Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Great. Thanks, everyone, for joining us. Thanks, Bruce and Justin and Robert and Kim. We really appreciate you taking the time with us this afternoon. I'm joined by Stacy and Georgi as well. Bruce, like a lot of things, I usually tend to go on many ramps when I introduce the companies. And in your case, I have a little bit of a story. But the story, I think, will make sense. It was the morning that the announcement was made about GW. And of course, Phil Nadeau, my dear friend and colleague, covers GW. And we usually sit right next to each other in the office and could be in each other's office very quickly. But I had to ask, "Phil, can you send me your model?" And he had a busy morning as well. And so we weren't able to communicate. I got his model, and I had one of those uh-oh moments. "Uh-oh, Phil's got this asset, great asset, Epidiolex, going generic in 2026." And I don't have him right there, able to grab him and say, "Phil, what's going on here?" But -- so very quickly, and a lot of e-mails are coming in with similar sentiment, what is Bruce doing? In about 0.5 hour, it became clear as I was able to get in touch with Phil, well, there's a lot of Orange Book-listed patents. There's a bioequivalency issue. And the biotech analysts tend to get a little bit more squeamish about those types of things. And it became clear, while there may be a massive arbitrage opportunity and a lot more going on here in terms of duration that meets the eye and, again, the evolution, in only an hour or so of Bruce, typically, I know and trust knows what he's doing.

So I guess I wanted to start there with a little bit of a background to your diligence in working with Justin and looking at the assets and talking about and thinking through the durability. Can you help bring to life a little bit of maybe my biotech colleagues on Wall Street's view of duration and really your view and a little bit of the work that you did to get yourself comfortable to now bringing together this acquisition?

Yes. Ken, so first of all, thanks for having us here, and I'm delighted that Justin could join us as well. Maybe Justin and I can tag-team on this answer. I'm going to back up a little bit and remind you why we were excited about GW in the first place. Jazz has talked about the potential of doing a larger deal for a couple of years now, and we've been considering what would make that attractive to us. And ideally, it would accelerate our revenue growth. It would diversify our revenue growth. It would be a pipeline fit. It would be a cultural fit. And financially, it would be attractive to our shareholders. And we certainly considered many possible combination targets before we identified GW as #1 on our list, and that's been true for some time. We were really excited by the Epidiolex launch and opportunity, $510 million in sales on the second full year on the market, it's just excellent performance by the GW team. We're really impressed by what they've done. And we think there's lots of opportunity in front of Epidiolex as we continue the U.S. launch, as you look at the European launch, which is just getting underway. So as we did evaluate this, including confidential diligence, we became convinced that our thesis about Epidiolex was right. That it was a long lived asset. And then beyond that, GW brings a wealth of expertise and a really interesting neuroscience pipeline from Phase III assets all the way back to preclinical. And I believe the cultural fit is fantastic. I'm not sure investors care about that as much, but I know Justin cares about it and I know I care about it, in terms of these 2 entities coming together and being better than the sum of the parts. I think one of Jazz's superpowers is really understanding complex exclusivity stories, not just oxybate but beyond that. And we think GW has done a lot of great work on this front. And I'm going to ask Justin to weigh in a little bit on what they've said publicly, and then I can maybe just add some color commentary at the end.

Yes. Thank you, Bruce. And Ken, it's interesting hearing your story because I think it sort of reflects a bit of the journey that GW has been on over the last few years where maybe Wall Street hasn't quite arrived yet where it should be in the sense that -- and if I go back into the GW story history, at the time of the development of Epidiolex, IP wasn't a big part of the investment thesis. It was really about trial data and sales potential. And actually, if you look at what GW has done over the last 3 years, I would say we've really transformed the IP estate of Epidiolex. Obviously, it was work that started more than 3 years ago, but I think it's really started to come to the fore over that period of time. And I would break it into a few different areas. The first is just Epidiolex is a very complicated product to make. It's an unusual product. And the kind of plant-derived complexities, the infrastructure, et cetera, provide, I think, something that's very unusual, perhaps not so obvious to Wall Street. But it's very, very meaningful in terms of how we make the product. And the second is just the patent estate itself. So we have 14 Orange Book-listed patents now. It's much higher than it was at the time of approval. We run 13 of the 40 runs at 2035. We felt very good about those. And you've heard Bruce and the team have done their diligence on those as well. We then have also formulation-related IP. And then on top of that, there's, what we call, a "composition-like" patent application that's running that we hope to grant either later this year or early next that would run to 2039, actually. And that's another layer, which I know investors have been keeping an eye on as well. So -- and that's really just -- I think it supplements the 3 other categories that I already mentioned. So for us, we've never had a concern. Obviously, we're always keen to protect and to enhance that protection. But I would agree with the kind of -- what you said earlier, there is a differentiated view that you can form when you do confidential work that Bruce and the team were able to form on this topic.

That's great. That's very helpful.

I'll just conclude, Ken, by saying that, that confidential diligence work involve Jazz, its internal experts and its external experts getting together with GW, its internal experts and its external experts. And really talking about everything GW has done today, what GW and Jazz together could do going forward, we looked at it from all angles. We played the other side. We red-teamed this. If we were trying to get in and compete, how would we do it? What are the barriers to that? And after an extensive effort, and this was a key diligence point, we too became convinced this is a very long lived asset.

Yes. No, it makes a lot of sense. It took simple me about 30 minutes to realize there's a lot more going on than what have been done. And listen, Wall Street, to a certain extent, can invest thousands of dollars. You can invest millions of dollars to do those types of diligence, so it's understandable what's going on with my biotech colleagues but also understandable that we probably are being way overly simplistic about things, so we look forward to digging in. I guess, Justin, while we have you, or Bruce if you want to handle this, maybe Epidiolex penetration rates at this point. Maybe level set folks of the opportunity, where we are in the curve in terms of LGS, Dravet, TSC and other refractory and then where do you see it going? And I do know that as we kind of think through the opportunity, most models, if they had a tailing off in 2026, I don't think have that compounded growth that we could see if we're able to push it even a few years down the road. So can we talk about how we could get there? If we let those growth rates kind of continue to breathe into the late 2020s into the early 2030s, where ultimately do we think this product could go?

Sure, I'm happy to take that. So in terms of the 3 indications themselves, we gave a metric towards the end of last year that in terms of penetration, we're about 40% penetrated into the Dravet syndrome patient population, 30% for LGS, 10% for TSC and less than 10% for the kind of broader refractory epilepsy market. And so I think, one, that tells you that the launch has gone pretty well in just a couple of years but also that there's a lot of opportunity to continue to grow this brand within the 3 indications to develop new indications. And obviously, to a physician's discretion if they wish to prescribe to other refractory seizure types, they're able to do that. And so I think when we look at the years ahead, I think it's a reasonable expectation that within these kind of patients, given the refractory nature of the patient population, the fact that patients tend to require multiple therapies at the same time and often cycle through those therapies, that Epidiolex is likely to be used by -- the penetration, I think, over time, will be very large in these different categories. I think your question about the sort of relevance of the duration is interesting in the sense that when you look at the big epilepsy brands historically and what happened to them, they really grew and grew over time. There isn't -- in epilepsy, you don't sort of have this phenomenon of a race to peak sales and then it sort of just starts to disappear. The unmet need, unfortunately, in this space hasn't changed for a couple of decades. And it just means that the option to have an efficacious agent that has a good safety and tolerability profile, I mean, there's always going to be an option that physicians will consider. And I think as we've seen with other products, I think that one can reasonably expect the adoption of a drug like Epidiolex to continue to grow over many years.

Good. Very helpful. There was a...

And I would just add again, Ken, we're excited about the ex U.S. opportunity as well. It was nice to see GW get positive CHMP at the end of last week with very favorable determination. And it just continues to build the favorable pricing, the favorable label expansion that I think will allow for significant growth ex U.S. as well.

Yes. And one of the other things that happened in that kind of 0.5 hour to 1 hour of trying to come up to speed to the GW story was Phil said, "Oh, and by the way, we're not modeling for any pipeline in GW." And I get the sense that maybe that was a commonality amongst all the biotech analysts covering the company as well. So maybe we could just touch briefly on that component, nabiximols, of the story. And Bruce, I don't know if you want to talk about, from your diligence, what you were seeing or if it's Justin to talk about maybe that opportunity that really doesn't seem to be included in a lot of the models that GW had.

Yes, why don't I let Justin talk about it. I will just say one of the things we love about the GW pipeline is it's aimed right at uses that we concur would be fantastic market opportunities and fit well with our focus. So we think the combined neuroscience pipeline of Jazz and GW is pretty exciting. But I'll let Justin weigh in on the specifics.

Yes. Thanks, Bruce. And I think the way I'd start answering this question is it's really important to see GW as a cannabinoid platform company. It's not as if we came along, developed a drug for epilepsy and then have tried to think about what we're going to do next. We spent 20 years essentially building a franchise, which really kind of we own within the cannabinoid science field. And that has -- that includes an understanding of science, generating data, regulatory credibility and infrastructure, including manufacturing capabilities and so on so. So all the benefits that come from Epidiolex aren't just about revenue growth and treating patients within that field. It's actually created the infrastructure and know-how that allows us then to leverage that for future products. And really right up there at the top of that list is nabiximols. It's -- not only does it benefit from all the things I just said, it also benefits from the fact that the product has essentially been through a full development program in Europe. So what we're now doing is essentially bridging from European approvals to FDA. And I won't go through the details of that. But in essence, it really is a bridge for a product that we know how to make at commercial scale, has a well-established safety and tolerability profile and has proven efficacy in multiple clinical trials. The unmet need is very clear not just in spasticity in patients with MS but in spasticity more broadly. So we have a plan to get this product approved initially in MS spasticity, which we, at GW, have given guidance, it's about a $450 million peak sales opportunity. The next indication to broaden this is in spinal cord injury spasticity. Our guidance there is about a $350 million peak sales for that specific additional indication. And then we think there's an opportunity for a broader spasticity label as well. And so it's a very meaningful opportunity and with multiple Phase III trials that are either started or will start in the next few months and data readouts coming later this year or, certainly, during 2022, and an opportunity for an NDA submission within 1 to 2 years.

Okay. Great. Wonderful. I think Bruce, in times like this, and Justin, there's a lot of focus clearly on all the heavy lifting that you have to do, even get yourselves combined and execute. But I think one thing I want to bring up before we get into a little bit more of the legacy Jazz portfolio is you talked about the leverage -- or the deleveraging and how it could be under 3.5x relatively soon. As I look at the model, and I know you're not going to be able to give me direct figures nor would you want to, but it does look to me that by 2023, if you so choose, you could reload another $5 billion to $6-plus billion acquisition. I do think that there's sometimes a complacency of such a big transaction like this and, again, a lot of work that needs to be done. But I would assume that you are thinking a few chess pieces ahead. So can you just talk about the balance sheet, the combined company balance sheet? We're seeing it "levered," but it looks like you were going to be able to delever this really fairly rapidly.

Yes, Ken, one of the things that's important is that we have a combined company in Jazz and GW that itself has great growth prospects. And we gave you the top line answer of accelerated revenue growth. Our earnings, accretive in the first full calendar year together, which would be 2022, strongly accretive thereafter and able to delever quickly. That's because of the cash flow we have and the increasing cash flow we'll have over the years as a combined company, and that's going to allow us to continue to be active on the corp dev side. And for those of you that have been following Jazz for years, people are pretty excited about Zepzelca and the successful launch we had in the second half of last year. And remember that a year ago, we were just getting the rights to Zepzelca through a corp dev transaction. Now we're talking about Epidiolex, the pipeline at GW. We've got other things moving forth through regulatory. We've got 2 product launches coming this year. But don't expect that, that combined portfolio of commercial products and R&D will be the sole interesting things to talk about in years going forward. We will continue to add whether those are things early in our pipeline, mid- to late-stage in our pipeline or commercial assets over time. So I think, Ken, it's an important part of the thesis that we'll continue to be active in redeploying capital in smart ways.

Okay. Good. Why don't we pivot a little bit to Jazz proper and talk about Xywav. It's really -- it's one of those things that, I think I wrote this recently, things seem to go slow and then they happen really quickly. And here we are with -- as the product is now on the market, I think it allows people to understand, with a little bit more enthusiasm, the opportunity. So can you talk about the patients that you're currently converting? Maybe those patients that have comorbidities or is it really just nonspecific conversion and interaction in terms of managed care? I know that you're really laying the foundation here as you do this conversion, but there's a lot of moving pieces, but would love to understand already in the marketplace how clinicians are approaching having access to Xywav.

Yes. Let me frame this a little bit. And then I'll ask Kim, who runs our North American group, to comment on the initial physician interactions and reaction. The goal here is to have a growable oxybate franchise with a better product. And so Ken, I certainly hear your comments about conversion and getting patients who are on Xyrem onto a better treatment. It is a big part of our plan. But we're really trying to get patients on Xywav wherever they come from, whether that's -- they were on Xyrem yesterday. They were on Xyrem a year ago and haven't been on it since. They're newly diagnosed with narcolepsy. They've been diagnosed but they haven't wanted to go on a high-sodium product historically. Or in the not-too-distant future, they're IH patients who finally have an FDA-approved therapy. So the goal is grow Xywav from all sources. But I'll let Kim address how physicians are reacting.

Great. So we're incredibly pleased with how the launch is going to date. We're seeing not only a rapid rate of uptake and adoption of the product by customers but also pleased with the broad way that they are using the product, at least in terms of what they're telling us. And this really does come down to the core of our story and the reason we developed this product that HCPs are understanding and appreciating that just by being diagnosed with narcolepsy, a patient has an automatically increased risk for cardiovascular events. In fact, 70% to 80% of these narcolepsy patients today are already being treated for one of these such risks. So the value proposition is very clear to them to being able to control the reduction in sodium, which is a clear, viable risk factor for cardiovascular disease. Now Bruce said what our goal was in terms of broad usage. What we're seeing out there in terms of patients being placed on Xywav is that the large majority of them are, as you would expect, oxybate experienced patients, several who are being transitioned over immediately from taking Xyrem but, as Bruce mentioned as well, some that are taking Xywav who have not most recently been taking Xyrem but historically have taken Xyrem. And we're seeing some new patient starts. And actually, we're very pleased. And we think it's a signal of where this product is starting to sit in the minds of prescribers in that among those new patients to oxybate, those that are being started on their first oxybate therapy, the majority of them are being -- going straight to Xywav. So all very positive signals to us that the health care providers appreciate the value proposition and understand this risk that patients face in terms of consumption of very large amounts of sodium in their therapy. You brought up the payer environment. We're very pleased with how our discussions and our progress with the payers have been going since launch. We are in a place now where we have coverage for greater than 60% of commercial lives out there. And this was coming largely, but not exclusively, from 2 very large contracts that we have signed for coverage with 2 of the 3 largest PBMs out there. And we're continuing our discussions with the rest of -- the remaining 1 large PBM and basically all payers and feel that we're well on track to achieving the goal that we set at launch of having a very broad coverage, commercial coverage, for patients within 6 to 9 months or so of launch. So very happy on that front as well. So very pleased overall.

Great. That's a wonderful update. And we maybe will circle back to IH. But one of the issues that is popping up more and more, and we're fielding calls even during our conference, which is on Avadel and the once-nightly. And the once-nightly, to remind everyone, high-sodium formulation. Maybe, Bruce, do you want to put -- or Kim, do you want to put into perspective what this risk is, maybe try to lay it out both from a legal perspective, at least defenses you may have, and then maybe from a market perspective, if it is able to get to market?

Yes. So I'm going to flip that around, Ken, and take the market first because I actually think that's the more important point. We really believe Xywav is the best product for patients. And we've put a goal out there that I'm not sure everyone fully understood when we put it out there, which is we said, in 2023, we believe a majority of all oxybate patients will be on Xywav. And we particularly picked 2023 because we wanted to go out into the future far enough that people could imagine a world that could include an FT218, that could include authorized generics of Xyrem, right? In that world, we still think Xywav is the dominant brand. And that's because this reduction in sodium is really important to patients. The idea that you'd go back to being on a patient with 10x -- a little more than 10x the sodium in Xywav, where that amount of sodium puts you above the AHA's recommended maximum daily intake of sodium in this population that's known to be high cardiovascular risk, doesn't seem like it would be where patients would end up. I'd also point out that once-nightly, while some people see that as more convenient, it's not necessarily true that patients prefer once-nightly. If I say to you do you want to take a drug once or twice nightly, there's an obvious answer, which is once sounds better. But in fact, what you're doing is you're taking a full nighttime dose of an agent that really knocks you out, right? This is the gamma-hydroxybutyrate date rape drug, and you're taking a full night's dose of that. And that has implications for can you get up and go to the bathroom in the middle of the night, can you get up and check on your kids in the middle of the night. If you take your nighttime dose a little later than usual, what does that mean for your ability to get up in the morning and drive a car to get to an early morning meeting, right? You are locking yourself into a nighttime of therapy, and that has implications, too. And when we talk to experienced oxybate patients and say you got to choose one, do you choose once-nightly or twice nightly, they say I like the flexibility of twice-nightly. That's without asking them to consider the additional benefit of sodium, which we think is the most important thing. But to your question, Ken, beyond market, from a legal perspective, we've said publicly, we believe Avadel should have to certify to our Xyrem Orange Book-listed patents. They've made it clear in their public statements, not that we've seen their FDA submission, that they're not going to do that, that they're going to carve out in their label. We think the things they're trying to carve out in their label go right to patients' safety in terms of drug-drug interactions and safe distribution of this drug. Whether FDA will sign off on their label as submitted or require changes, it's up to FDA. Certification could be required at any point during the review process. If it's not, we do have relevant IP. We will defend our IP vigorously, of course. I'll also point out we have done work in extended-release oxybate for quite some time. We may have IP beyond Xyrem Orange Book-listed IP that could be relevant. So stay tuned on that. But I don't want to get lost in the legal piece without coming back to we actually think Xywav is the better product.

Great. And I guess I would take it one step further. If that's the view at 2023, I would imagine it's a consistent view in 2026. There's clearly other programs at other companies in development. But the thought process could still be, as all of us have modeled, the real degradation in that franchise in 2026 is clearly the potential ability that it goes beyond that. I think that's going to be part of the consideration, I would think, relatively soon.

Correct. Including our excitement about IH, which is an indication that's been studied with JZP-258, or Xywav. We gave top line data last October. We haven't presented full data yet. We'll do that in an upcoming medical meeting in the second quarter. We're really excited to share that data with physicians and patients in the IH community who are really desperate for a treatment option that actually makes a difference to them.

Okay. While we have just a limited amount of time, I wanted to pivot to a couple of other areas of the P&L or the revenue stream that, perceptually, has been weaker but could be getting healed fairly quickly and wonderful for patients, if you can, which is 458 and, obviously, the Erwinaze degradation over the years. And I posed, I think, on the call or recently to you, do you have perfect information of what you are not able to supply. And I think the answer is we'd be surprised. It's a little bit more difficult than that. But can you talk about that? It would seem as if you as a commercial organization would have a really good understanding, almost globally, of what you could do with 458 in a more unlimited supply situation. So can you talk about that opportunity, knock on wood, once it's approved and available?

Yes. So we're planning for a midyear launch of JZP-458. We're really excited to have a reliable, high-quality capacity, unconstrained product to meet the needs of patients with ALL. We know that docs have changed behavior over recent years to sort of spare their use of Erwinaze to reserve it for the patients who absolutely have no other options. That's different probably from what would be ideal medical treatment, which would be, at the sign of allergic reaction to the frontline, E. coli-derived asparaginase, you'd switch to a non-E. coli-derived asparaginase. But beyond that full use in pediatric patients, we know there's an opportunity in adolescent and young adult patients who currently are not getting an asparaginase-containing regimen. We know you can see higher survival if you have a pediatric-inspired asparaginase-containing regimen. We turned off our promotional efforts toward the AYA population years ago. We didn't think it ethical to create demand we couldn't fill. So we're excited to get back to that. We're excited to be able to fully satisfy distributor markets, which we again turned off when we didn't have line of sight that every vial of product would go to treating an actual patient, which, again, goes back to ethical, maximizing the benefit of this product. I'll remind you, we never launched in Japan though we had approval because of supply constraints. And then we turned off our R&D programs, looking at the potential broader use of asparaginase beyond just ALL. So Ken, when we say we can't estimate all that market, in part it's because we haven't been promoting to current on-label use, including AYA, and because we had to turn off our R&D efforts. But we're really excited to have that confident, modernly manufactured product that we can bring to patients very soon.

And you know my job is to be a little bit pushy. So I'll be a little bit pushy. Do you think it could be 2x where Erwinaze exited at its peak? Or are we going too far over our skis if we start throwing out expectations like that?

So I think there are phases of this. It can certainly, capacity unconstrained, be much larger than it is today relatively quickly. Some of what I just described will involve other steps, getting a new regulatory approval in Japan for the new product, getting clinical data and potential other uses. So that's not an immediate thing, and I want to make that clear. But we know the opportunity is significantly larger than the one we've been able to address in the past couple of years. Of course, our sales have actually gone down because of supply, not up in recent years. We had gotten to north of $200 million, already supply-constrained, before things got worse from a quality and capacity perspective.

In the last minute or so, I know you have Robert on the line, Bruce, and I don't want to leave anyone out, but I would be asking you about Zepzelca as my last question, but I'll leave it to you. Do you want to talk about anything in the pipeline or portfolio while you have Robert here? Or do you want to hit on Zepzelca for us about what that product potentially could be at peak or both?

Ken, if you're going to give me an open-ended question, I'm going to take it. So we're excited about Zepzelca and its growth. We're excited to continue to explore Zepzelca beyond second-line small cell lung cancer, including a trial we want to get going this year in combination use with I/O in first line. But we're also excited about other elements of our portfolio. We've got 2 key Phase II trials coming up on the neuroscience side, a phase IIb trial in essential tremor with JZP-385 and then a proof-of-concept trial later in the year with JZP-150 for PTSD, that's our FAAH inhibition program; and many other compounds moving through our pipeline, including some earlier compounds that could go into human studies for the first time. And I'll just remind people that Xywav was the first time we had taken a product from concept through preclinical all the way to market. 458 will be the second such compound. So don't forget, we have that capability to take things you may not be focused on early in our pipeline and really bring them forward ultimately to help patients with unmet needs. So we're broadly excited about the pipeline and even more excited when we combine it with the GW pipeline.

Yes. Okay. Well, I know we're a little bit over, so I'll just leave with the final word here, which is it's quite fascinating if we start growing in conviction on the Xywav, Xyrem franchise beyond what we've modeled. And obviously, meeting Justin and getting to know GW and that duration issue, and potentially nonissue, as we move forward. Obviously, this has massive ramifications to the DCF and then, back of the envelope, to the multiple. So we couldn't be more excited for you, Bruce. It seems -- again, things have been frustrating for a few years but, all of a sudden, just really a lot of work that's been done. And I know for you, it's always been happening. For us in The Street, though, it seems to be all happening at once. But I would just say it differently, it's coming together really all at the same time. And congratulations to all the progress. And thanks for participating. Thank you, Justin as well, and Kim and Robert.

Yes. Thank you so much, Ken, really appreciate it.

Great. Thank you so much.

Buh-bye.

Buh-bye now.