Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

All righty. Good afternoon, everyone. I hope you're all enjoying the conference so far. It's really good to be back in person, I will tell you that much. My name is Akash Tewari. I'm a biotech analyst here at Jefferies. I have the pleasure of hosting the Jazz management team today. Joining us is Renee Gala, CFO; John Miller, Global Product Strategy and Program Management Head; Dan Swisher, President of Jazz; and then Josh Steinerman, VP of Neuropsychiatry. Thanks so much for joining us. Maybe, Renee, do you want me to give it to you for some introductory remarks, and then we can get into any specific questions?

Sure. That's sounds great. So thank you for having us. It's a pleasure to be here and super exciting to be in person as well. So just before we get started though, I'll remind you all, we will be making forward-looking statements today. Please consult our website for our SEC filings and more information about our business. Also, as we refer to guidance, we're not updating guidance today. So this is as of our earnings on May 4 earlier this year. And then maybe just a few minutes about the business. So part of why we're so excited to be here today is because we've made considerable progress across 2022. We had a transformative year in 2021 for the company. We achieved over $3 billion in revenue for the first time ever as a company, nearly $1 billion in adjusted net income. We completed and integrated the GW Pharmaceuticals acquisition, $7.2 billion. We were able to achieve our ambitious goal of 5 key product launches across 2020 and 2021 and progressed our pipeline, all of which gave us substantial momentum coming into 2022. And in 2022, we continue to progress commercial, our pipeline and corporate development. On the commercial front, we've been pleased with the ongoing adoption of Xywav, both in idiopathic hypersomnia as well as in neuroscience. We've had a strong start for Rylaze, and we continue to diversify our business. On the pipeline front, we're preparing to read out our nabiximols study, the first of 3 pivotal studies that we'll read out later this month, and we also now have multiple studies under way for Zepzelca. And then on the corporate development side, we've just completed 2 early transactions on the oncology and sleep side. We've just announced that we completed the U.S. portion of the Sunosi divestment of our business, which enables us to now focus on our highest priority activities, in particular, in our neuroscience business. And then moving on to where we're headed. We launched Vision 2025 earlier this year, and we've announced guidance for 2022 that shows a strong first year performance on that Vision 2025. We're projecting 16% year-over-year growth to top line, 22% year-over-year growth on the bottom line with adjusted net income. So we're excited about where we are today for what the rest of the year holds, and we're happy to turn it over for Q&A.

Great. Thanks so much. So why don't we start a bit about kind of Q1 performance and then really what's implied in guidance? And I'll tell you, we were -- I think we were a little surprised that there was small misses for Xywav, Xyrem and Epidiolex in Q1. But it's not -- it's a little -- it's always a little unusual when that occurs, but at the same time, not only does the company reiterate their guidance but they actually increase it despite a Sunosi divestiture, where effectively, you've raised guidance by about $90 million. Can you talk about -- you guys have always been very good in terms of guiding and keeping a tight bar on expectations. What really drove that decision? You've always been a fairly conservative company when it comes to guidance. What makes you feel confident about your growth in the back half of the year? And if you could hone in on Xyrem, Xywav and Epidiolex specifically, I think that would be very helpful.

Yes, sure, happy to. So first of all, as a reminder, we provide guidance on an annual basis. We don't provide quarterly guidance. And then if we step through each of those programs that you noted, because the guidance raise that we made was within neuroscience, which, of course, then reflects Xyrem, Xywav, Epidiolex as a whole. So within our oxybate franchise, we do have seasonality within our business. It is consistent on a yearly basis, where our Q1 revenues come down, generally, net sales come down from Q4 as a result of payer churn. We have increased use of co-pays, which impacts our gross to nets, and then we also have reauthorizations. Not all of the consensus estimates reflected that. And in addition, with respect to Epidiolex, we had some increase in inventory levels in Q4, approximately $18 million, temporary increases at our specialty pharmacies, which then were mostly pulled through in Q1. So I -- looking at the consensus estimates, I'm not sure they all completely reflected that. But stepping back to our guidance raise, it was driven by the confidence in our underlying business, specific to our progress in Xywav, the ongoing competitive situation that we look at externally relative to our oxybate franchise as well as our continued confidence in Epidiolex.

Understood. And we -- I don't know if we did it right, but we at least attempted to kind of sparse out that guidance raise, and I think we came into 2 conclusions. Like even if you take into account the fact that there won't be, let's say, Xyrem generics in 2022, like maybe we originally thought, your guidance is implying either that Epidiolex might do $800 million and $900 million in sales or IH, that opportunity might even be as large as kind of $200 million. And that would imply about 2,700, 2,800 patients on therapy by the time we get into Q4. If you were to ask me, my guess is it's probably more confidence around IH. You had 750 patients on treatment in Q1. Can you talk about what we're seeing in that market? You've previously stated this could be an orphan-like market with no competition. If I, as an -- if I was sitting here and I said, you know what, Jazz is going to be able to add 600, 700 patients per quarter going forward, given how much unmet need is really out there. Is that indicative of an orphan launch with limited competition?

So I appreciate the insights. I'm going to bore you by repeating that we don't provide quarterly guidance, then I'll ask Dan to comment on your question.

Yes, I think in addition to being here in person at Jefferies, we also had an in-person APSS, so the SLEEP Conference we just came from in Charlotte, North Carolina. And so we got a chance to talk to a number of our physicians and KOLs. And one idiopathic hypersomnia is a much more featured topic in that conference. A number of data presentations and data cuts we gave to really show the benefits of Xywav but also just increased awareness and interest in treating those patients. So as of end of first quarter, we had 750 patients. We're pleased with that. We're continuing to execute and hear good feedback from the offices of those patients that they're doing well. It is different than going into narcolepsy, where we had a pre-existing pool of approximately 15,000 Xyrem patients that already were on oxybate and could be just switched over, titrated over immediately gram for gram. So here, we've got to find the patients, patients come in the office. They've got to enlist on to the REMS. They have to dose titrate up. But what we're finding is in each office as they're seeing the clinical benefits, there's increased interest in expansion.

Understood. Now a couple of points on that. A, we had done our own KOL call. And it was interesting. Our specialist was bearish on Xywav until he saw the clinical data and was more bullish on HARMONY until they saw kind of the data in a real-world setting. And it's certainly surprised, I think, a lot of physicians, the clinical benefit you've been able to show. But there's also this dynamic where a lot of these IH patients, they're -- they suffer from kind of sleep inertia. They don't necessarily need 2 doses of Xyrem. So the KOL we spoke to said, actually half of my patients are on 1 dose of Xyrem -- sorry, Xywav, and half of my patients are on 2 doses, which also creates questions also on like what your net price is really for IH going forward. What have you seen at your practice in terms of the amount of patients who are on a 1-dose regimen versus a 2-dose regimen. And what should we think about for net pricing?

Yes. No, that's an interesting insight, and we saw some of that in the clinical study too. We had the dose flexibility that patients could get benefit from either a once-nightly or twice-nightly regimen. What we found is that some of the most severe IH patients were just too sleepy to actually wake up for the second dose at the beginning of the study. But as they started to get clinical benefit, many of them then switched to the 2-dose regimen, which provided more efficacy. So ultimately, we saw 77% of the pivotal Phase III trial on the twice nightly. And the expectation is we're going to see something similar in the real world. It's just a pretty dynamic market. And we'll have a better sense of that run rate towards the end of the year.

Understood. Now...

But I should just say kind of gram for gram between narcolepsy and IH, we saw almost identical dosages. So ultimately, revenue per patient should not be that dissimilar.

Understood. Okay. That's very helpful. Now you've done a really remarkable job expanding even the narcolepsy market, and you can even kind of do the math versus implied patient dropouts. If you're a narcoleptic patient, probably 70% to 80% of them at some point had really tried Xyrem. I mean it seems like almost 40,000 to 50,000 patients are Xyrem-experienced when it comes to narcolepsy. When we think about that dynamic for IH, you've talked about kind of 40,000 patients, but you're also using more aggressive comments where you said, this could be as large of an opportunity as narcolepsy. Talk to us about what you're seeing on market sizing. Is that early uptake in demand really -- these kind of low-hanging fruit bolus patients? Or is this really a market that can sustain? Could this be like a $1 billion potential market? I mean, that's how we kind of model IH right now, but I'd be curious to see what Jazz kind of thinks about it [ with the amount of research ].

Yes. No, I mean, we definitely see a strong long-term market opportunity. That is part of the Vision 2025. We're at that $5 billion revenue. We expect oxybate to be approximately $2 billion, and as Xywav being a big portion of that, both narcolepsy conversion and stickiness, but also then moving into IH. We don't want to get ahead of ourselves because it is a market build. It's a market education. I think some of the physicians that adopt the therapy are the ones that are closest to the data or closest to interest in that treatment. There's other physicians who -- it takes education to realize that all the daytime benefits come from a nighttime therapy and come with patients who are already long sleepers. So there's that education component that we need to do to ultimately build the market to the size we think it could get. But from a patient perspective, the opportunity in total diagnosis is very similar to narcolepsy.

Understood. Understood. Got it. Now when we think about the opportunity, I think we first think about the regulatory -- the orphan drug exclusivity you have in IH. But can you talk about, maybe from a patent perspective, why are there some reasons why we should be modeling that IH opportunity beyond just the 7 years orphan drug exclusivity you have? Are -- is there anything we should be keeping an eye on from a legal perspective that would allow you to preserve that market?

Well, maybe I'll comment. Xywav, in general, has broad patent protection with Orange Book listed patents out to 2033. And that's in addition to the regulatory exclusivity. As you think about the broader market, I would just bring us back to Xywav being the only lower sodium option and the only approved option for IH. And that has been a big part of the conversations that have been resonating with physicians, with patients and putting us in a position even coming out of the most recent SLEEP conference, putting us in a position to have confidence with respect to Xywav.

Understood. And we get this question from investors, why wouldn't I be able to just use generic -- let's say, we're in 2026. There are generic Xyrems out there with a lower price than even what we have right now. Why can't a doctor prescribe IH using Xyrem? And wouldn't that become kind of the first line of treatment? Can you talk about -- you have a very unusual REMS program. You have a very close distribution. What are some impediments that would maybe not allow a physician who wanted to try Xyrem first for IH from being able to prescribe that?

Dan, do you want to comment?

Sure. I'd first say that -- I mean, it is a unique formulation. It's got a slightly modified PK profile to Xyrem. And it's the only rigorously studied compound with an FDA approval. So that is one sort of reason to give confidence for the physicians and the patients. And obviously, we would have a number of years of real-world experience at that point. The second item is these patients are also with IH. It's a lifetime therapy. There's that long-term burden of sodium. They have the same type of underlying cardiovascular risk. So again, that low sodium option will be the best. And then third is, you see this elsewhere, but just the superior product with an orphan drug exclusivity often wins out even with lower-priced options beyond anything to do with specialty pharmacy and REMS.

Understood. Makes sense. Now, one of the things that we've also seen is, it does seem like the uptake with Xywav in narcolepsy. I think you're kind of in the mid-40s percent in terms of your switch. That started to flatten out a bit. And we've had KOL calls where doctors are saying, we're having a bit more difficulty getting patients on to Xywav for narcolepsy, given payers are anticipating more generic entry into that space going forward. As we think about that switch profile and how meaningful within your thinking about Vision 2025, how meaningful the chunk of Xywav and narcolepsy really is? And how much of that market you can really retain over time. Is there any kind of general high and low bars you can give us? And what's your confidence that you'll be able to retain a significant portion of your current narcolepsy market.

Maybe I'll just start with the kind of the specific point you referenced on the payer side is, we actually don't see that on a national basis. So every now and then, there's a regional plan or regional pocket where that's an issue, but it's a very, very small percentage. Some of the issues just the offices with staff turnover, ensuring that they know how to do the utilization procedures and making sure that they get the approval for Xywav, obviously, we're just a few quarters into launch. So we're formally getting Xywav for IH added into all the plans that we've got with 90% coverage for narcolepsy. We anticipate the same broad coverage in IH. So that hasn't been the barrier. The barrier over time with narcolepsy becomes -- it's really the patient. The patient has been on such a long journey that if they have a real attachment to the brand Xyrem, and they've gotten significant clinical benefit. There's always that fear, if I try something new, it's -- I'm going to give up something, I may not get the same efficacy. And so it's really the physician who can help influence and say, this isn't just a treatment option. This is the preferred option. You need to try this. You can always switch back. Very few will ever switch back because they'll find that they can get to the same efficacious dose the next day.

Right. So maybe let's touch a bit on Epidiolex. And when you're sitting here as an analyst, you guys acquired GW. It's not like we can do a ton of diligence on where consensus is for GW models, right? I think consensus for GW analysis was about $1.5 billion, something in that range. I think everyone on the street just takes that number, puts it in their model and tries to figure out the equation. Over time, you actually figure out whether you can hit that trajectory or not. Now it's kind of hard to figure out exactly where we're on a trajectory for Epidiolex right now. There is a debate on whether you're already pretty penetrated in Dravet and some of these other indications. Your guidance doesn't necessarily need you to have Epidiolex go to 800 and 900. It could be 720, and you'd still be able to hit your neuro guidance given your IH performance. But that also brings the question of, was this a good deal? Where are you in terms of long-term projections for Epidiolex? And I'd love to get some comments on the European launch as well. And do you -- even looking at kind of the projections that we're giving out in the SEC documents, where should we be thinking about this product long term with your current indications, like could this become a $1 billion product with just your current indications you have? Or do you need MS spasticity? Do you need autism? Do you need PTSD to kind of get to that range that you -- that was originally put in those SEC documents.

So why don't we break those down a bit and I'll cover the acquisition and some of the long term and then Dan, you can cover some of the other pieces on the commercial side. So stepping back, we felt with the GW acquisition that Epidiolex in terms of the value that it provided largely covered the vast majority of that acquisition in terms of the value. So being able to bring the nabiximols program forward, having gained all of the expertise from the GW team that we've brought in and then also having this cannabinoid platform and research capability is largely on top. So earlier this year, and we're not -- again, we're not reiterating guidance. But earlier this year, we did state that we continue to see the GW transaction as being accretive in this first full calendar year. Now you had commented on SEC filings. Of course, those SEC filings were made by GW and they were at a different point in time, in terms of in earlier in late 2020 relative to the transaction. So those were not our projections that we put out. But as we look forward and say what do we think this product delivers. First of all, it is a -- we view it as a durable, long-lived asset. It has over 80 patent families as well as 21 Orange Book listed patents, most of which run out to 2035. And as part of our Vision 2025, we've stated, we think the oxybate franchise delivers $2 billion of that $5 billion. And then oncology and Epidiolex combined deliver another $2.5 billion with the last $0.5 billion coming from other growth in corporate development. And then with Epidiolex and oncology, each delivering over $1 billion contributing to that collective $2.5 billion in 2025. Do you want to comment on where we're headed in Europe?

Yes. And just in terms of -- we see plenty of headroom and growth, Akash, in Epidiolex. And I say in the U.S., probably, Dravet is a little more penetrated. There's still growth because new patients are always coming in and you can move up in lines of therapy. But it's also in LGS and TSC, those are bigger indications and less penetrated. And then it's the seizure types that the drug is efficacious across a number of different seizure types. So it gives confidence to physicians when they see treatment-resistant patients, regardless of underlying disorder that, that could be of interest to them, especially with broad payer coverage. What we have seen through COVID is, incredible persistency, very good persistency data. What's been a little bit limiting has been getting into the offices and doing the face-to-face engagement. And that's largely lifting now. So we're getting back to a lot of face-to-face engagement and really getting to those offices that have not fully adopted Epidiolex or have full awareness of the clinical data. And then lastly, I'd say in Europe, we just launched in Spain and Italy in the second half of last year, and that took us to 4 or 5 major countries. France were in final pricing negotiation this year. And we'll be launching this year. So we're going to get the full impact in the full year and more promotional push in all of those markets as well.

Got it. I just sneak in one last question. MS spasticity, you have 5 different studies. All of them with a different angle, right? I think the last 2 that are reading out next year, very similar to your European trials. Your first one seems probably the riskiest. And then you get the placebo crossover kind of benefit with your middle 2. There are both questions on which one of the studies are going to read out and when. And then also really the market opportunity. MS seems to be kind of tough to size from a commercial perspective. So, A, as we think about just the, the one that might be imminent, right, the short-term study that's coming out, where should we -- when is that reading out? What are kind of the expectations internally for success? And then as we think about the middle studies and the last studies, how does your kind of Jazz's internal probability of success change depending on effectively, the 3 separate trial types are running in MS spasticity.

So the first study is reading out later this month, perhaps, Josh, you'd like to comment on the questions.

Yes. Thank you. Very happy to speak about nabiximols. It's oral mucosal spray, complex botanical drug, derived from the cannabis plant, which is being developed for spasticity in multiple sclerosis. We have 3 positive trials that had been completed in the past and 2 of the trials, which included the NRS endpoint as well as muscle tone and muscle spasm, all provided evidence that the drug is effective on muscle tone and muscle spasm, and those are the endpoints that we've agreed with FDA will be pursued in the current development plan. So there are 3 current pivotal trials ongoing. As Renee mentioned, the first one, as we communicated, will read out this year, in this quarter. That's a small trial, which has the potential to be added to the NRS data and form the basis of our NDA, if positive. In any case, we expect that we'll get learnings from that trial, which will be applied to the 2 ongoing trials, but primarily the other muscle tone trial. So the muscle tone trial which is reading out earlier will clearly translate into a possibility to optimize the muscle tone trial. We really view the other muscle spasm trial as an independent shot on goal, that there may be learnings from it, but primarily is another way of achieving our ultimate aim of bringing the product to the United States.

Got it. Could stick in one more because it's great to talk to you. The Cavion molecule and the calcium channel blockers, we've always been kind of bearish on that Cavion data set simply because there wasn't a correlation between accelerometer, like there was a 0.0 effect size on accelerometer the Cavion data. We've heard that potentially there were issues with how the testing was done or the accelerometer kits that were actually used there. And you've had other calcium channel blocker players, say there is a correlation between accelerometers and TETRAS scores with this class of drugs. So can you talk about that kind of just bizarre data signal we saw with the Cavion trial. And then where we are with that clinical development program, because you are moving forward with your Phase II/III study here. It's a pretty large one as well.

Yes. And I don't know if we're going to be in a position to dig deep into the data there. John or Josh.

Maybe just a quick update on the study, which -- we're in -- studying the suvecaltamide in adult Essential Tremor patients with moderate to severe disease. That study kicked off at the end of 2021, and we expect it to come out in the first half of '24. The endpoint in that study is going to be change from baseline to week 12 on the TETRAS-ADL, which measures activities of daily living and functional impairment associated with tremors. So that's really what our focus is for that program. We're really excited about the unmet need in that marketplace and look forward to bringing the data in the first half of '24.

Well, thanks so much, guys. I really appreciate it. This was wonderful. And if you guys have any questions for the Jazz management team, they are having one-on-ones throughout the day. And we're also happy to facilitate an intro. Thanks so much.

Thanks.