Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Great. Just wanted to thank Bruce and Kim and Rob for joining us. It's fantastic to have the team. It's -- we'd all love to be doing this in person, but good to at least see you, and hopefully, now we're all going to be together real soon. So Bruce, before I turn it over to you for opening comments, for us, obviously, we've been supportive of the name for a long time and your company. And really, what's ironic is a lot of things you've done right, but the stock price hasn't reflected it. And we're always kind of on the cusp of thinking we're there, but it does feel like there are real durable drivers that are materially different now that are finally in your hands. And that at this moment, at this value, it is a bit materially different. I hate being the analyst that cried wolf, but here we are, and our belief is unchanged, and it's strengthened. And with that, we'll turn it over to you for some opening comments, and we'll get into some Q&A.

All right. Thanks, Ken, for having us. And we too look forward to being back together with people in person soon. So just some opening comments. And before I start, we will include forward-looking statements subject to risk factors, so please do see our SEC filings. And I'll also refer to non-GAAP financial measures. So see our website for a full reconciliation. And if I refer to guidance, it's as of the time we gave it, which luckily was fairly recently. So our business is continuing to evolve. And as you said, Ken, it's been evolving fairly rapidly to a more diversified, innovative global biopharma company. 2021 was transformative. I know people argue what's transformative and what's not. But a $7 billion acquisition for sure, was a big one for us. And I would just say we've changed more in the past 18 months than at any point in our 19-year history. So I do want to point out several key facets of our business, especially for investors who are either new to our story or haven't looked at the company in a while. So in 2021, we made really great progress across commercial, across R&D, across corporate development and, for the first time, exceeded $3 billion in annual revenue and delivered top line performance that was at the upper end of our guidance range. We met our ambitious target of 5 key product launches across 2020 and 2021 and are on track to meet our goal of at least 65% of sales this year in 2022 coming from newly approved or acquired products. So complete revamp of our top line. That includes strong launches for Xywav in narcolepsy and Zepzelca in small cell lung cancer, which we've seen played out over 2021, but also our more recent launches of Rylaze in acute lymphoblastic leukemia and Xywav in idiopathic hypersomnia. Our R&D pipeline has been growing. We've now got 18 novel candidates in 36 active clinical trials. And we initiated 5 trials in the second half of 2021 alone, including Zepzelca in first-line small cell lung cancer in combination with IO, that's in partnership with Roche, but also our JZP-385 or Suvecaltamide trial in essential tremor and JZP-150 in PTSD. The GW acquisition brought us both a potential blockbuster commercial product in Epidiolex but also really gave us an expanded R&D pipeline and the GW cannabinoid platform and bolstered our talent across the R&D organization. So as we now look forward after 2021, we were happy to both give 2022 guidance but also roll out Vision 2025 back in January, which we think frames our business for the next several years. There were 3 components to Vision 2025 when we rolled it out, commercial targets, pipeline targets and operational excellence, and we'll go into those, I'm sure, in Q&A. But top line, we want to grow that $3 billion in revenues we just reported for 2021 to $5 billion in 2025. We think we'll be able to deliver at least 5 novel product approvals by the end of the decade. And we think we can grow our operating margin from last year's 43% by 5 full percentage points over this period of time. So really dropping more of that top line growth through to the bottom line. The 2022 guidance we gave, we think is right on track to getting us to Vision 2025. Our total revenue guidance for '22 is $3.46 billion to $3.66 billion. That's about 15% at the midpoint year-over-year growth, driven by strong growth in both neuroscience and oncology. We're projecting adjusted net -- adjusted net income of $1.13 billion to $1.2 billion, which would be a 17% increase at the midpoint. So again, good top line and good bottom line performance with lots of launches underway, and we think that's going to help us drive that operating margin improvement over time, right? Obviously, you spend heavily at the time of launch and then the revenue comes and that does tend to boost your margin. But we're also a bigger company and think we can operate more efficiently at scale. Post the acquisition, we've been rapidly delivering. Our non-GAAP net leverage ratio is down to 4.1x at year-end. Of course, we started at 4.9%, just 8 months prior to that. So that, we think, puts us right on track for our previously stated target of being below 3.5x by the end of this year. And that's going to allow us to be active on the corp dev side again. In terms of other '22 highlights, we anticipate the first data from our nabiximols Phase III program, which, if positive, could support an NDA submission to FDA this year. And we've got other upcoming trials, we're excited to get started on. So we think we've got a -- we had a strong 2021. We're excited about the opportunities in 2022 and think we have a clear road map to get to Vision 2025 and look forward to updating people on our progress as we go through 2022 and keep aiming for '25. So with that, ken, it took longer than normal intro. I'll turn it over to you to direct the questions.

A lot going on. And it's fascinating to us as we kind of look at how the stock reacted to really positive 2025 guidance. And if you do the -- some of the back envelope math, it could be close to $30 a share, you don't have to comment on that. But what always happens with you, as you know, and it gets frustrating -- and I have an Italian last name, so I use my hands -- is folks look at to the 2025, but the fact of the matter is there could be drivers that are at that trajectory beyond 2025. And if folks are looking at a moment in time, and I'm not looking for any forward guidance, but we want to talk about some of those drivers so that folks don't just think we're reaching for 2025, there could be some real underlying strength. And if there was a belief in the durability, clearly, this multiple would change. And so one of those that's a bit fascinating to us and the work we've been spending is Xywav, specifically in IH. And I wanted to talk to you about that, and I know we'll come back to the -- where we hope to capture the narcolepsy and hopefully, that is sustainable, and we'll ask you why. But in IH, what's fascinating to us is you're really -- you're approaching the same clinician base. They're familiar with Xyrem, therefore, should be somewhat obviously familiar with Xywav. They, from our understanding, really could never use Xyrem off label. It is so controlled. And the indication, as we do our work and talk to clinicians, there's a really high level of enthusiasm on a patient base that seems to be -- ultimately could be the same size as narcolepsy. So I just want to throw it to you all, and I don't know if you're going to throw it over to Kim, so I'm going to just direct it to you, Bruce and let you go with it. Can you talk about the market, the size of the market, the opportunity as best you can frame it for us? And maybe also, why has there been so little development in IH? There does seem -- we do hear other companies now kicking the tires more. But we're asking just kind of the broad IH question because it does seem to be that could be a driver that carries well beyond 2025, that maybe isn't appreciated.

Yes. Ken, thanks for starting us off on idiopathic hypersomnia. We've had such a great business in narcolepsy for a long time where Xyrem and now Xywav have really been the market-leading treatment. But we've got this brand-new opportunity in idiopathic hypersomnia, one that is specific to Xywav, right? Our Phase 3 development was with Xywav and Xyrem and where generic Xyrem won't have IH in the label. Let me just start big picture and try to get to your question of why has nobody else gone here? In narcolepsy, a number of agents have been studied and some of them have been proven to be efficacious, including daytime stimulants and weight promoting agents. Many of those same agents have been studied in idiopathic hypersomnia and have not been able to demonstrate meaningful efficacy. They sometimes get used by patients who are desperate for therapy, but they haven't been shown to have a significant impact. And so the unmet medical need has been really high in IH, and we were so excited to see that in our Phase 3 trial, we saw strong efficacy of Xywav in idiopathic hypersomnia. So really a unique opportunity for us on multiple dimensions. Kim, I'll turn it over to you to talk about sort of the size of the market and how we're approaching it.

Sure. So Ken, as you know, I think there are 2 numbers that we talk about when we think about the prevalence or the size of this opportunity. For the short term, for the first, say, couple of years in launch, we're really focused on 37,000 patients that are out there today that are already diagnosed, but that we can see in claims data, which we think is very important when you think about the early opportunity and uptake. We can see in claims data, that these 37,000 patients have actually been actively engaging with the health care system around their idiopathic hypersomnia diagnosis. So we think that gives us a really nice base to start with in terms of educating our prescribers about Xywav and why this product could be appropriate for many of those patients in their practice that they're actively treating today. For the long term, though, we kind of look at published data, there could be as many as 70,000 to 80,000 patients out there that are diagnosed with idiopathic hypersomnia. Again, some of those perhaps have gotten to have the diagnosis a few years ago, haven't been actively engaging for a number of reasons. Maybe one of them is what Bruce just described in terms of there not being anything approved to treat the condition. So we really do feel we've got the opportunity to expand the market through both patient and health care provider education. There's a sizable opportunity to go after right now, early out of the gate. But we're out there not just educating on Xywav, but actually doing disease education with both health care providers and patients that we think will ultimately not only help with the utilization of Xywav, but will ultimately allow the market to be more firm in their diagnosis and expand the market.

I know there's some thoughts, I think, by investors that it's really lesser to narcolepsy IH. So could you just talk a little bit about the actual issue? And then understanding there's a lot of -- for the company right now trying to transition patients -- narcoleptic patients from Xyrem to Xywav. So not -- only so much you can do in terms of confusing the market. Can we talk eventually about is this a target market to the DTC to start really informing, educating the IH patients and kind of helping them get to diagnosis? So I know there's a lot there. But can you talk about, first, let's talk about the disease itself, the disorder itself.

Yes, Rob, do you want to talk a little bit about IH and just help people understand it a little bit better.

Yes. So it is -- one of the questions we get, Ken is can it be distinguished from narcolepsy and it absolutely can be. There are features that are distinct and a sleep specialist certainly can make that diagnosis. It has to do with things like very long sleep times, yet persistent daytime sleepiness despite those long sleep times, naps not being restored really speaking to dysfunction of the quality of sleep. As was alluded to earlier, and to your question around why hasn't there been more development? Well, things that have been tried just haven't worked particularly well. So in our Phase 3 pivotal trial, for example, Ken, more than half of the patients were being treated with daytime agents, wake-promoting agents like stimulants, but were still having significant symptoms. And those patients responded just as well as patients who are not on treatment to Xywav.

And then the ability maybe as we pass by a little bit of this confusing period where you probably don't want to confuse clinicians and patients too much as you're doing the conversion. But does this lend itself to eventually -- as we get out of the conversion in narcolepsy, does this lend itself to a market that could be more broadly targeted in terms of DTC and really try to drive utilization?

Yes. Ken, you certainly saw us have some success with sort of disease awareness in narcolepsy helping to get to better or faster diagnosis. Of course, that was an effort we rolled out after many years on the market, having had good success in penetrating a sizable part of that market. I think, as Kim says, we've got such easier places to go right now in reaching those patients that are already diagnosed are already seeking health care that that's where we're going to devote our efforts for the near term. Beyond that, getting to some of the other patients who know they have Idiopathic hyposmia, but maybe have given up in recent years on pursuing a treatment because there's been nothing available. So I think we need to work our way through those efforts before spending a lot on improving diagnosis will make as much sense for us.

Okay. And then just talking logistically, obviously, we're coming closer to the generic Xyrem. And we'll ask you about where you think conversion ultimately could go. But can you talk about the ability or inability for generic Xyrem to ever recapture a Xywav narcoleptic patient. And also, there's some concern that a generic Xyrem could capture a Xywav IH patient. Can you talk about why that can or cannot be done?

Yes. Well, I'll remind you, as I said earlier, that Xyrem, and any generic of Xyrem, aren't labeled for idiopathic hypersomnia. They haven't been studied in idiopathic hypersomnia. And so understanding how dosing translates to benefit and safety is unknown. To the first part of your question, the great news about Xywav, it's a very differentiated product, right? With 92% less sodium than Xyrem, we've substantially changed what we're offering patients. We did a full clinical program and got great results with Xywav. And FDA last year came out with their orphan drug exclusivity decision where they pointed out that Xywav is clinically superior to Xyrem, specifically because it is safer, specifically because of the lower sodium level, which is expected to result in fewer cardiovascular events in this patient population, this narcolepsy population that's known to be at high risk for cardiovascular disease. So the salt really matters. And to your question of once a patient is on Xywav, are they ever going to go back to Xyrem or a generic of Xyrem, that would be asking a patient to come off of an effective medicine and go onto something with 10x the sodium, right, to go back from that 8% back up to 100%. To go to a sodium level that is already putting patients beyond the American Heart Association's recommended total daily sodium intake, diet included, right? And again, just as a reminder, the narcolepsy population, it's estimated that 70% to 80% of these patients are currently being drug treated for a cardiovascular risk. So in this patient population for a chronic therapy where you know you've got a safer product, I think it's hard to imagine moving patients back from that to a less safe product.

I know there's been no specific guidance on what conversion as we think about Xyrem to Xywav and narcolepsy, but just taking the current and even if I just use 50% penetration. And if that is going to be solid and really not able to be transferred, that would be roughly $800 million. And as I think through your $2 billion guidance by 2025, there's clearly royalties, which we'll talk about, from the AG, but there is that big hole, which could be IH. Which again, if it cannot be reclaimed with a generic Xyrem, it's interesting that this could be a forward and not just a point in time at 2025, there really could be this residual strength of underlying Xywav narcolepsy and Xywav IH that is going forward. And I think sometimes it's not appreciated as folks think we're arriving and maybe not continuing the journey in [ the ] 2025. Are we thinking about that correctly?

Yes. So we think the oxybate franchise is a significant opportunity for us for many years to come. Hence, including it in our Vision 2025 as expecting to contribute [ $2 million ] in revenue out of what we believe will be a $5 billion top line at that time. So that is continued growth in the narcolepsy space. We did see 6% year-over-year patient growth in oxybate in narcolepsy 2021 over 2020. So the market is continuing to grow. We know that most new patients start on Xywav, not Xyrem, right? And that was before we were adding in the idiopathic hypersomnia opportunity, which is a brand new and exciting area for us with this great clinical data and the first ever approved FDA treatment. So lots of growth opportunity there. And then as a reminder, we do have very meaningful economics in whatever fraction of that remaining older Xyrem business does go to an authorized generic.

And there are some folks, Bruce, that believe because 2026, there is the introduction of more generics, which may have implications to that royalty, but probably would not have implications because of what we just discussed to the core underlying Xywav business. Is that accurate?

Correct.

Okay. Okay. So I think we've tried to exhaust or exhausted the Xywav. It just seems fascinating and a little bit less appreciated in terms of residual or retention beyond 2025. Why don't we turn to Rylaze and be a little bit briefer? It's really fantastic what you've been able to do, your organization. Obviously, this was just really a tragic -- not having the amount of supply in the market, and so credit to the team for being able to bring this to market. Can you just talk about -- you were actually nicely vague about the run rate that we're seeing and really what could be happening with that franchise. So it seems vague to the positive, not vague to the negative. Can you try to put a little bit of context around what you're seeing in the marketplace with Rylaze both in the U.S. and maybe internationally? And as we think about the run rate, maybe where this could go?

Yes. So we are seeking to ensure that pediatric ALL patients get the very best treatment which would be, if you see an allergic response to upfront E. coli-derived asparaginase, you want to switch to Rylaze. And we know that physicians, because of the shortages of Erwinaze historically, have found ways to try to reduce their use of Erwinaze to make sure it's available for patients that have no other choice. So there have been some practices like pretreatment, trying to minimize allergic response, which arguably medically are not the best thing you can be doing for your patients. So we want to reverse some of those behaviors and make sure everybody that could benefit from asparaginase gets Rylaze. Then we want to get back to growing the market, something we haven't been able to do in recent years because of supply constraints, including into adolescent and young adult patients, where asparaginase can be very beneficial. We want to get back to the international markets where we have limited ability to meet full demand, including through distributors, never launched in Japan despite the fact that we had an approval there solely because of capacity and quality problems. So between growth and pediatrics, growth beyond pediatrics, growth in geographic markets, more dosing flexibility as we pursue our real-time oncology review of Monday, Wednesday, Friday dosing, as we submit for IV dosing, as we submit for European registration. We've got lots of opportunities to grow this. But one thing I think, Ken, that maybe is underappreciated right now is we actually set out not only to bring to market a more modern manufacturing high-quality Erwinaze asparaginase, but to actually do it in a way that we provided a better treatment to patients. And I'm going to ask Rob just to describe that briefly.

Sure. So as you know, Erwinaze was dosed the same dose Monday, Wednesday, Friday. The accumulating literature demonstrated that when you measure the trough concentrations after that 72-hour weekend, it was suboptimal in terms of really getting the majority of patients the coverage they needed. So we set out to develop a program where we improve that 74-hour coverage. And that resulted in administering twice as much on Friday than one would on Monday or Wednesday. It gives more optimal coverage. And as you know, that supplemental BLA is now under review under RTR with the agency. And that will be differentiated from Erwinaze. Not clear if or when Erwinaze will come back to the U.S. market. But certainly, outside of the U.S., it will be differentiated in Europe as well.

Great. That was all helpful. Actually, Bruce, an old friend is asking a question going back to the Xyrem, Xywav. And specific to Avadel, if you would be willing to comment on the status of their filing and their approval prospects if you wanted to take a stab at that.

Yes. I don't have any unique insights into that. That would be something Avadel should be commenting on. I will say that our guidance for 2022 will stand whether they do or don't come to market in 2022. I just want to remind people, we believe the improvement by reducing the sodium in Xywav is critically important to the safety of patients. And we believe Xywav will be the best oxybate product on the market even when there are generics of Xyrem, even if and when FT218 comes to market, we believe Rylaze will be the -- sorry, Xywav will be the dominant product. Offering convenience, but higher sodium doesn't feel like the right long-term treatment choice for these high-risk cardiovascular patients that we know goes with the disease of narcolepsy.

Okay. We want to ask just a couple of questions on Epidiolex. I'll start first, before I turn it over to Stacy. And just the run rate, there's been obviously a lot of controversy about performance around this franchise. It does seem as if just folks originally had estimates that were just a little bit too aggressive. So they haven't -- you haven't been necessarily missing [ hours ], but you have been missing the Street. Just talk about the momentum now that we saw in Q4. I know there was a little bit of inventory, but is the franchise on track? And your view now, are we kind of properly rightsized here on the Street for the performance going forward as you kind of peer at the numbers?

Yes, I'm going to try hard not to be defensive here, Ken, but I'll say we haven't given guidance. So if people were referring to guidance, GW had never provided guidance. But they did in their merger filing include some scenarios their Board have looked at. Those were prepared late in 2020. I don't know if you remember what we did and didn't know late in 2020, but we weren't talking about Delta or Omicron yet. And Jazz hadn't weighed in with its views. So I will just say from our point of view, the product is doing very well. It had 29% growth, 2021 over 2020, sort of full year to full year apples-to-apples. The fourth quarter, even if you adjust out for some changes in inventory level in the channel, still was 10% sequential growth. We're still early in our launches ex-U.S., where we're getting excellent pricing and reimbursement. We're continuing to see growth in the U.S. and doctors are getting more and more experience with this agent that's been shown to have activity across a variety of seizure types, and we're continuing to do work to broaden that data set, including in a trial we're starting in EMAS in the early part of this year. So we remain confident that this is a blockbuster product. Our Vision 2025 includes what we expect will be $2.5 billion in revenues from Epidiolex plus our oncology portfolio with each of those being north of $1 billion. So we're really excited about where Epidiolex can go.

You actually answered my question about Epidiolex. So moving on to nabiximols. Can you remind us the details around the clinical program ongoing and the specificity and timing for data disclosures and very, very quickly, just on the potential opportunity?

Yes, Rob, why don't I let you start on that?

Yes. So as you may know, nabiximols is approved in 29 European countries at Sativex, it was approved on the basis of a very large -- multiple studies, a very large set of data where the primary endpoint was around patient reported outcome, a numeric rating scale of the spasticity that the patient was experiencing. Quite a bit of safety data and information on dosing as well. The strategy in conjunction with discussions with the FDA was to add to that data set by providing information on 2 endpoints that the FDA were particularly interested in, one around a physician measurement of muscle tone that's called the Modified Ashworth scale and another around just measuring frequency of spazzes. And so our strategy for bringing this to the United States is to add emerging data from that clinical trial program, which currently consists of 3 different clinical trials to the existing data for an overall package to support the U.S. filing. The first 2 studies are on muscle tone. One is smaller. The other is larger and more robustly powered to the anticipated effect size. And the strategy there was to have an early shot on goal with that smaller study, if we saw something that was strong enough, we could talk to the agency about potentially an earlier submission. We certainly would learn from that study as it read out sooner to benefit the overall program. And if we didn't have enough data from that first readout, we would progress the other 2 trials and ultimately submit on the basis of emerging results from those other 2 trials. So overall, very confident in the overall program. That first trial I mentioned will read out in the first half of this year, the relatively small trial.

And I know we're at time. So I'll just on the opportunity say, if you look at MS patients and ask them which of their symptoms are most troublesome to them in terms of their quality of life, spasticity is at the top of that list with an estimated 84% of MS patients complaining of spasticity. There haven't been new good oral agents in the last couple decades that have come to market and something that's demonstrated to provide real relief to patients would be a welcome addition to treatment for MS patients.

Okay. Bruce, Kim, Rob, thank you so much. We really appreciate it. Sorry, it's never enough time, but we do appreciate the conversation, and we look forward to seeing you and talking very soon. Thanks again.

All right. Thank you.

Bye guys.