be something both patients and physicians embrace very significantly. And so again, within the context of treatment options, we do think there's some segment of the market that might benefit from an extended-release and having that as an option, and that's why we do have a low-sodium extended-release product moving through our pipeline, but we don't think that's going to be the biggest -- that will be -- we don't think that's going to be the biggest treatment choice.

Okay. So let's move on to another wake-promoting drugs, Sunosi. Clearly, you've had a nice launch going until COVID hit, and new patients weren't able to see their doctors. Feedback from clinicians has been solid. They like the product and think that patient access is decent. First, Dan, how would you characterize where you are in the launch relative to your original expectations? And do you still think Sunosi could still -- could be a $0.5 billion peak opportunity at this point?

Yes. So on Sunosi, we do think Sunosi could be a $500-plus million opportunity. And that wasn't necessarily our peak revenue. That was in 2025. And it's a combination of a treatment choice to treat EDS for both narcoleptic patients and OSA patients. OSA patients is going to be a longer journey in that the treatment rate for those patients is only 6%. But if we can move that up substantially, the market could expand quite a bit. The #1 factor for us as more of a retail product launch was to get past the initial blocks on formulary and to get good payer coverage. And we actually exceeded our expectation that within 6 to 9 months of product launch, we had 90% coverage and very good quality single step edits in general. So just as we were pulling through that good market access and increasing our reach and frequency to a broader physician group beyond narcolepsy into OSA, COVID struck, and that did hamper engagement with customers. Particularly if you think about OSA treaters, many of them are pulmonologists, and they were very much on the front line of treating COVID. I'd say the good news now is that physicians and clinicians have figured out how to treat both COVID and non-COVID cases, and so we're seeing reengagement there. And so now with the good market access and the product profile, which is leading to very good refill rates and good adoption for those physicians who've used it, we're looking to expand that reach and frequency. And you may have noted that we recently added 50 sales reps through a contract sales organization to increase the call universe. And so we have a lot of confidence in the product, and look forward to having a very good growth cycle through 2021 and beyond.

Okay. There's a lot of excitement over Zepzelca. And -- but before we move on to your oncology business, I just had 1 question about your priorities for capital deployment. Dan, Jazz continues to generate significant cash flow. You still generate about $800 million this year despite COVID-19. Investors seem to be anticipating a larger transaction. And in fact, on the Q1 call, Jazz announced it drew down $0.5 billion from your $1.6 billion revolving credit line. How do you prioritize R&D investments, corporate development transactions and share repurchases?