Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

All right. Thanks, everyone, for joining us. I'm Dan Busby, the pharmaceuticals analyst at RBC Capital Markets. And our next company presenting today is Jazz Pharmaceuticals. You are just 2 weeks removed from the close of the company's GW Pharmaceuticals acquisition, so it's a very opportune time to have a conversation. I'm joined this morning by Jazz Chairman and CEO, Bruce Cozadd, former GW Pharma CEO, Justin Gover; Dan Swisher, President; and Rob Iannone, EVP, R&D and Chief Medical Officer. Bruce, before we jump into Q&A, I'd like to give you the opportunity to provide some brief opening comments. Jazz is a very different company today than it was just a few years ago. So where do we stand in the company's transformation? And what's still to come?

Yes, Dan, thanks for the opportunity to be here. And you're right. We are a different company from a few years ago. I'd say we're a different company from even 6 to 12 months ago. Specifically, Jazz is in a really productive period right now of 5 product launches across 2 years in 2020 and 2021. We were thrilled with the progress we made last year on Sunosi on the launch of Zepzelca and the launch of Xywav in narcolepsy, all off to a good start. We've got some upcoming launches this year, JZP-458 for acute lymphoblastic leukemia, and then later in the years Xywav for idiopathic hypersomnia. Specifically, we think these new product launches could contribute 50% of Jazz' revenue, stand-alone revenues in 2022. And when we reported our first quarter results, we already saw that set of new products at 23% of our revenues. So to be a company that's got new products with good durability, good growth, comprising an ever-larger part of the revenue stream is pretty exciting. Our excitement only grows when we then add in GW, a deal that closed on May 5 of this year, which will accelerate our top line revenue growth particularly with Epidiolex, a product that did $500 million plus in its second full year on the market in 2020 and continues to have good growth potential in front of it with the successful U.S. launch and early in the European launch. With the addition of the GW revenues, we believe that new product percentage could be up to 65% in 2022. Financially, the deal is a great deal for us, too, I mentioned the top line acceleration, but it also brings us earnings accretion in the first full calendar year combined, which is 2022 and strong accretion thereafter, and the cash flow of the combined company is such that we should be able to rapidly delever to below a 3.5 target by next year. So couldn't be more excited about putting these companies together also a great match in terms of pipeline now across neurology and oncology, including GWs nabiximols and program, which is in multiple Phase III trials as well as an exciting early pipeline and last, I'm really excited about how the companies fit together from a culture perspective. We're really excited to be adding the new talent from GW to Jazz' organization.

Okay. Great. Yes, I want to hit on a lot of those areas. Maybe to start, the Xywav launch is getting a lot of focus. And I think for a good reason, from the outside at least, it seems to be off to a good start with roughly 25% of total oxybate patients already on Xywav as of the end of the first quarter. How has that launch compared to your internal expectations going in? And have there been any major surprises so far?

Well, I would say the launch is going exceptionally well by our expectations or anyone's expectations. We saw at the end of the first quarter, 3,900 patients on Xywav therapy, this after only 5 months on the market. And that compares to a total narcolepsy oxybate patient population of 15,000 to 16,000. So continuing to see rapid adoption of this new therapy. And we're really excited to see that that's coming from all sorts of patients. Patients who are coming over from Xyrem, the advantage of Xywav clearly being the 92% salt reduction, sodium reduction in the product. We're also seeing patients come back to oxybate after maybe having gone off Xyrem in the past. We're seeing patients go on Xywav who never went on Xyrem because of concerns about that extra 1 gram to 1.5 grams of sodium consumption every night for a chronic condition where patients are known to be at high cardiovascular risk because of their underlying narcolepsy. And then we're seeing newly diagnosed patients. The message about the importance of salt for these high CV risk patients is really resonating. We're not seeing any niching of patients by physicians or by payers. And we're having the opportunity to communicate with our oxybate patients because of the shipment of Xyrem directly to their home, we can include information about the newly available Xywav in each of those shipments. So I just have to say on every dimension, we couldn't be more pleased with the early success of the Xywav launch.

Okay. And you shared an expectation that a majority of oxybate patients across all approved indications will be on Xywav in 2023. So first glance, that seems like a very conservative target, given the progress you've made thus far and the fact that you don't even have idiopathic hypersomnia in the label yet, but at the same time, I understand that contemplates future generic Xyrem entry and potential once-nightly competition. So it's not quite that simple. What's the key message that you'd like investors to take away from that guidance that you've provided?

Well, maybe I'll ask Dan to take that question. But before I do, I did forget to say, we'll make forward-looking statements in today's questions and answers. So everyone, please do see the risk factors contained in our SEC filings. And with that, Dan, over to you.

Yes. So Dan, I think, very importantly, we believe every patient who could benefit from oxybate should get the opportunity to go on to Xywav, the low-sodium option. Concerning really matters. These patients are at high-risk factors, and it's a chronic medication for the therapy. And so that's why we're pleased with that uptake in the various segments. So as we look forward, though, at some point, we know there will be more treatment options. They will all be high sodium. So whether they're Xyrem, the AGs or once-nightly from Avadel, all of those are high sodium options. So our hope is that most of the market and the patients and the caregivers will really be looking for that low treatment option. But given competitive factors, we've put out that guidance that a majority of patients will be on Xywav, where that majority sits, we want it to be as high as possible for the benefit of the patients. And that includes the getting ready for a product launch and idiopathic hypersomnia, where Xywav would be with FDA approval, the one and only approved therapy for that setting.

Okay. And talking about idiopathic hypersomnia, that's gotten a lot of focus given the lack of alternative therapies for that condition. Do you think the investment community fully appreciates that opportunity when you potentially launch later this year?

Dan, do you want to keep going?

Sorry, I missed the question, Bruce.

Idiopathic hypersomnia, market opportunity.

Yes. Sorry, so Dan, we've -- and we've laid out some of this in some earlier calls, but no approved therapy. It's a significant hypersomnolence disorder. Really, with payers, there's very little Xyrem usage within that. And so we ran a Phase III study that had very robust results, and Rob could speak to the clinical data that we presented at AAN. But we believe there's 37,000 diagnosed patients per a chart review we did. That could be an understatement because, frankly, when there's no approved therapies in the market, the diagnosis rate is lower. So it's at least half the size of narcolepsy, it could be closer to the size of narcolepsy. And so we're very much gearing up with a PDUFA clock in August for a launch with REMS modifications in fourth quarter. And Rob, I don't know if you want to speak to the clinical profile?

Yes. I would just highlight the AAN publication that we had and referenced that for people to look into the details, but we feel the results were across the primary and secondary endpoints, not only highly statistically significant, but also really clinically meaningful and consistent across all those endpoints, including the ones that are required for registration, but also key patient-reported outcomes that would be critical for patient -- how patients feel. And this is in the context of having recruited a severe population, about half of whom are already on daytime Alerting agents still were highly symptomatic and still responded to Xywav.

Okay. Great. And I know we do have Justin joining us today from GW Pharma. So I'd like to certainly spend some time there. Maybe shifting to that side of the business. I'll start with a question for Bruce and a question for Justin. Bruce, Jazz has been active in business development in the past, this deal certainly stands out for its size, though. So why now and why GW? And Justin, what is it about Jazz that makes it the right platform for Epidiolex?

Yes. So we've done a variety of transactions over the more than 18-year history of Jazz now and really almost 2 years ago, the management team and the Board set out to describe what a larger transaction would have to do for the company to make it attractive. And we really thought about where Jazz was going, our strategy, our financial profile, and settled on the ideal combination would bring us another very significant product. So it would contribute to revenue growth and diversification. Would have a pipeline that was complementary with us and have the financial characteristics to bring a good return to Jazz shareholders. And we looked at a variety of companies across neurology and oncology before settling on GW as the one we felt provided the very best fit for us, and we were thrilled that, that combination ended up making sense to the Boards of both companies and the shareholders of GW and couldn't be more pleased with how things are going thus far. Again, Epidiolex adds a third significant commercial franchise for Jazz. We, of course, have the sleep business we were just talking about with Xyrem, Xywav, and Sunosi. We then have the oncology business, which did over $500 million for the first time in 2020, and we've given guidance for 2021, that's closer to $800 million in revenue. So another rapidly growing franchise to that, we add Epidiolex. And then the combination on the R&D pipeline side is really excellent.

And maybe then for me, Dan, to your question. I think from a GW perspective, this is a very -- this is not a typical situation where a company is acquired and there's a sort of synergy play and all sorts of other things that tend to happen with these kind of transactions. This is a situation where I think Jazz combined with GW represents an incredibly compelling and combined company with multiple commercial products growing and an enhanced pipeline for GW, we are contributing now to this combined company. The talent that GW is saying to support Bruce, Dan, Rob and the team. And we have scientific expertise in neuroscience that we can obviously leverage our own pipeline and hopefully contribute to the combined company beyond cannabinoids as well. So there's just a lot to gain from combining 2 great companies and leveraging the best of both.

Okay. Great. And as we think about the growth outlook for Epidiolex, can you give us a sense how much runway there is in the approved indications of Dravet, LGS, TSC? And how much contribution do you expect going forward from the U.S. versus Europe?

So I -- the short answer is there's a long runway. We're only 2.5 years into the launch of the product in the United States and just over a year in -- outside of the United States. So as Bruce mentioned earlier, we reported over $500 million of revenue in 2020 in the second full year. Every reason to think that there is continued growth with the 3 approved indications we have now, plus more research that we're doing and continuing unmet needs within the field of epilepsy. I think what we have really been able to do in the 2 years since launch is establish Epidiolex as a -- understood it's a bit [indiscernible] abroad antiseizure effect with a good safety profile and the type of medication that for patients that are refractory to antiepileptic drugs. It now becomes a relatively common treatment of choice within that setting. So I think if you look at track the history of other antiepileptic drugs, I think the sort of start that we've had for Epidiolex bodes very well for the future. To ex U.S., we really are only fully commercialized, actually in the U.K. and Germany. We do generate revenue around the European countries, but the launches in terms of full promotion is really going to be coming in the months ahead, actually. So -- and then this beyond Europe as well. So we're really still what I would say is the early phase. It's not quite at the beginning, but still the early phase of the Epidiolex commercial story and a long way to go.

Okay. As we think about potential new indications, for that drug, for example, other treatment-resistant epilepsies. What are you most excited about? And how do you think about that incremental opportunity going forward?

I think what we've been able to do with the 3 approved indications is, of course, address the specific unmet needs for the patients with specific diagnosis in Dravet, Lennox-Gastaut syndrome, and tuberous sclerosis complex. But we've also, within those indications, been able to demonstrate that Epidiolex has effects on seizure types across a broad range of seizures, which are characteristic of those 3 indications. So as we think about the future, one of the areas of focus for us is looking at other syndromes which may manifest with seizure types of that aren't currently a key focus of the efficacy data that we have and therefore, continuing to broaden the antiseizure profile of the product within the approved indication. So this is something that we now Jazz are looking at, and I think you can expect to see continued investment in Epidiolex both with respect to efficacy profile, we also continue to innovate with respect to potential life cycle management and formulations and things like that. So again, a lot of R&D still to do [indiscernible].

Okay. And on that last point you made with respect to life cycle management, how should we think about the durability of Epidiolex going forward? And we get a lot of questions here, both with respect to IP position and potential generic entrants as well as just other competitor drugs that are approved or in development.

Well, I think dealing with the latter, there's -- in the patient populations that we treat, there is a very significant unmet need. The patients tend to take more than one drug at the same time. Epidiolex is commonly used in conjunction with other medications. It's just the nature of this treatment setting. So if and when new treatment comes along, they tend to get incorporated within and then as add-ons to current treatment. So I think Epidiolex has found its place. It's going to stay front and center, I think, within these indications for a long time to come. With respect to intellectual property, we have now 16 new patents that run to 2035. We have a composition like patents that we hope to grant in the next year it would take to 2039. It's a complex product, unique in many different ways. And so we have a great deal of confidence in the runway for this products. And obviously, Jazz did their own homework on this as well. And Bruce, maybe you want to add?

Yes. Just to say that when we did our confidential diligence for the deal, this is obviously one of the key things for us to understand is the growth potential in Epidiolex and the durability of that franchise. And we're confident that GW has already done a lot of smart things in that direction. They weren't done. We will continue to work together to strengthen that but do believe this is a growable and durable franchise.

Okay. Great. And 2 last questions here for you, Bruce. One, Jazz has provided or promised to provide combined financial guidance within 45 days of deal close. Have you decided on the forum for that yet? Should we expect the potential upcoming Epidiolex focused investor event? And two, we've had a couple of questions come in. If you can provide any commentary on Epidiolex' performance in the first quarter.

Yes. So we haven't said anything more specific yet about the exact form of updated combined company guidance. I will remind people that in advance of us providing that guidance we've, of course, given Jazz stand-alone guidance in the merger proxy, GW filed, they had some projections. And like all projections, projections tend to be most accurate in the short-term. So I point people toward what they said to expect for 2021. We'll, of course, be reporting as a combined company from the date of close, so roughly 8 months of combined results of the 2 companies. So that will get you pretty close. In terms of other disclosure, we've got upcoming conferences, including this one, where we'll be talking to investors all before, we obviously get to the first reported quarter of combined operations, which would be the second quarter.

Okay. But not in a position to provide any kind of first quarter commentary for Epidiolex at this point?

Yes. GW did file their own 10-Q for the first quarter, which gave the results. Our view is that GW's performance was in line with their expectations and in line with our expectations. I'd love to comment a little more on whether it met other people's expectations, but a lot of people stopped really updating on GW once GW's stock was trading in anticipation of deal closing.

Okay. Fair enough. Got a few more minutes. I definitely want to hit on JZP-458, this is an important upcoming opportunity. Given the supply constraints that have historically held back Erwinaze, what do you think is the right way to think about the total global market opportunity for asparaginase? And how is that roughly split between the U.S. versus OUS markets?

Dan, do you want to take the 458 opportunity?

Sure. So with 458, yes, we're looking forward to getting the product to market as soon as possible and having a reliable, fully modern recombinant product where there's not the supply issues we've been having on a frequent basis over the last 4 years to the point where we have pulled all promotion around that product, all additional clinical investigation. And really, our customers have been triaging the most severe patients, rechallenging some pediatric patients with hypersensitivity. And so it's going to take a little bit of time to rebuild the market, honestly, with confidence that we've got a very strong inventory coming into an approval and reliable process. So our expectation is any patient, frankly, who's showing hypersensitivity should have the option to go to Erwinaze because you don't want to run the risk of anaphylaxis when there's -- you're talking about pediatric patient with an asparaginase program that leads to very good outcomes. The second point is looking for silent inactivation. So there may not be over hypersensitivity, but for drugs not working with the pegylated version. So you want to move over to, again, a non E. coli based and then moving into adolescent young adults and moving into additional geographies with additional products. So we'll have a better sense going into 2022 in terms of what the full market could be. But we're really excited to give the confidence to the caregivers and to the institutions that they can start their asparaginase therapy and go all the way through regardless of initial reaction to frontline therapy.

Okay. Is it fair to say that we should expect...

The other thing I'd add in, Dan, is just that we're really proud of what our team has done with JZP-458, which is a program we've taken from concept through to what we hope is a very near-term launch. Same could be said of Xywav, also another product we took for a concept through. So when we do look at that combined pipeline and try to assign value to it, I do want to point out to people that while we don't believe everything in our pipeline will work, like all others, we also do have a very good track record of our R&D being highly productive.

And 458, just a little further into context, is going from IND to approval within 3 years, to a BLA approval. So it's been a high priority for the company. It just shows what we can do with our R&D organization, very patient centric, solving for a problem that's been outstanding for a number of years now.

Okay. Great. That's helpful. And we're coming up on time. I'll ask just one more question, maybe bigger picture, Bruce, in the wake of the GW Pharma deal, obviously, one of your near-term priorities is deleveraging. How should we think about your appetite and capacity to conduct additional business development over the next few years?

Well, we've done a variety of transactions over the past few years, including a couple of exciting ones at the pipeline stage. Obviously, at the far end of that was bringing in Zepzelca with a regulatory submission already underway in small cell lung cancer, but we did bring in an essential tremor program. We brought in a PTSD program. We think we'll continue to do those transactions moving forward as we delever, which will happen quickly, that will open up the possibility for larger-scale deals again. We're really excited that the performance of our business and the performance of Epidiolex are going to make that deleveraging relatively painless.

Okay. Great. I think that's a good place to stop. I'd like to thank you all again for joining us, and yes, take care.

Thanks, Dan.

Thank you.