Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good day, everybody, and thanks for joining us at the Bank of America Annual Healthcare Conference. I'm -- biotech analyst and spec pharma analyst, and I'm pleased to be introducing our next company presenting, Jazz Pharmaceuticals. We've got the team here. We've got Kim Sablich, General Manager of North America; Robert Iannone, EVP of R&D and CMO. And we've got the 2 CEOs. We've got Bruce Cozadd from Jazz, and we've got Justin Gover from GW Pharmaceuticals. So first off, thanks, everybody, for joining us today.

Yes. Great to be with you, Jason.

So timely, we just have the -- a big acquisition close with the GW Pharma deal closing, I guess, last week. So maybe Bruce as just a softball starter to the conversation. Maybe can you talk a little bit about what excited you -- or what excites you most about the 2 newly combined entities now that you've closed the deal? And some of the ways you're thinking about creating shareholder value, beyond just sort of the cash flows that we can expect from Epidiolex over the next decade? But can you talk a little bit about some of the other underappreciated aspects of that business that excite you?

Sure. And Jason, thanks for the invitation to present today. So the great thing about the combination of Jazz Pharmaceuticals and GW is that we're bringing together 2 companies that are really executing well right now. And you can see that in the company's separately reported first quarter results. Jazz is in this period of unprecedented launches with 5 launches planned over the course of 2020 and 2021. Those launches are going well in the case of Zepzelca, which we launched last year; Xywav, which we launched last year; and we've got a couple of launches upcoming this year, contributing 23% of our first quarter revenues from newly launched products. We're now adding into that GW's Epidiolex, which has been off to a tremendous start in its first 2.5 years on the market, doing north of $500 million in 2020 revenues, with a team that's executing well in the U.S. and in Europe, where the product is earlier in launch. We're also bringing together 2 pipelines, which are particularly complementary in the neuroscience area with nabiximols in late-stage development at GW, and with our mid-development stage programs in PTSD and essential tremor. And when we think about what this deal brings to Jazz shareholders, it accelerates our revenue growth, helps us diversify even faster. We've said we think 65% of our revenues in 2022 will come from newly launched products and allows us to delever quickly. So we did take on some debt to finance the transaction we said we're confident we'll be at less than 3.5x leverage at the end of 2022, and it's accretive going forward. So we said in the first full calendar combined year, which would be 2022, this will be accretive to Jazz and strongly accretive thereafter. So adding that third high-value commercial franchise, putting the 2 pipelines together and then combining the 2 organizations, which I think share a similar positive culture and have a lot of talented employees, it was really exciting to celebrate day 1 together last Thursday, get all the employees together for a meeting on Friday, and really start writing the next chapter of Jazz's history together.

Great. I appreciate the introduction. I guess one thing I think about with your guys' story, you got comps to a lot of "specialty pharma companies." Like companies that were leverage business development and licensing to build a portfolio to find medicines, right, that are perhaps in underappreciated areas. I think a lot of people might compare you to Horizon in the sense of focusing in rare orphan disease areas, areas where there's not a lot of price pressure where you have good monopoly positions in your end markets. I think you haven't gotten the credit for it yet in the market. I think one parallel, I think I see in the story is that from an R&D perspective. It seems like you're going to have a lot going on with these 2 organizations as you bring them together. And I'm wondering, if directionally, you can kind of lay the road map for what your R&D investment is going to look like going forward? I mean, one could see you being in a low double-digit as a percentage of spend. I know you're probably not in a position to want to give guidance now, but you will in the next 40 days or so. But can you talk a little bit about how the R&D investment will look for the combined entity?

Yes. So our strategy, Jason, is based around innovation, and so we've seen our R&D investment go up in dollar terms and also as a percentage of revenues. And that's a strategic investment we're really happy to make. I think if you look at what we've accomplished in the past year or 2, we have now brought Xywav all the way from preclinical development onto the market. And we're close to having brought JZP-458 all the way from preclinical development onto the market. So when you look at what we have in our pipeline and now our combined pipeline, I think people rightly focus on those things that are already awaiting regulatory approval or we've already unblinded late-stage clinical data. But I think it's important to look at our early and mid-stage development assets as well, including our preclinical programs, where, again, we've demonstrated we can take things all the way from super early development to the market and make a difference for patients. I know Rob is excited about our preclinical portfolio in both neurology and oncology as we move forward.

Got it. And in terms of the acquisition, talking maybe a little about future clinical exploration of cannabinoids and cannabinoid-type products. And what gets you most excited outside of the core area of epilepsy, where you've -- you had -- or I guess, GW's had a lot of success. But thinking about some of the future frontiers, autism is one area that I think the company has mentioned for future clinical expiration. But wonder if you can comment there, what you're most excited about?

Yes. Let's do a 2-part answer to this, if we can. I'd let Rob to start because Jazz actually had an interest in cannabinoid science even before the GW transaction. Maybe Rob can talk a little bit about why he's excited. And then Justin, I'd encourage you to jump in with a little bit of your perspective on where GW has been going with this platform.

Yes. Happy to, Bruce. As Bruce mentioned, we had made an investment in a FAAH inhibitor, which is a way to manipulate cannabinoid system through endogenous mechanisms because we were very interested in this field, generally speaking, and are pursuing that for PTSD at least initially. It's an example of how our science is beginning to overlap with the expertise and the capabilities that GW brings to the combined company. So it's exciting to think about how people come together to think through these common problems, but also to potentially even think about how the pipeline itself synergizes with future combinations.

And yes, just to build on that. I mean I think GW obviously became known for the epilepsy expertise and Epidiolex. But bear in mind, GW is a 23-year old company, and Epidiolex really only emerged in the last 5 years or so. And I think what we've been doing in the background over 20 years is building both the scientific understand as well as the capabilities and manufacturing and other sort of platform basis from which to exploit cannabinoids. So whether that's exosomes in Phase III in MS through to autism, you mentioned, schizophrenia. And even beyond, we started a program a couple of years ago now, which is really what we've sort of termed "beyond the plant", where we're really harnessing cannabinoid pharmacology, and our understanding of it to produce a suite of new chemical entities that really form the basis of kind of next-generation of cannabinoids. So whether you think about GW as Epidiolex in the shorter term, the exosomes in Phase II assets in the medium term, there's also a longer-term play here. And I think that's what I hope GW can contribute to this combined organization.

Got it. And maybe, Justin, if I could just come back to you. I mean, so you guys -- the first quarter result for Epidiolex was published, and you historically have put out some market penetration numbers. And it seems as though LGS and TSC and other refractory seizures had a lot of runway. And so maybe can you just give investors a sense of where the bigger opportunities lie ahead for Epidiolex in terms of the growth opportunity?

Yes. Absolutely. So Q1 sales for Epidiolex were $148 million for Q1. It's up almost 26% from year-on-year. So even in the context of the pandemic, I think we're pretty satisfied with what the performance over the last 12 months or so. I -- we don't -- we didn't regularly every quarter update penetration. So we've done that occasionally, and we did -- so we did that probably 6 months ago or so. And you're right, the opportunity for Epidiolex sits within both drug and LGS, which have now been approved for about 2.5 years, where we still have a significant runway left within those 2 indications, but also, of course, the third indication, which was approved and launched only in the second half of last year, tuberous sclerosis complex, which is a pretty meaningful additional indication. And we do see interest from physicians and continue to explore the usage of Epidiolex across other forms of refractory epilepsy, and we continue to want to do research in that area as well. So I mean Epidiolex is a product where I think we can continue to see penetration in the currently approved indications, more research to do and a high level of interest from epileptologists in exploring its utility in patients that have failed other anti-epileptic drugs.

Got it. Great. Maybe, Bruce, just coming back to you. Nabiximols is an interesting program, and we've got phase -- some Phase III data coming later this year. Is this a program you assign meaningful value in your deal model? Or is this more upside for you? And I guess, given that the product has a higher THC content, and maybe this is something that Justin can weigh in on, does that pose any regulatory concern? I would think not. I mean, New York Times recently published an article about psychedelic medications garnering a lot of traction in the medical system. So I would imagine that THC is probably -- if you can kind of frame the FDA's consideration with products that aren't trace amounts of THC. That would be helpful.

Yes. I'll let Justin handle the second part of that, but let me start with the first part of your question, which is how do we look at nabiximols? And we look at it as a significant opportunity it's a near-term opportunity in that it's already in its late-stage clinical development plan. It's a product that's been on the market -- in markets outside the U.S. for quite some period of time with good experience, and it's a real unmet medical need. So a real opportunity to bring improvement to patients. So we're excited about the opportunity. Justin, maybe I'll have you comment on the rest of Jason's question.

Yes. It's a really interesting topic. Firstly, I would say, there are 2 -- actually, there are 2 THC medicines approved in the United States that have been for a few decades so the concept with FDA approving THC is not new at all, actually. They're in very different therapeutic areas, but nevertheless, the principle is established. I think, secondly, in our interactions with FDA, it's really all about -- when it comes to cannabinoid therapy, it's really about demonstrating through our abuse liability programs, the level of potential of abusability and then the scheduling of product. So Epidiolex, for example, which had little or no THC, it is a descheduled product. Even though it comes from cannabis partners with no scheduling. For nabiximols, we would expect it to be scheduled and we're expecting it about Schedule III, which we're really not constrain it commercially. I would also say the levels of THC in nabiximols are therapeutically significant, but not sufficient to induce any kind of view for it or other kind of unwanted effect, and the product has been designed in that way. So I think both from a regulatory perspective and a market acceptance perspective, the THC level has been calibrated very specifically to get the -- what we need our THC without the unwanted effect.

Okay. And then just coming to the IP runway debate with just one question. But as I think about it, fourth quarter -- I think it's fourth quarter 2020, the U.S. FDA publishes guidance as to generic developers that they need to have the same botanical raw material source. That's a recommendation, it's not a requirement. But I think maybe some in the markets perceive that is that a synthetic version may not have medical value, which is important as it pertains to I presume to your IP portfolio, which covers the ratios -- the exact ratios of product. And so how important do you view that guidance? How firm -- obviously, the FDA can always change regulatory guidances. So any perspective you can offer there? I think, because that's obviously one point of debate. And I don't think we'll solve that debate as we've kind of lived through Xyrem IP debates for about a decade. So expect this one to continue for a long time.

Yes. Sometimes, debate is not a bad thing in terms of allowing differentiated views to be form, and GW is no stranger to that -- these kind of issues. I would say, in general, the approach of taking plant-based products is sort of obviously somewhat unusual, but it does providing in itself some very interesting IP opportunities, both in terms of true patents as well as regulatory and other forms of know-how and other exclusivities. So I think for Epidiolex, yes, you referred to that guidance, it's draft. And I think it's certainly noteworthy, but I don't think we depend on that actually. There is a robust suite of patents covering Epidiolex, 16 patents now list in the Orange Book. So it keeps increasing actually quarter-on-quarter. We have more patents coming through. Another notice of allowance coming through that relates to the new indication, TSC. And then we have a patent application which is very interesting, looking at the totality of the product beyond CBD. And then I think the manufacturing of this product is highly complex. So there is a number of complexities, which I think Jazz really understood as part of the diligence. And I think it's become very clear to me that with the intellectual property approach that we at GW been taking coupled with some of the expertise that Jazz brings from its experiences, that there is every reason actually to feel good about the durability of Epidiolex. And I think when you start to look at nabiximols and other pipeline products, and again, there is a very specific IP strategy that covers each of these.

Got it. Okay. Maybe shifting gears to oxybate to manage our time here. Bruce, the earliest Xywav launch has been -- it's hard to characterize it other than it's been seemingly a great success, right? I think a lot of investors are surprised that you had an exit oxybate share of 25% roughly on Xywav at the end of first quarter, and that's exceeding expectations. And I know there were some guidance parameters around 2023 where that could be, which seem highly conservative. I think from investors who see this the trajectory that we're on here. So wondering if you can maybe just talk a little bit about what underpins your conservatism. Maybe it's limited source high-sodium generics, Avadel, some of those uncertainties are clearly out there.

Yes. Jason, let's take this in 2 parts. I'll start, and then I'm going to let Kim really describe the success of the launch of Xywav in narcolepsy. The first thing I want to make clear is that when we set our 2023 commentary around Xywav, what we said is, we believe it will be the dominant brand in 2023, meaning more than 50% of all oxybate patients will be on Xywav. We intentionally pick that point in time to reflect a period where you could have multiple available oxybate products even beyond Jazz. So FT218, if and when it comes to the market, authorized generics, which will be on the market no later than January 1, 2023. We wanted to say, even in that world, we believe Xywav is the best product. So that's a little different, Jason, from using that as what share of Xyrem patients will go on to Xywav in the near term. It's really about who's going to stay on therapy for the long term. I hope that makes sense. Kim, why don't you describe how we've done with Xywav since the November launch?

Sure, happy to. So obviously, we're very pleased as well with those metrics that you spoke to. And really, for us, it all comes down to the product profile and our ability to differentiate in our key messages around the importance in a narcolepsy patient population of reducing sodium intake. Sodium is a modifiable risk factor for cardiovascular disease. And these patients with narcolepsy just by default of being diagnosed with narcolepsy are at increased risk of cardiovascular disease. So far in the marketplace, we just see that, that story and the product profile are really resonating. It's a bit of a no-brainer for healthcare providers to go ahead and switch their patients from Xyrem to Xywav, and we really made the transition process for them quite easy. Patients as well have been very attracted to our messaging about the ability to reduce their sodium intake, and we have a very direct line to existing Xyrem patients. We're shipping out their shipments to them of Xyrem and can put a pamphlet in there, advertising Xywav to them. And then clearly, payer is another important stakeholder, and we've been very pleased with our ability to hit our goal of achieving a very rapid and broad access to the product. Today now we have a greater than 80% of commercial lives having coverage for Xywav, and that's driven heavily by the 3 major national PBMs that we've successfully signed contracts with. So for us, the short-term success is really all around that product differentiation and ability to lower sodium intake, and we think that's going to hold up in the marketplace as an important driver prescribing it in the long term.

So I want to drill in on a -- where -- I guess a term used there hold up, right? So I think there is a question in the market of how will patients who migrate to low sodium. And so you've gotten payers to give you really good coverage pretty quickly, priced at parity with Xyrem. So I think that probably speaks to the profile. So I mean what feedback have you gotten? What's your internal assessment of, I guess, limited source generic probably won't depress the pricing too substantially. So it almost seems like you've got a good runway, at least to 2026, unless I'm wrong and market acceleration provisions allow you to pull -- allow them to be pulled forward into the market. So -- no, they don't. Okay, I'm seeing the body language there. Okay. So can you just talk a little bit about how you see that situation evolving? And what's the read that you're getting from payers?

Yes. Let's just remind people what you're describing, Jason. So for a patient to be well controlled on Xywav and then consider going back to Xyrem or a generic of Xyrem, they'd be talking about increasing their daily sodium intake by more than tenfold, by an extra gram to 1.5 gram of sodium every night for the rest of their life. This is a chronic condition that requires chronic treatment. To a level that is above where the American Heart Association suggests your total daily sodium intake from all sources, including diet, should be in a population that Kim correctly points out, is known to be at high cardiovascular risk because of the disease they have. So that's really a step back for patients and not something that we think patients, physicians or payers will be interested in.

Okay. I guess you frame a clear kind of medical rationale, right, for low sodium. Can you just talk a little bit about -- you've got sort of this ongoing antitrust litigation matter. There is a lot of pushback around the use of citizens petitions with FDA, especially when they received late at FDA. But it would seem like this isn't a topic that maybe the FDA may need to consider in the future as it pertains to the health dynamics around high sodium versus low sodium. So I'm just sort of curious, some of the venues and the forums with you as a company have been able to sort of argue, sort of safety attributes around sodium oxybate, which is a heavily restricted and managed drug. Are those restricted or in any way by those ongoing dynamics?

Yes. That's a complicated question, Jason. And I'm going to, as most CEOs would, decline to comment specifically on ongoing litigation other than we signed settlement agreements with a number of generic companies, which actually do allow for generic launch approximately 10 years before we have patents expiring. And in particular, in our authorized generic relationships, allow people to use a proven rems that we know keeps patients and the public safe as we distribute this form of GHB or the date rape drug. So we think this was designed to be pro-competitive, despite what is alleged, and we'll defend ourselves on that front. The rest of your question really goes to how different is Xywav, and we set out almost 10 years ago, to develop this product because we understood the very high sodium load associated with a drug that's dosed in gram quantities at night. Six to 9 grams is the sort of most therapeutic dose of Xyrem or Xywav. So most drugs don't bring with them that much sodium. If you can imagine, Jason, taking nighttime medications and then eating more than 10 bags of potato chips. If you want to do that one Saturday night, have at it. But if I told you, you were going to do that every night for the rest of your life, you were known to be at high cardiovascular risk going into that. I think as Kim described it, that's a modifiable risk factor. This is not a doctor, urging you, Jason could you please eat fewer potato chips. This is writing a different prescription and eliminating that sodium every night for these chronically treated patients. So this is a product we were very proud to innovate. It took us some creative work on the R&D side to make that viable. That led to some of the IPs that we have. And you saw in our clinical data, a slightly different parameters that lead to actually a little more flexibility in dosing in the design Xywav label than in the Xyrem label.

Okay. Maybe, Kim, if I can come back to you. The Xywav launch has outperformed our -- the last 2 surveys in the last couple of quarters. And in our surveys, we were getting to somewhere like in time, maybe half of physicians, patients could be on Xywav of their oxybate use. And so just sort of curious how you see the next few quarters, right? It sounds like you haven't necessarily tapped into some initial low-hanging fruit bolus and things should slow down. What's the message that you want to impart on investors as it pertains to the quarterly trajectory here?

Yes. Sure. So I would say, in the first couple of months, there were a number of very excited prescribers out there that had pulled charts and had patients lined up to start transitioning Day 1. I think what we've seen more through first quarter and since is the rest of the physician population taking the approach where they're going to offer Xywav to their patients when they come in for their next visit. And that's really what we've seen driving the growth. So we think that's just going to continue as the patients come in and have the opportunity to have a conversation with their prescriber and to switch over to Xywav. And so far, we've got a lot of positive feedback from physicians that patients are very happy with the switch that they've made that the transition process has been very easy, and we've made it very easy for them to transition their patients from Xyrem to Xywav. So lots of optimism there that, that is just going to continue. And then later on in the year, we have a whole new patient population we're going to be able to educate and offer Xyrem -- Xywav to in terms of idiopathic hypersomnia and that approval and that launch.

Yes. And that's interesting because, I guess, that's the thing I struggle with the most with the 2023 directional commentary is because you have a whole new unique population that could be anywhere $500 million to $1 billion in additional peak sales potential added to it and maybe a population that's unique to Xywav. And maybe we're overshooting on our adoption rates, but curious as you think about this marketplace and how that launch could evolve? Would it be a quick launch because you already had the relationship with the subspecialist? They've been using oxybate for a really long time for sleep disorders. So curious if you can comment on that dynamic?

Well, I'll start with a proviso, which is we haven't given guidance for 2022 yet, and won't do so on this call. But Kim, maybe you could just talk about how we're planning for a successful launch?

Yes. I mean, I think there's a lot of reasons to believe that there will be a nice uptake of this product, several things driving. And the first that there's nothing approved today for idiopathic hypersomnia and the off-label usage of other products is -- we hear definitely not resulting in the types of outcomes that are making either providers or patients happy. As you've put on top of that, the fact is a very concentrated opportunity in terms of very small number of prescribers. Largely, the same prescribers were already calling on for narcolepsy. And then the payer covers -- the broad payer coverage that we have and our expectation that we will be able to achieve similar coverage levels even more rapidly, all pointing in the right direction in terms of this being a nice uptake.

Got it. Okay. And then, I guess lastly, just on the 458 regulatory situation. So it sounds like close, and we'll get our first -- probably, look at the data in the label when it's approved midyear.

Yes. Rob, you want to talk about 458 from a regulatory point of view?

So I would describe it as on track. As we mentioned, we initiated the [OA] end of last year. It was under the RTR mechanism, which allows us to provide data to the FDA as it becomes available to us to really expedite their review. And we're in the process of doing that now. So really on track. To your question about when you could see the data, because this is an ongoing trial, most likely within the label, could be the first time the data will show up. When we get to that point, we'll consider other options for publishing as well.

Got it. Great. We're up against our time, but thank you, everybody for joining us at the conference. This was enlightening as always, and appreciate your time. And with that, operator, we can close the session.