Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Welcome to the 2023 RBC Global Healthcare Conference. My name is Greg Renza, one of the senior biotech equity research analysts here at RBC. And we're pleased to be joined by Jazz Pharmaceuticals, and with a robust team today, led by the Chairman and CEO, Bruce Cozadd. Bruce, Rob, P.J., Abizer, it's great to have you. Bruce, I'll turn it over to you for an intro, not just to Jazz, but also to the great team you have here today.

Yes. So I'm Bruce Cozadd, Chairman and CEO, Founder of Jazz Pharmaceuticals. Good to see you all today. Pleased to be joined by some fellow members of the management team. It doesn't look like our management team is half diverse because we just brought the guys this time, but I want you to know half -- more than half of our management team is diverse by gender, color, or LGBTQ status. We've got with us today, starting next to me, P.J. Honerkamp. P.J. runs our U.S. sleep business. Rob Iannone runs R&D for Jazz and Abizer Gaslightwala runs U.S. oncology. So hopefully, we'll get some questions on all of the above and can participate in the answers. Let me start off with some intro remarks. First, the unexciting part. I will make forward-looking statements. See our SEC filings for risk factors. If I refer to non-GAAP numbers, there's always a reconciliation to GAAP on our website. And if I refer to guidance, I'm referring to guidance as we gave it just a week ago on May 10. So Jazz just came off our first quarter earnings call. I'm happy to say our execution during the first quarter of the year was exactly what we hoped it would be. That makes us confident in our 2023 guidance, but importantly, also makes us confident about hitting Vision 2025. And I'll walk through the three pieces of that. On the revenue side, important to see continued growth of Xywav. Xywav was up about 49% year-over-year. We added more narcolepsy patients in the first quarter, 500 more narcolepsy patients, despite the availability of an AG to Xyrem during the quarter for the first time. We also see strong growth in idiopathic hypersomnia, where we left the quarter with 2,000 patients, and lots of signs point to continued momentum and growth for our oxybate business. Also strong Epidiolex growth, 20% year-over-year. We're seeing good growth in the U.S. We're early in the launch in Europe, where we just launched in the fifth of our 5 major European markets, France at the end of the year. Lots of reasons to expect growth to continue with Epidiolex. And then on the oncology side, we're seeing great growth in Rylaze and Zepzelca. Rylaze is up over 50% year-over-year, and we think we're on track for the midpoint of our guidance, which is $1 billion in oncology sales in 2023. On the pipeline side, we've never had a stronger pipeline at Jazz. And I'm particularly excited about some near-term -- long-term -- or near-term value-creating readouts of late-stage programs, in particular, JZP150 and PTSD at the end of this year, and then early or first part of next year, JZP385 for essential tremor as well as GEA with Zanidatamab. We've also got a presentation coming up at ASCO on June 2, an oral presentation with good BTC data. And then we also have a frontline trial combination therapy of Zepzelca with Tecentriq that should finish enrollment this year. So excited about lots of other things in the pipeline. I'm not sure I mentioned all of Rob's favorites, but those are a couple of the upcoming late-stage readouts. And then the third piece of our Vision 2025 is really about margin expansion. It's about continued investment. And I'm happy to say cash flow was excellent in the first quarter, $320 million, up strongly from last year. We've delevered rapidly since the GW deal down to 2.6x leverage from what was 4.9%, just 2 Mays ago. We've got $1.2 billion in cash and an undrawn revolver of $500 million. So when we think about continuing to grow our portfolio, both commercial and R&D through corporate development, continuing to invest in our commercial brands continuing to invest in R&D, we can do so from a real position of strength. So Greg, happy to open it up for questions. But great first quarter on track for '23 and Vision 2025.

That's great. A lot certainly unpacked. And as we have alluded to, just being fresh from the quarter just over a week ago and as you're trying -- as you're tracking to Vision 2025, just on a high level, how are you seeing that underlying demand across the multiple areas of your franchises? You said you continue that commitment to grow, volumes and patient demand needs to be there. So maybe bring that down.

Yes. And to be clear, our growth is all coming from volume growth. We're really seeing strong demand across the portfolio. And maybe I could ask P.J. to highlight, oxybate a little bit. I know we've got a lot of questions on oxybate given the evolving landscape and maybe, Abizer could comment on Rylaze a little bit.

Yes. I think we continue to see tremendous momentum with Rylaze. As Bruce mentioned, we had over 500 patients added. Narcolepsy in over 250 patients added in idiopathic hypersomnia. And most recent market research shows that physicians, with respect to IH, 70% of them intend to prescribe more IH and more Rylaze the next 6 months. And so we're really seeing that momentum, and it's -- we've had -- in 2.5 years, we really established our story. Low-sodium is the oxybate of choice for patients with narcolepsy and in the last year, really establishing -- transitioning the IH market really from a story about a symptom of idiopathic hypersomnia with excessive daytime sleepiness to really about the treatment of idiopathic hypersomnia, which we are approved for. Because oxybate is uniquely situated. Xywav is uniquely situated to address some of these other symptoms that the weight-promoting agents and traditional stimulants haven't been able to address in the past.

Abizer?

Yes. Regarding Rylaze, we're very happy with where we are, in particular, that over 50% growth in net sales was driven by demand. And we see that both in the Pediatric segment as well as the AYA, Young -- adult young adult segment. And again, the recent indication approval from Monday, Wednesday, Friday, dosing late last year, continues to drive our uptick in both those segments. We're really happy there.

And maybe just as you're commenting on demand across the franchise, maybe a bit on Epidiolex as well.

Yes. So Epidiolex, we saw 20% first quarter over first quarter growth. We're seeing good growth that we think comes from a couple of things. Number one, physicians are really appreciating the data on the efficacy in seizure reductions of Epidiolex combined with clobazam. So we see data that these two agents together give 60% seizure reduction in Dravet and LGS and about 50% in TSC. That kind of synergistic efficacy is not generally seen with other agents even in combination. And I think it's compelling to clinicians to think about if they're not already using Epidiolex in many or all of their clobazam patients, and that's, of course, one of the most commonly used treatments, to consider adding Epidiolex. We're also hearing people are resonating with our beyond seizure data. So in addition to seizure benefits, we often hear reports from caregivers and clinicians of improvements in behavioral, cognition, communication, other endpoints. And we're seeing that both from caregiver survey data that we presented ongoing clinical studies, we believe that's important in making a treatment choice. We see in our surveys that physicians are using Epidiolex earlier in the treatment algorithm, which is a good sign for their confidence. We think there's growth opportunity, too, on the adult side. Our heavy focus has been on the pediatric side, but there's good adult use of Epidiolex as well. I mentioned the ongoing launches in Europe. In some cases, we're entering new countries for the first time. In some cases, we're launching yet another indication, so launching the TSC indication after the other two. But we're earlier in that growth curve. So a lot of opportunity there as well.

Okay.

And I'll just point out, our Phase III trial in Japan is enrolling well. That's in all three indications we have in the U.S. and Europe.

Great. A good overview of three key products here. And maybe spinning back to oxybate and as you alluded to, with respect to an AG launch, which we and you have all been preparing for. What are you seeing in terms of those behaviors of physicians of the patients? Maybe a proportion of those patients who have switched, how are you quantifying that? And maybe just that receptivity in the marketplace given oxybate?

P.J.?

Yes, I would say that the launch is going as expected. We've been competing with high sodium oxybate in the form of Xyrem for the 2 years of the Xywav launch. So -- and I would say the AG market dynamics are much more similar to a branded market dynamics rather than what you would see in a typical generics market. So we're seeing utilization. But more importantly, we're seeing growth of Xywav through that utilization. Xywav continuing to grow. Anecdotally, in some cases, we have seen some patients who transition to the authorized generic and having transitioned back to Xywav because what we provide is more than just what's in the model, and I think physicians and patients have come to appreciate the unique services that Jazz provides around this product. And when there's the opportunity to realize they're not going to be getting that, have decided to revisit that discussion they had with the patient and come back to Xywav for some instances.

That's great. So certainly more than price. We're talking about the differentiated services that can't be overlooked here. That's really helpful. And then on price, what are your thoughts on pricing of the three AG followers coming into the market? How could that impact the dynamics at least on that medium to longer term?

Yes. I'll point out that there are three volume-limited AGs that have the right to enter starting July 1. But in all three cases, their volume is significantly limited. We don't make pricing decisions. Can't comment on how other companies will price the products. But I will say the usual dynamic of lowering price to gain volume probably won't get them very far, given those volume limitations. So as P.J. characterized the existing market, more is almost like a different brand. I'm not sure that's going to change dramatically in the second half of the year.

With respect to brand competition, we do have one entering the market on once nightly. So knowing that the sleep space exceedingly well. What's the feedback you're hearing there on that profile for competition? One nightly higher sodium concentration. So if there's an angle with the sodium matters campaign as well. Maybe help us understand the appreciation of low-sodium as it relates to that and also just the trade-offs of the administration?

Yes. I mean our focus has been and will continue to be on the low sodium market. Remembering that the sodium reduction, as you move from Xyrem to Xywav of 92%, results in about 1.5 grams less sodium per night in a chronic condition for patients known to be at high cardiovascular risk. That's like eating five orders of fast food french fries, five large orders of fast food french fries every night for the rest of your life. So that sodium difference is known to matter. FDA deemed Xywav to be clinically superior to Xyrem because of that sodium reduction and pointed it out, it should lead to less cardiovascular morbidity. Importantly, the FT218 product has exactly the same sodium as Xyrem. And so all those comparisons will be the same in terms of it being a safer product to be on Xywav. So with our focus on Xywav, how the market -- the high sodium market splits up among branded Xyrem among AG, Xyrem, a new high sodium different dosing, fixed dosing product coming to market, we'll wait to see. But our strategic focus remains on providing what we believe will be the oxybate of choice, which is Xywav.

Maybe just drilling down on oncology. You mentioned Rylaze thus far. Maybe just on Zepzelca, just the performance there in small cell lung. How that's tracked relative to your expectations that effort to expand into first line? How is that progressing?