Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

All right, everybody. Thanks for joining us for today's afternoon session of the Bank of America Annual Healthcare Conference. My name is Jason Gerberry, I cover biotech and spec pharma. Pleased to be introducing our next company presenter, Jazz Pharmaceuticals. We've got CEO, Bruce Cozadd; Dan Swisher, President; and Philip Jochelson who is the Therapeutic Head of CNS. So Bruce has like a couple of minutes of prepared remarks, and then we'll jump into Q&A.

So how long is our session, if I talk for the whole session, then no Q&A, right?

My clock is running at 27.

So Jason, it's great to be here. It's great to see people in person, it's just been way too long for me. Before I start, I will point out that I'll make forward-looking statements today, see our risk factors in our SEC filings. I'll refer to non-GAAP financial results, see our website for a full reconciliation. And if I mention guidance, I'm not updating it from way back when, when we provided it last Wednesday, it's still as of last Wednesday. So we just reported our financial results and we were really excited to let people know we had a great first quarter, got off to a strong start for the year, whether you're looking at that from a commercial perspective, from a development perspective, from a corporate development perspective, really excited with the way things are going. I would highlight on the commercial side, our young launches of Rylaze in acute lymphoblastic leukemia and Xywav in idiopathic hypersomnia, just a couple of quarters into each of those launches, but lots to be proud of, already, including being at 750 IH patients on Xywav at the end of the first quarter. On the development side, lots of exciting progress. We're unblinding our first Phase 3 program in nabiximols this quarter. We're about to start our EMAS trial for Epidiolex. We've got a broad Zepzelca program going. We just showed our first data on our pan-RAF program at AACR. And on the Corp Dev side, 3 recent transactions of note. One being a divestiture actually, interesting for us. We don't usually do that, but we divested to Axsome the rights to Sunosi, which comprise less than 2% of our revenues and was disproportionately using resources at the company that we thought were better directed at things we're more excited about. So not a commentary on the product, Sunosi's still a great product, but we just have more we can do across our broader portfolio after our execution over the last couple of years. We also announced 2 in-licensing or acquisition programs, one with Werewolf, one with Sumitomo, one on the oncology side, one on the sleep side, really excited about both those programs. including our foray into what we believe is a really exciting new area in sleep medicine, which is the orexin 2 agonist programs, and we acquired a clinical stage asset there. So excited about the progress. I would also say financially, we raised top and bottom line guidance. We raised the midpoint operating margin guidance. So that tells you we're confident with how things are running in the year. And we've managed to delever very quickly after the GW deal, which closed May 5 last year. We're down from 4.9x to 3.9x leverage in less than 12 months, that clearly puts us on track to beat or exceed our below 3.5x leverage target for the end of 2022. And that means we're well positioned to continue to be active in the corporate development space where I know people aren't happy necessarily with valuations where they are, but it's helpful to us as a net buyer of assets to have a little more pressure on companies we might want to be doing business with. So I'll just close, Jason, by saying very much on track to now raised guidance. And all of that setting us up for achieving Vision 2025, which we rolled out in January of this year.

Great. Well, look, a lot of the focus on the story has been around diversification away from legacy Xyrem and building out the business. And you surprised a lot of people at the start of the year with the 2025 numbers that you put out for the business. It sounds like even with divestiture of Sunosi, the general commentary about getting to those numbers is still intact and not meaningfully impacted. And maybe a little bit on the rationale for putting those numbers out there for folks.

Yes. So just to be explicit, we are reaffirming that Vision 2025 remains in place despite the divestiture of Sunosi. The reason for giving that longer-term guidance is, number one, the company has executed really well over the last couple of years. So a lot of what we had been projecting as possible approvals and possible launches have come to bear. So we've got much more confidence now in what our business is going to look like over the next couple of years. I would say additionally, we were a little frustrated, honestly, with the amount of short-term focus of predicting quarterly patterns rather than where the business is going. So intense focus on exactly when will an AG Xyrem launch, exactly when will Erwinaze supply be depleted, exactly when will you launch Rylaze, none of which really goes to the ongoing opportunity we have. So by putting out a little bit farther target that tells people where we're going, we can now put all that shorter-term results in context with the longer term. And that vision was about $5 billion in revenues in 2025 across $2 billion in oxybate, $2.5 billion combined from Epidiolex and our oncology portfolio, and another $500 million from other products, including launches or for dev activities, but it was also about our pipeline and the productivity of our pipeline and bringing 5 novel agents to market by the end of the decade. And finally, bringing more of our top line through to the bottom line, we project a 5 percentage point increase in our operating margin between 2021 at 43% and where we'll be at 48% in 2025.

Okay. On the biz dev front, you guys have been vocal to once you get down to 3.5% or below, you'll resume being active in the deal space. Is the focus on license deals or small upfronts like Sumitomo or should we be thinking about all options on the table for the company at that point?

Yes, I think you should think about all options on the table at that point. And that point is coming a little sooner than we thought as I talked about with deleveraging progress. Even while we're deleveraging, we said, we predicted coming into this year, we'll continue to do smaller deals like we did with Redx even up to what we did with PharmaMar, when we brought Zepzelca, and of course, then we've done 2 of those deals already this year. But we certainly could do larger deals and then get back to transactions in the billions rather than the tens of millions or hundred millions as we delever further.

Okay. Maybe shifting gears to the Xywav IH launch. That was a pretty positive update I felt like on the 1Q. Our survey work certainly suggested that, that was going to be a nice plug-and-play opportunity for you to switch specialists, they knew the drug, they were comfortable with it and they have a lot of patients that seems like in their offices. So you have made the comment that this could be as big as narcolepsy. So maybe connect the dots for us. Is there need to be an expansion of treatment rate versus that 37,000 already identified through the claims databases or do you feel like even with that population alone, you can kind of get to a pretty meaningful opportunity?

So maybe I'll hand this off to Dan. Dan, Dan, I didn't know the launch was as easy as plug and play. You told me it was more complex.

I think our Head of Commercial won't like that term. But no, I think we're very excited about idiopathic hypersomnia, as sleep leaders, we really conducted the first and only now approved true drug to get to market with Xywav and the clinical benefit across primary secondary endpoints is quite profound. And so we are focused on the 37,000 diagnosed patients who are actively seeking treatment. There's actually a broader population of up to 80,000 diagnosed patients. But we feel the ones who are already going into the office, going to the sleep centers, and generally are on wake-promoting agents and stimulants. Some of them have fallen off those that they're not doing very well from. Those are the target patients. That population is a 90% overlap with the top Tier 1 narcolepsy treaters who we already have established relationships, and they already have existing good experiences with Xywav to narcolepsy. So we added 500 patients in the last quarter. So that took us from 250 to 750. It's really just the early days to the launch, and we want to continue that progress. It's different, of course, the narcolepsy where there was an existing oxybate pool of patients. So it's really bringing the new patients on to oxybate on to Xywav into the REM system, titrate them up to dose. But the good news is the payers who we already have a pre-existing relationship with for Xywav, 90% commercial lives. We're able to add through formulary review pretty quickly, and they're not blocking sales at this point. So we're excited for the launch, but it's still early days.

And would you anticipate any early bolus of patients who maybe could never get insurance, right, for Xyrem or which had some data out there that suggests that perhaps there might be a benefit for it, but could never getting covered from an insurance perspective. And is there a profile? We hear a lot about long form sleep. So I'm just kind of curious if there should be some market segmentation to consider here?

Yes. So on the bolus, not so much. I mean it really is sort of adding kind of patient by patient, getting some experience in the sleep centers with their idiopathic hypersomnia patients. And then the physician also feels more comfortable that they're seeing in the real world the clinical benefit that we saw in the clinical trial. And the anecdotal feedback on the 750 patients or the patients who we've got feedback from has been very positive. So that's good news. I think it is a question of patient segmentation instead of who could benefit and how to help identify and prioritize within their practice. The indication is broadly for any patient with idiopathic hypersomnia, but going after the more severe patients, the ones that have a little more sleep drunkenness have a harder time functioning or taking long naps, but not feeling very refreshed. That's the type of population that we'll be going after.

Given the stated prescriber overlap and then the early days comment, is the challenge really like any new launch, just kind of comfort, familiarity and building that awareness more than anything because it doesn't sound like it's really an insurance impediment per se or even doctors having to worry about the safety profile.

Yes. No. The good news is that the physician audience that we're going to have good experience with oxybate and obviously now Xywav. I think it's more of a medical education since there's been no approved therapy that nighttime treatment like Xywav provides significant benefit in the daytime and because it's not that these patients can't sleep, it's that the sleep is not very good quality and not refreshing. And so that's what Xywav ends up doing. So it is that education that it's a nighttime therapy for a full daytime benefit.

Okay. And Bruce, maybe question, our interpretation of your segment guidance is that combined oxybate is probably pretty close to $2 billion this year and 2025 guidance is for $2 billion. So should investors think about the loss of the genericization event just being basically offset one to one with the Xywav IH opportunity. Just curious how you'd frame that bridge.

Yes. So when looking out to 2025, we were making accommodation for authorized generics, multiple authorized generics being on the market, the potential that FT218 comes to market too. So we were trying to look out in a more competitive space and think about where we might be. I will point out that when we gave the $2 billion guidance for 2025, I think people found that maybe a little bit above what they were expecting. So our point was from where we were sitting when we were giving that Vision 2025, this was actually growth in maintaining a very strong product over this period as we gain traction in idiopathic hypersomnia as we continue to expand the narcolepsy market and as we continue to educate people that this 92% reduction in sodium is a lifetime benefit, right? This is a chronic therapy and an at-risk population. It's really important that patients and physicians understand that for these narcolepsy patients, this is the right treatment choice. Of course, we do expect some loss of business to the authorized generics, where we do get some economics as we've pointed out. So there will be some net effect across that growth.

You mentioned FT218 had some delays, Hikma may kind of push into 2023. From a payer standpoint -- is the combined oxybate franchise managed any differently, it's always been a low gross to net deduction type of product. So status quo on that front. Just kind of curious any color or commentary, given that competitive threats haven't emerged in 2022 as maybe would have been expected.

Well, one is, I mean, we are very pleased with the coverage we do have for Xywav very quickly. We got to 90% coverage. We went with price parity to Xyrem. So it was less about price. It was more about clinical benefit. The fact that the FDA has given us orphan drug exclusivity and really stated the clinical benefits that Bruce just mentioned that you can significantly reduce the cardiovascular comorbidities and mortality for a good portion of those patients. So we don't think that -- so we're just looking for parity access, honestly, and we think we can continue to be in a very good place from a payer perspective.

Okay. Maybe another one on the sleep franchise. Orexin used to be a big overhang on the Jazz story I remember. And now you have one of the leading orexin receptor agonist. So maybe if you can just talk about the legacy safety issues and what got you comfortable from a transaction standpoint. And what gets you guys excited how this could potentially really expand the position for Jazz in the [indiscernible] space.

That one's for you, Phil.

Great. Excellent. Yes. So clearly, we've been excited about the target, which is the latest emerging target for the treatment of narcolepsy, and I think is a real possibility. The target has been validated as we know from not only the nonclinical work that we saw in this molecule that we licensed in, but also from what's in public domain from the Takeda program as well as they've presented both nonclinical as well as clinical data with respect to the wake promoting effects. When we were looking for a molecule, we wanted something that was orally administered would obviously be selective and potent for the target itself. We wanted something that we spend a lot of time looking, obviously, for a molecule, that would have a low liability around the liver toxicity and also something that was clinic ready. As we know, this program is in Phase 1 and Sumitomo has it in Phase 1 program in Japan, and we intend to leverage the data and to accelerate our program. So it met many of the development criteria that we would look for in the right molecule for the space. I would say as we think about this, the effects on cataplexy and other symptoms of narcolepsy with the [indiscernible] yet to be fully elucidated, and I think there'll be data emerging around that. And we currently, I think, around it is really complementary to oxybate not a replacement to oxybate. And just remind, I suspect the oxybate drug not only works on the daytime symptoms but also the nighttime symptoms but specifically around disruptive nighttime speed, which is the third most prevalent symptom for the narcolepsy patients. So we would see this really as a complementary product and also many of oxybate patients on the more severe end of the spectrum. So -- and many of them are on wake-promoting agents as well. So we really see this as a complementary opportunity as well as potentially in the patient segment that would be less severe than the current oxybate patient population. But we're very excited and look forward to advancing that program rapidly.

Okay. Great. Maybe Epidiolex, we have about 10 minutes left, so what if I want to hit on that. 1Q, you had some stocking dynamics or going off of the 4Q, we had a pretty big stocking benefit. Maybe a little bit surprised to hear of the product mentioned in the more bullish sales outlook for 2022, probably because of where it came in versus our in consensus expectations. So maybe can you just maybe speak to what gets you excited about Epidiolex sort of that inflection over the remainder of the year?

Yes, I'd like to just maybe first start to say we remain very bullish, and our thesis remains intact, which is Epidiolex has the blockbuster potential, can be a cornerstone of therapy. It has a very unique value proposition to other epilepsy drugs, unique mechanism, benign safety or well tolerated and first and only cannabinoid with good efficacy. So the quarter-to-quarter dynamics we referenced was $18 million did get pulled into the fourth quarter. It's really a little stocking up because one sort of distributor was preparing for some additional lives under coverage. That's largely reversed itself. And so the underlying demand quarter-to-quarter was double digit. It's a promotionally sensitive product. I think we've mentioned that on a few of our calls. And COVID has affected this class, both the neurologists have been doing telemedicine. The patient flow hasn't been as strong. So the good news, and we can -- as evidenced here that we're here in person as the offices are opening, we are getting the face-to-face engagement. And I think that's going to really help us expand into particularly TSC and LGS, which are 2 of the more larger indications, but also outside the U.S. So we've gotten market approval now in 13 countries out of 35. And importantly, of the major market countries, Spain and Italy came onstream in the second half of last year, and so we'll get the full year impact. We've got France that's pending pricing reimbursement. And importantly, in every country we've been in so far, we've maintained a very tight price corridor to the U.S. pricing of within 70% or above of the U.S. WAC. So we'll get the kind of the ex-U.S. growth potential as well as increased promotion and sales and expand the prescriber base and get to more patient starts throughout the year.

And how much added commercial resource or muscle can you put behind this now that you're focusing Sunosi spend now allocating that presumably more towards Epidiolex going forward.

No, it's a great question. It's one of the reasons for the divestment was to give our neurology team the full focus on the brands that we think we can really benefit in terms of the distribution and where we've got good relationships with the physicians. And so focusing on the epileptologists and then on the sleep side with both Xywav and narcolepsy and IH, we do think that increased focus will help us.

One of the things we hear from both payers and physicians is that Epidiolex is a pretty broad data set regarding different seizure types. And so you have that big bucket of other uncontrolled seizures from a market standpoint. And I know you can't and don't promote label, but just curious, it sounds like this is a product that can be the medical exception process, perhaps easier than some other seizure medications. And so can you speak to that as an opportunity? And where you're at with respect to that group of patients?

Yes, maybe we could have Phil just start with how docs look at treating their patients with various disorders.

Yes, absolutely. So the approval for Epidiolex [indiscernible] for Dravet's, LGS and TSC. And they represent predominant seizure types, each one of them represents predominant seizure type, Dravet's being generalized seizures, the LGS being drop seizures and the TSC being focal seizures. So they demonstrated really in preclinical models, the ability to impact those different seizure types. And the pediatric neurologist and epileptologist and the adult epileptologists, they treat more by seizure type than they treat by actually syndrome. So because of its broad-based broad spectrum efficacy and the ability to be utilized across multiple seizure types, we are seeing the increased utility of this beyond the actual syndromes itself. And as you said, we will not promote in that regard. And then we're also -- you must be aware from our earnings call, there was a previous disclosures that we're starting to study in the fourth seizure type, which is the EMAS population, which is epilepsy with myoclonic atonic seizures, a fourth seizure type to cover very broad spectrum. So I think a lot of these refractory seizures may have seizure types that would fit into the models or the populations that we've really studied it in. So you can see how it would have broad utilization even beyond the approved indications. And I think the more physicians have good experiences with this drug understanding that they use polypharmacy routinely that they would potentially move it higher up into the treatment paradigm as an add-on therapy to existing agents as well.

Okay. You guys talked about TSC as a potential growth driver. Just a couple of questions that come up are was there a lot of overlap with TSC and LGS and is this prescriber base perhaps a little bit more diffuse than the other seizure types. And as such, perhaps this is maybe one of the areas where added resources might help you expand the market opportunity within TSC. But curious how you guys would -- what rebuttal you would offer to some of those points raised regarding the TSC opportunity.

Yes. No, I think TSC, the data is equally compelling. It's the most recent indication in Europe. It's not necessarily been launched for TSC in every market because we need to pull through the pricing reimbursement in each country. So we have it in some countries, not all. But we see an opportunity in TSC not only with pediatric, but also in the adult patient population. In general, we don't find that the overlap per se is inhibiting patient starts. It's really going to be the focus with the promotional efforts of being back in the office. And also just the peer to peer of people who have adopted the therapy and have had good clinical benefit to speak to their peers. And so the medical conferences are now back in person, and that helps quite a bit, too. And there's a good spillover actually between Europe and the U.S. But I should be clear, we aren't near term increasing the field force. What we have now is a well-sized field force that can get to the customer. And we don't have the headwinds of COVID that we had for most of last year.

Okay. Maybe in the last couple of minutes, Rylaze, which has been pretty favorable, I think, launch for you guys. Overall, you're back to historical peak levels that you achieved in the Erwinia market with the previous product. Now thinking about the next leg of growth, it sounds like, okay, we've gotten now, we've rebased this is what's in front of you really more of the ex U.S. opportunities in AYA or how would you kind of frame the next incremental step? I know we've debated for probably the last 2 years, how big can this market now be?

Yes, I will just remind everyone, we don't know how big the market can be because we never had a supply unconstrained situation in years past. Jason correctly points out, we peaked at just over $200 million in sales with the prior product. That was worldwide. So that was not just in the U.S. The U.S. would have been about 75% of that. So if you think about our current annualized sales in the U.S., which were north of $200 million, that compares probably to a peak of $150 million or $160 million before. So we already know docs, particularly in the pediatric ALL population are probably better now at switching from an E. coli-derived asparaginase to Rylaze when they see that hypersensitivity allergy reaction rather than there's some of their behaviors before, which were trying to cover up that reaction or to pretreat or to rechallenge because they knew Erwinaze was of limited supply and had some quality issues, now that they know they can rely on Rylaze as being a high-quality, better dose product that they can always order easily, we're seeing them use it faster. That AYA opportunity, adolescent young adult opportunity, I still think, is in front of us, where people don't use as much of the pediatric inspired asparaginase containing regimen that we know produces better survival. So we think there is an opportunity to expand there as well as beyond the U.S. as you referenced, Jason. And just as a reminder, we have got 2 SBLAs at FDA on a real-time oncology review for Monday, Wednesday, Friday dosing, for IV dosing. We're about to submit in Europe for both IM and IV dosing. We said we'll do that midyear. And we're looking forward to expanding worldwide, including in Japan in the years to come.

Got it. Maybe just one last question quickly. The other cannabidiol, it seems like you can go a lot of directions with that. Any plan to update the investor community from an R&D perspective where development efforts could be going with those...

Yes. Over time, I think we will have more to say. Obviously, as we move programs into higher investment phases further into clinical trials, we tend to start talking more. Sometimes we'll share earlier data. We have said we have a goal as a company of multiple INDs across neurology and oncology through 2023. So we may have some things to say there as well, but you'll hear more over time.

Okay. Great. Well, thanks, Bruce and team for joining this conference.

Thanks so much.

Thanks, everybody.