Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Great. Good afternoon, everyone. My name is Jess Fye. I'm one of the senior biotech analysts at JPMorgan. And we're continuing the healthcare conference today with Jazz Pharmaceuticals. I'm joined by the company's CEO, Bruce Cozadd. But before I turn it over to Bruce, I want to let you know that instead of moving across the hall to the Georgian room this year, you're going to be able to submit questions using the blue Ask-a-Question button that will send to a portal. It will let me read them to management. So that's one way you can kind of hear their responses to your questions, should you have any. But with that, let me turn it over to Bruce.

All right, Jess, thank you for the introduction and the invitation. This is my 29th consecutive year attending JPMorgan, and I'll miss seeing many of you in-person in the hallways. Now some of you tuning in today may notice my beard is gone for the first time ever at JPMorgan. That's right. Everyone else went with the COVID beard and I went the other direction. So a little Jazz Pharmaceuticals history before I get to the presentation. It was at this conference 18 years ago that the Jazz Pharma team began discussing getting together to found a company. And 1 year later, we were back putting the finishing touches on a $250 million financing round. But enough reminiscing, on to the present. It is my distinct pleasure today to share an update on our significant accomplishments of 2020 and my excitement about this year. In 2020, thanks to the passion, innovation, integrity, collaboration and pursuit of excellence demonstrated by our 1,800 dedicated and talented employees around the world. We helped more patients, achieved record product revenues, advanced our pipeline and positioned the company for success. And 2021 should be our best year yet. Helping more patients with narcolepsy, obstructive sleep apnea, acute lymphoblastic leukemia, severe veno-occlusive disease, AML and small cell lung cancer. Introducing a new product that will also help patients with idiopathic hypersomnia, continuing to advance our pipeline and continuing to diversify our future revenue streams through the addition of new products and programs. On Slide 2, I point out that I will be making forward-looking statements. Of course, actual results may differ materially, and the forward-looking statements are subject to risks and uncertainties that are described in our SEC filings. Now on to Slide 3. At Jazz, we're innovating in every part of our business to transform patients' lives. 2020 was a year of very strong execution and we plan to continue to demonstrate our ability to execute during 2021. We truly are in the midst of a significant transformation of our business. Moving to Slide 4. In our 2 therapeutic areas, neuroscience and oncology, we follow the same approach. We focus on patient populations with high unmet needs, where we can call in a concentrated physician audience with an efficient sales force. We identify and develop differentiated assets, treatments that are clearly different from others currently on the market or in development and that have long lives. And we leverage our integrated capabilities and global infrastructure to effectively reach patients around the world. Now let's move to Slide 5. We feel we're well positioned for sustainable growth as we enter 2021. Our commercial franchises are performing well. Our oxybate treatments, Xyrem and next-generation Xywav are leaders in narcolepsy. We've introduced new oncology treatments in the past few years with Vyxeos and Zepzelca. And we've driven strong adjusted net income growth over the past decade. Our robust pipeline has been a productive one, generating 5 potential product launches last year and this year. And we've more than quadrupled the number of R&D programs in the past 5 years while achieving many approvals and launches during that period. And we continue to invest to grow our global platform with a steady stream of licensing and M&A deals. We certainly have the wherewithal to continue that investment with operating cash flow running at approximately $1 billion a year through the first 3 quarters of 2020. On Slide 6, we look at our key achievements in 2020, all helping to drive long-term value. As you all know, we had 3 product approvals in 2020, including Xywav for the treatment of excessive daytime sleepiness and cataplexy in narcolepsy. We also had really tremendous execution on our JZP-458 and 258 programs. Last month, we initiated our BLA submission for JZP-458 for the treatment of acute lymphoblastic leukemia, utilizing FDA's real-time oncology review program. And in our JZP-258 program, we unblinded compelling top line data last quarter for the treatment of idiopathic hypersomnia. I'm pleased to announce today that we began our rolling sNDA submission for this program last month. 2020 was also notable for 3 significant transactions. Of course, we acquired U.S. and Canadian rights to Zepzelca in our deals with PharmaMar. We acquired our FAAH inhibitor from SpringWorks and we signed a collaboration agreement with Redx for 2 targets in the Ras/Raf/MAP kinase pathway. And of course, we stayed on track for our goal of 5 product launches in 2020 and 2021 by successfully launching Xywav and Zepzelca in the U.S. and Sunosi in the EU. We're now hard at work preparing to launch JZP-458 in ALL and JZP-258 in IH this year. Slide 7 reviews our top line growth over the past 5 years. And I think nicely demonstrates our double-digit compound annual growth rates in both neuroscience and oncology. I'm pleased to announce today that we do expect net sales in each franchise to fall within our previous guidance of $1.76 billion to $1.8 billion for neuroscience and $525 million to $565 million in oncology. And if we look at total revenues on Slide 8, we'd like to confirm today that we expect total revenues will fall within our previous guidance of $2.32 billion to $2.38 billion for 2020. You'll also see that we expect continued top line growth in both 2021 and 2022. Importantly, the composition of those revenues is changing significantly. We've stated that we expect new product sales of Sunosi, Zepzelca, Xywav, JZP-458 and JZP-258 to account for nearly 50% of our revenues by 2022. That's a dramatic change from our revenue mix this past year. Turning to Slide 9. We show our current R&D pipeline, which, as I mentioned earlier, has expanded dramatically in recent years and includes early to late-stage programs across both neuroscience and oncology. I'd like to highlight that Xywav represented the first product we've taken all the way through from concept to approval. And of course, the next such program, JZP-458 is not far behind it. On Slide 10, I show our executive management team, which was strengthened significantly in 2020 through the addition of 5 new executives. This completes a refresh of our team that began 3 years ago. I have high confidence that we have the right team to execute on our strategy and continue the strong performance we saw this past year. I'd also like to point out, I'm really proud of the diversity on our Executive Committee and on our Board of Directors. In each case, we've aimed for approximately 50% of our team to be diverse by gender, race or LGBTQ status. On Slide 11, we note the importance of smart capital allocation in driving shareholder value. We're in the enviable position of having a strong balance sheet with $1.9 billion in cash as of the end of the third quarter and continuing strong cash flow, giving us significant leverage capacity. Our job is to put that capital to wise use in 4 categories: first, pipeline expansion through investing in existing programs and bringing in new assets; second, continued investment in our existing products, including in expanding their indications and in bringing those products to more geographies; third, corporate development, both product and company acquisitions; and finally, share repurchases. Over the past 7 years, we've invested $1.5 billion in opportunistic buybacks to maximize long-term shareholder return. We're using our capital to diversify our growing base of revenues and advance a pipeline that can support future growth, all while improving operational excellence. Let's spend a few minutes now on each of our 2 TAs, starting with neuroscience. On Slide 13, we have a snapshot of our neuroscience franchise, which we believe is poised for sustainable growth. Of course, we've long had a strong presence in narcolepsy, but with expansion into obstructive sleep apnea with Sunosi and an upcoming launch of JZP-258 in idiopathic hypersomnia, we see additional growth in treatments for sleep disorders. And we've now expanded beyond sleep into other areas of unmet need, including essential tremor and post-traumatic stress disorder. And our early programs include in-licensed assets with novel mechanisms of action. Let's move to Slide 14 and focus in on Xywav, where we executed on a successful launch in November. Xywav is the only FDA-approved lower-sodium oxybate approved for the treatment of cataplexy and EDS in narcolepsy. We're out now educating physicians and patients on the lifelong burden of narcolepsy and high sodium intake. Our goal for Xywav is that the majority of all oxybate patients are benefiting from Xywav by 2023. So how is the launch going? Very well. As we had expected, the large majority of Xywav prescriptions are for patients who've previously taken Xyrem. We're really pleased that the majority of oxybate-naive patients getting a new oxybate prescription are being prescribed Xywav, and we remain on track to obtaining broad payer coverage. As you know, we were covered on Express Script's National preferred formulary at the time of launch. On Slide 15, we highlight our JZP-258 program, which is our program investigating Xywav in IH. As I mentioned earlier, we've already begun our rolling submission and are planning a launch in the fourth quarter. While we are confident that IH is significantly under diagnosed today, there are at least 37,000 diagnosed patients in the U.S. with a concentrated prescriber group that has almost complete overlap with our current call universe. We know that IH patients who are consumed by sleep have difficulty waking, brain fog and memory loss, among other symptoms, and have difficulty maintaining a job, communicating, socializing and driving. We know IH profoundly impacts quality of life, and there are no FDA-approved therapies. Turning to Sunosi on Slide 16. We're now entering the next phase of our launch. After obtaining strong payer coverage and successful initial feedback from patients and physicians, especially in narcolepsy, we're now increasing our reach into OSA targets who currently prescribe medications for EDS and have expanded our DTC initiatives launching television spots. And of course, we also began our rolling launch of Sunosi in the EU during 2020. 2021 should be a year of strong growth in Sunosi across regions. On Slide 17, we look at our ET program, JZP-385, where we expect to initiate a Phase IIb program in the first half of the year. This represents a significant opportunity. It's estimated that there are approximately 11 million essential tremor sufferers in the U.S. and Europe combined, with approximately 2 million diagnosed and 0.5 million being drug treated. Essential tremor has a profound impact on patients' lives and their activities of daily living, and there have been no new approved drug treatments in many decades. We're excited to be evaluating this selective T-type calcium channel modulator, which could also have use beyond essential tremor. On Slide 18, we highlight our JZP-150 program, where we expect to initiate a Phase II trial in PTSD later this year. PTSD represents a global public health problem associated with significant morbidity and mortality with increased risk for death by suicide and premature death, increased risk for acts of violence toward others, functional impairment across domains of life and poor quality of life. This is a large patient population with limited treatment options. We're excited about our program for several reasons. We have a selective potent molecule that has been well tolerated at doses which achieve substantial FAAH inhibition. We have early efficacy demonstration in both fear extinction and cannabis use disorder and a differentiated MOA. Let's now turn to our oncology franchise. On Slide 20, we provide a snapshot. We've seen continued double-digit growth in this portfolio and expect future growth and diversification, fueled by the recent Zepzelca launch, and our planned JZP-458 launch this year. Defitelio and Vyxeos remain important therapies for patients with significant unmet medical needs. And we have many pipeline programs exploring expanded indications for our existing agents as well as a set of innovative new targets. On Slide 21, we spotlight Zepzelca, which was launched in July for the treatment of metastatic small cell lung cancer with disease progression on or after platinum-based chemotherapy. It was nice to see Zepzelca immediately included in NCCN guidelines, and we've received positive feedback from physicians following their use of the agent. We had a great first quarter of launch with $37 million in third quarter sales, with additional growth in the fourth quarter. We believe Zepzelca has significant potential in second-line small cell lung cancer, where there are currently 17,000 patients a year receiving treatment but also an additional 8,000 patients per year who've chosen not to receive second-line treatment based on the efficacy and tolerability of previously available treatments. And beyond that, we're excited to partner with PharmaMar to jointly develop lurbinectidin in other tumor types and also to explore it in first-line small cell lung cancer in combination with immuno-oncology and other agents. On Slide 22, we highlight our JZP-458 program. I'm enormously proud of the progress we've made with JZP-458. And we've moved from Phase I in 2019 through a pivotal trial in 2020 and have now begun our submission. This rapid progress has been a testament to our innovation and execution and has also benefited from a very close working relationship with FDA and the children's oncology group. Let me close my presentation by reviewing our key deliverables for 2021. On Slide 24, we outline our strategy, along with some of our key success metrics over the next several years, highlighted by completion of 5 product launches in 2020 and 2021, deriving nearly half of 2022 revenues from our new products and achieving a majority of oxybate patients on Xywav in 2023. Now let me stick with our innovate, execute and transform theme. We will continue to innovate in 2021. We will complete our Xywav idiopathic hypersomnia U.S. submission and secure approval. We will complete our JZP-458 U.S. submission and secure approval. We will initiate our Phase IIb study for JZP-385 in essential tremor in the first half of the year. We'll initiate our Phase II study for JZP-150 in PTSD by year-end. And we will initiate a Phase III study for a lurbinectedin combination in first-line small cell lung cancer. And we'll continue to execute in 2021. We'll achieve rapid U.S. adoption and access for Xywav. We will achieve Sunosi growth in the U.S. and EU. We'll establish Zepzelca as a standard of care in the U.S. for treatment of second-line small cell lung cancer, and we'll launch both JZP-458 and JZP-258. And we'll continue to transform in 2021. We'll maintain our strong focus on diversity, equity and inclusion. We'll build a high-value portfolio of assets through disciplined portfolio management, and will expand our pipeline and diversify revenues through acquisitions, collaborations and internal initiatives. Moving now to Slide 25. We're confident that our innovation, our execution and our transformation will deliver results for patients while also driving shareholder value. And finally, on Slide 26, let me thank all our employees for their extraordinary efforts during 2020 to ensure we were able to meet our commitments to patients and take care of each other, despite the challenges we faced. We're a stronger company for it and ready to deliver again in 2021. And let me thank all of you on this call for your time today. Jess, I'm happy now to move to question-and-answer.

Great. Thanks, Bruce. We'll just give it a second for the video of the other members of the management team to pop up. And again, just a reminder to folks who are listening, you can use the blue, Ask-a-Question button about an online to send questions to me. Maybe just to build off of one of the comments that you made, Bruce, about the Xywav launch. I think you said it's going very well. Can you elaborate that a little bit more? And maybe outline a framework to help us think about the near-term dynamics with the oxybate franchise?

Yes. Maybe I'll give Dan a chance to weigh in on how Xywav is going and how to think about those dynamics moving forward.

Yes. Thanks, Bruce. Thanks, Jess. So we just launched the product in November, but already with our well-established relationships with the sleep docs, we've had very good engagement, both virtually and in person where possible. The focus of the business initially is patients already on Xyrem giving them the opportunity to switch over and get on to Xywav and really get the benefit of -- for a lifelong therapy where there's an increased risk of cardiovascular disease. Yes, similar strong control and efficacy control but without those risks. I'm also pleased, though, that in a short period of time, we're seeing a majority of new patients that are coming on to oxybate therapy are coming on to Xywav over Xyrem. So in terms of the dynamics, our focus was really educating physicians. We're just starting to reach out now to patients that we've established that education with physicians. It's surprising to us how few physicians actually knew how much sodium was in a Xyrem dose. And so with sodium being -- reducing sodium has been a modifiable risk factor this is a real benefit on moving over to Xywav. So we priced at parity at the launch with Xyrem. We've got a suite of services as we're building up contracts with the PBMs. We're very pleased that we had ESI on a preferred national formulary at the time of launch. And so that's really sort of the focus at this point is the education, the ability to switch over and the feedback we're hearing from physicians and patients who have been using Xywav is very strong.

Okay. Great. What about the -- you touched on kind of the suite of services as coverage kind of comes online. And one of the questions that we're getting is kind of how to interpret near-term oxybate revenue numbers while you've got this switch dynamic happening that may be either a drag on gross-to-nets or involve free bottles. So can you kind of maybe lay out kind of what the key metrics you think are best for investors to focus on? And whether or not -- and maybe address just this question of whether or not folks should be concerned about maybe a kind of optically lower revenue number in the short term as this switch proceeds?

Yes. Before I hand it over to Dan, I'll just say, our goal is very clear, which is to make Xywav the oxybate product over the next couple of years. And while we're certainly watching early dynamics, and I'll let Dan address your question a little more directly, at Jazz, we want to make sure people understand if they're worried about gross-to-nets in the near term because the launch is going really well. We want to make sure patients and physicians understand this dynamic about long-term chronic use of a high-sodium product and how they make the right choices again for patients and on the physician side. Dan?

Yes. I mean just to sort of build on what Bruce said is we'll be updating, of course, with our earnings call and providing further guidance at that point for the oxybate franchise. We're not expecting meaningful revenue in the fourth quarter necessarily as we're ramping up patient experience and physician access. But as Bruce said, I mean, the primary driver for us is not about price. It's really ensure that there's a seamless transition for the patients who could benefit and we believe all patients who are currently on oxybate therapy would benefit from Xywav. And so the ability to go gram per gram and have that transition and educate physicians and patients is the primary driver. We do expect to have robust commercial coverage within 6 to 9 months of product launch. And we're getting good sort of coverage, of course, with ESI, but even with other plans. And we look forward to providing updates on that. And in the meantime, provide a suite of services that may have some impact on -- in the very short term on revenue if they're getting free drug. And then some benefit on some co-pay assistance, but it's really to take price out of the equation and ensure that the best product for the patient is what's available to them.

Okay. Great. So thank you for asking questions. We've got a bunch of questions coming through on the portal. I'm just going to couple some that are similar to one another. One is, can you give any kind of number on conversion and the other one sort of read similar is what percentage of oxybate franchise patients are on Xywav?

Yes. We'll be giving more detail, Jess, when we get to our fourth quarter call towards the end of next month. And all we're saying at this point is we are seeing good adoption of Xywav, that most of the patients we're seeing on Xywav today do have oxybate experience in the past. But for oxybate-naive patients, meaning this is their first time on either product, a majority of them are already going to Xywav.

Okay. Got it. Maybe just continuing the list of investor questions here. Is 50% conversion to Xywav the max you can achieve before triggering authorized generic entry?

Yes. We haven't given a specific figure for the market decline provision in our settlement agreements, which are, of course, covered by confidentiality provisions, but it's designed as is true in many brand generic agreements to allow the generics to enter if the market for the original brand product is substantially eroding. So it's a big number, but we haven't given the exact number.

Okay. I think you maybe touched on this a little in the presentation, but kind of framed it little bit differently. So going forward, what is Jazz's main focus when it comes to use of free cash flow, the continued acquisitions, debt repayment? Could a dividend be down the road?

Yes, let me throw that one over to Renée.

I'm happy to comment. Thanks, Bruce, and thanks, Jess. Yes, as Bruce mentioned, in the presentation, we are highly focused on disciplined deployment of capital. And so as you think about what our priorities are over the course of 2020 and 2021. We've talked about the 5 product launches, ensuring that those launches get off to a great start. So investing in that area is going to continue to be important as a foundation for the business. We'll also be continuing to focus on accelerating and expanding the pipeline. We'll do that both through our existing programs and collaborations, and we would expect to invest in additional corporate development opportunities. As you've seen, this is also an important aspect of our overall strategy. And then I would say, with respect to share repurchases, clearly, that's something we've engaged in, and we'll continue to be opportunistic, focused on ensuring that we're maximizing long-term return.

And just to add to what Renée said, the Zepzelca deal, which we were just in the process of closing last January is a great example of us using our capital to add a new growth driver to our business. That was a brand-new deal at the beginning of 2020. And yet by the end of 2020, we had a strong product launch and great growth in front of us.

Okay. A couple questions on Zepzelca. What are your plans for a confirmatory study following the ATLANTIS outcome?

Rob, you want to take that?

Yes, happy to, Bruce. So we have an informal way, presented the preliminary data to the FDA. We have plans with our PharmaMar partner to reengage FDA later in the year and discuss the specifics of new confirmatory trial having acknowledged that ATLANTIS would not serve that purpose.

Okay. Got it. And then another on Zepzelca here. You've talked about maybe a bolus of later line patients being treated in addition to second line patients with some eventual kind of washing out of those later line patients as the product becomes more established in second line, where are we in that process?

Yes. Go ahead, Dan.

Okay. Well, we're really pleased with the way the launch has rolled out. And as we said in the presentation, we expect continued growth in sales in the fourth quarter and our objective is to have Zepzelca be the standard-of-care preferred treatment option in second line patients. Not uncommon to other, other oncology launches at the time of launch, there's many patients that are in later lines of therapy that haven't had prior exposure to the treatment Zepzelca. And so we found through some chart reviews that we do have a certain number of third line and later patients where 95% of their second-line treatment options were actually made before Zepzelca was available. We do expect that now we're getting good strong usage across all patient types, both platinum-sensitive, platinum-resistant, second line as well as later lines of therapy for patients who had not had prior exposure. But increasingly, we look to get patients sooner that are probably in second line. And as you can imagine, their prognosis is better and the duration of therapy should be higher. So we're very pleased with the way the launch is going and the feedback we're getting from physicians has been strong to date.

Okay. Got it. You're investing behind multiple new product launches right now coupled with some increased R&D investment, and that's led to operating margin contraction in recent years. Just looking ahead, how should investors think about the operating margin trajectory over kind of the near to medium term?

Yes. Maybe I'll ask Renée to jump in on that. But I will say after being in this business for decades, nothing is better than having the opportunity to invest in product launches you're excited about. So I understand it can have an impact on short-term margins, but give me that problem all day long. Renée?

Yes. Well said, Bruce. So we've mentioned obviously, the importance of getting these 5 product launches in a position where they have the proper foundation to support our medium and longer-term goals of -- in 2022 having nearly 50% of our revenues coming from products launched since 2019. So clearly, in 2020, in 2021, investing in commercial is important for the company. As these products mature, we would expect our SG&A margins, of course, to improve. But we certainly don't want to be short changing important investments for these products' success right now. In addition, on the R&D side of the business, as I'd mentioned previously, investing in the pipeline is another important priority for the company as we expand and advance our pipeline. So I would expect us to continue to invest in building a pipeline for durability and sustainability for our business. But I would just note across all these activities, we take a very disciplined approach. When we're thinking about allocation of capital, we're focused on prioritizing the investments that we think are most important to achieving our long-term objectives, these medium-term objectives that we spelled out for 2022 and 2023 and then ultimately, driving future shareholder value.

Maybe coming back to the oxybate franchise. Do you expect either revenue growth or volume growth for that business in 2021?

Dan?

Yes. I mean we're not providing our current 2021 guidance yet. So we'll be updating further on that. But we are continuing to invest not only in the education of Xywav, but continuing to support diagnosis and the treatment journey for narcolepsy. And as you know, while we've got a certain number of patients that are diagnosed, there's a good portion that are not being diagnosed. And so continued efforts there in terms of market expansion are things that Jazz will be supporting.

Yes. And I'd specifically reference on that front, Jess, that we've said historically, we think a certain number of patients who otherwise would have received Xyrem did not get the product because of physician or patient level concerns about sodium and cardiovascular risk. So we think that's a new opportunity. And then, of course, we're moving as quickly as we can to bring the IH indication to market as well, which really will be a substantial new group of patients for oxybate therapy.

Okay. Thinking about JZP-458, how are you envisioning the potential ramp when that product comes to market and you kind of transition away from marketing Erwinaze?

Yes. Maybe we'll give a 2-part answer here. I'll start and then hand it over to Dan. The first piece of that is we're just excited to bring a product to market where we're confident in robust, high quality, consistent supply to restore conviction on the part of physicians that the product is going to be there for their patients when they need it. So that's our starting place, but maybe Dan can talk about where we can grow from there.

Yes. And just as a reminder, we continue to have a relationship with PBL to distribute the product sell-through rights into 2021, and we anticipate that on a batch-by-batch basis that we would have some of that product available in the first half. But the real transition will be to 458. And Bruce references that physicians when they start the therapy and caregivers and patients, it's really important that you have confidence that you've got high-quality supply all the way through the full course of therapy, including all cycles. And the challenge we have now is we give out very limited amount of Erwinaze, really just for the first cycle or 2 and it depends on product availability. And given that also, a lot of physicians are starting to triage the patients who have the greatest risk of, say, anaphylaxis and the greatest risk of sensitivity. And so they have the confidence that you've got high-quality product that's available all the way through. We think there will be opportunity to grow and shape the market and give confidence there above and beyond just getting more into the adolescent young adult population where more drug is required, and moving into other geographies such as Japan where we haven't been able to introduce the product. So $200-plus million was where we sort of where we were before we ran into supply issues. And depending on market share and confidence and growth, we expect to go from there.

Thank you. It looks like we're just about out of time here, so we'll wrap it up there. But thanks, everyone, for tuning in, and thanks team for joining us.

Thanks, everyone.