Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

All right. Thanks, everyone, for joining us here at the Goldman Sachs Global Healthcare Conference. We're so thrilled to be joined by the team from Jazz. Obviously, at a really interesting crossroads for the company. So really a perfect time to get in front of the company, hear what's going on and where things are headed. So Bruce, if you have a few opening remarks, we'll just dive right in.

Yes. So happy to be here. Thanks for your time. Let me introduce the team up here with me. Kim Sablich heads our U.S. commercialization business. Kelvin Tan is our Chief Medical Officer, and hopefully, will have interesting things to say, per your instructions. I will point out that we may make forward-looking statements today. If so, please see our SEC filings for risk factors. If we refer to non-GAAP numbers, there's always a full reconciliation on our website. And what else did I want to say, something else that I'm spacing on right now. Oh, yes, if I refer to guidance, it's as of the time we gave it on May 10 on our first quarter call. Just a quick positioning of the company today. We reported first quarter results last month that I thought put us very much on track for our 2023 expectations, but also our progress toward Vision 2025. Specifically, on the commercial side, we saw really good growth in Xywav, both in narcolepsy, where we added 500 new patients, despite the availability of an authorized generic to our older Xyrem product. So that was 49% year-over-year growth in Xywav, which also was helped by continued growth in our newer indication, idiopathic hypersomnia. On Epidiolex, we saw 20% year-over-year growth. And in oncology, we saw great growth, putting us on track for the midpoint of our guidance at $1 billion in revenue for 2023. That's led by Rylaze, which grew more than 50% year-over-year, as well as continued growth in Zepzelca. So really good performance across our commercial portfolio. On the R&D side, we're coming up on some late-stage data readouts over 2023 and 2024, that are pretty exciting, including, in particular, in PTSD, where we're expecting data by the end of the year on JZP150. In essential tremor, we're seeing data first half of next year on JZP385, suvecaltamide. And then we're also expecting data next year in gastric/GEA for zanidatamab. We're also expecting to complete enrollment in our front-line small cell lung cancer trial in Zepzelca in combination with Tecentriq. So lots coming up on the R&D side as well. And then financially, the company is in really strong shape, ending the first quarter with $1.2 billion in cash, an undrawn $500 million revolver, $320 million in operating cash flow, having delevered very quickly ahead of target post the GW deal at 2.6x leverage at the end of the first quarter. So if I put that in context, we're on track, we think, to achieve our Vision 2025 objectives, which were $5 billion in revenue with a pipeline that could produce 5 new compounds on market by the end of the decade and a 5-point operating margin improvement between the year prior to Vision 2025, which was 2021, and 2025 moving from 43% to 48%. So we feel like we're very much on track for that $5 billion, $2 billion coming from oxybate, a durable franchise, plus Epidiolex and oncology together coming in at $2.5 billion, with more than $1 billion from each of those 2, as well as $500 million as a placeholder for things coming out of our pipeline for corporate development. We expect to continue to be busy on the corporate development side. Again, particularly with our financial strength, we would anticipate we would do a more sizable transaction at some point over the next couple of years. I'm not saying we need to do it, but our track record is we've done something significant every 2 or 3 years for the past 12 years. I would expect this period would be no different. And that gives us the ability to continue to round out our commercial portfolio, our R&D pipeline, and put capital to good use in our operations in corporate development and potentially even in stock repurchases now that we've delevered as far as we have. So I'll end my soliloquy there and happy to take questions.

That's great. So maybe let's start at that high level at Vision 2025. So you discussed like kind of progress you've made, which is obviously interesting. Kind of, I would say today, where do you think is the main focal point between the revenue target, the new drug launch target and kind of margin improvement? Where is the real focus of Jazz today?

So I would say the real focus of Jazz is on all 3. The real focus of investors by the questions we're getting is primarily on the first of the 3. We're getting more and more questions about our pipeline now I think as it comes into focus, as people recognize the upcoming milestones we have is we have some significant data presentations as we had at ASCO in Chicago just a few weeks ago with a best of ASCO presentation on zanidatamab. So we're getting more questions on pipeline, but historically, the focus has been how are you navigating oxybate through a critical period? How is idiopathic hypersomnia growing? What's the continued growth in Epidiolex? And tell me about your prospects in oncology?

Yes. That's a great setup for a lot of the questions coming. So yes, maybe let's start with the oxybate franchise. So really, obviously, you mentioned the beginning of authorized generics earlier this year. How are you looking at that market evolving, both in terms of Xyrem, but also on hand Xywav as well?

Kim, do you want to take that?

Yes, sure. So I'll start by saying we remain confident in the durability of the oxybate franchise given that we've established low sodium Xywav as the treatment of choice among oxybates. And if you look back at the fourth quarter, we established Xywav now as our largest product by net sales, and it's annualizing at $1 billion a year. We expect that the AG product will compete in the high sodium oxybate market. And we've been competing in this market for 2.5 years now. We've basically been competing against Xyrem and had quite a bit of success in terms of patients being converted over from high sodium Xyrem to low sodium Xywav. And if you look at the first quarter of this year and some of the numbers that Bruce was just talking about, we were quite pleased to see that in the narcolepsy market, we added another incremental 500 active patients for Xywav in narcolepsy, which is the same incremental number that we'd have in the 5 preceding quarters. So with the first month that the AG was on the market, we did not see a slowdown in terms of conversions of patients from high sodium Xyrem to Xywav, and we still see in our data that the vast majority of patients that are new to oxybate therapy in the first quarter were being started on Xywav. So we think that really bodes well for us in terms of having established low sodium is the way to treat patients in this market moving forward.

Maybe following on that, Kim, how do you think about the split between conversion of patients from high sodium Xyrem to Xywav, which one could argue you'll reach a steady same point where you've achieved conversion versus capture the incident population on to Xywav versus Xyrem, which is going to be relatively renewing over time?

Yes. So you can imagine over time, in the beginning, the vast majority of the opportunity was in terms of converting patients. I think we hit a point where I will just say for some time now, both opportunities, both the new patient starts and the patient transitions have become quite meaningful in contributing to the growth that we're seeing there. And then as you can expect, the more that we convert over time, the new patients will really be where most of the opportunity is coming from.

Okay. So then kind of following from that, how should investors think about the Xywav trajectory on the forward in narcolepsy?

Sure. So I'll say that we reaffirmed our guidance during the first quarter earnings call as a company overall. And specifically in neurosciences, where our guidance is inclusive of both our growth expectations for Xywav and Epidiolex, it does also account for our expectation that Xyrem will continue to decline both as a result of the success that we're having in converting patients to Xywav as well as the anticipation we had this year and doing those forecasts of having multiple high sodium entrants into the market, both multiple AGs as well as now a branded fixed dose, high sodium product available imminently.

Yes. So kind of following from that, to what extent do you think kind of Xyrem within the umbrella of Jazz will be relevant in the future? Or should really most of the focus in narcolepsy be on your Xywav product versus kind of the royalty that comes off the AGs?

Yes. I think strategically, we're focused on Xywav growth, both in narcolepsy and in idiopathic hypersomnia. The split over time between Xyrem -- AG Xyrem or other high sodium products is less important to our future. I understand there's some economic difference there, but the focus of our long-term growth is narcolepsy and idiopathic hypersomnia with the low sodium product.

Great. So maybe following on something Kim mentioned about kind of competitive dynamics. How do you think about the potential of the like once-daily Avadel oxybate product relative to both high sodium Xyrem and low sodium Xywav?

Yes. Again, I'll focus my comments more on Xywav since that's a strategically important part of our business. As a reminder, the FDA still recognizes orphan drug exclusivity for Xywav through 2027. And they do that relative to Xyrem because of the reduced sodium and are finding that, that results in a safer product and a product that can be expected to have lower cardiovascular morbidity in a substantial portion of patients. With the approval of another high sodium product, FDA, again, recognizes that, that sodium, which is exactly the same between FT218 gram for gram and Xyrem, again, should result in a clinically meaningful difference in the products on the basis of that lower sodium in all narcolepsy patients, and that Xywav should be safer than FT218 in all such patients. Xywav is also the only oxybate product that doesn't have precautions and warnings related to high sodium intake. And the variable dosing, the flexible dosing of Xywav allows for some individualization of therapy that can be clinically useful given a patient's unique characteristics. So we continue to feel that Xywav will be the product of choice. And our data that we've been presenting continues to demonstrate that, that sodium difference has real consequences for patients.

Great. So thinking more generally about the narcolepsy pipeline, both internally at Jazz and more broadly, there's been a lot of chatter about the orexin space, kind of the rise and fall and rise again of orexins in the narcolepsy opportunity. How are you guys thinking about orexin today? And how are you thinking about the existing landscape and your place in it?

Kelvin?

Yes. I mean I think you said it really well. There's been a lot of chatter about orexin agonism and it's a very exciting area of sleep research. Taking a step back, I think we would say we would predict that orexin agonism will be complementary to the way that physicians are treating their patients with an oxybate therapy as well. So you remember, we initiated a comprehensive Phase I program at the end of Q4 2022. And that Phase I program looking at safety, efficacy, PK and PD is going to help us to really characterize the profile of JZP441. JZP441 is Jazz's orexin-2 receptor agonist, highly selective potent activity. So we're working through our Phase I program, and we expect to get initial proof-of-concept data this year. Our program is looking at healthy volunteers who are sleep deprived. And we believe that's going to be a really informative model to help us really understand how we progress through to the next stage. So very exciting program.

I guess kind of to that end, what are you monitoring among the other orexin programs that are out there that have data coming kind of in the roughly same cadence of time?

Yes. So I think everyone is watching the space very carefully. As you said, it's a very competitive space. There's been a lot of chatter, for example, around safety profiles, around specifically toxicity. What I would share is we looked very carefully at JZP441 when we did our diligence. And one of the characteristics that we felt was very compelling was the lack of any evidence of hepatotoxicity. Now it's in the early stages of development, we get that. And so it's an area that just like we would with any asset, we'll look for safety profile. But it's something that we're not seeing certainly in any of the existing data or to date. So we remain confident about our program. We're moving forward. And as I said, this year, we expect to get initial proof-of-concept data, which I think will be very informative.

Okay. Maybe let's move from narcolepsy, but stay with oxybate and think about the launch of Xywav in idiopathic hypersomnia. So how should we be thinking about that in terms of kind of forward kinetics and then the eventual long-term market opportunity?

Yes, sure. So we've been 6 quarters on the market now. And to date, we had, exiting the first quarter, 2,000 patients that were active on Xywav for idiopathic hypersomnia. So we're very pleased with that and look at that as compelling growth that we've had in that new opportunity for us. And as we look forward, we really see nothing but positive signals and opportunity. What we're hearing in terms of feedback from the marketplace is that among those health care providers, the sleep specialists that have tried Xywav for idiopathic hypersomnia, that they report back to us that it is performing in line with what the Phase III clinical trial would have led them to believe and that these Phase III clinical trial results were more positive than they had anticipated them to be. So very positive feedback on that front. And we've got a quantitative survey now that shows that among sleep specialists, 70% of them indicate that they intend to use more Xywav in idiopathic hypersomnia in the next 6 months. So very positive feedback, very positive intentions, as well positive feedback in terms of the path to getting patients on access support services and so forth. So real positive indicators for the future. That being said, we keep reminding people that this market basically had been nonexistent. We are the first product that has been clinically studied and FDA approved in the condition of idiopathic hypersomnia. So we really are building this market from scratch just as we did in narcolepsy many years ago. And while there are many patients out there, we talk about 37,000 patients that are diagnosed and actively seeking health care for their idiopathic hypersomnia, as we can see in the claim systems. Physicians have not had anything to treat this condition before other than off-label usage of wake-promoting agents and stimulants that really only treat the single daytime symptom of excessive daytime sleepiness and only so well. So that's all they've really been thinking about in terms of IH to date is that EDS, and we have the opportunity to educate them to think more holistically about the condition, and remind them that this is a 24-hour condition that has multiple symptoms, including patients having extreme difficulty waking up in the morning, what we call sleep inertia. It can take them a couple of hours to get up and get going in the morning with assistance from others, that they have brain fog, that they take naps, but they report that they're unrefreshing, don't do anything for them. So trying to paint that picture to them holistically of the condition and remind them that Xywav is not just indicated for excessive daytime sleepiness. It was studied and indicated and proven in idiopathic hypersomnia as a whole and the full breadth of symptoms. So lots of reasons to be very positive and optimistic about the future opportunity here. We think we've got a real nice growth trajectory ahead, but we also are being a bit realistic here about this being a market build opportunity and taking some education to get there.

Maybe kind of following from that, how should we think about kind of maybe a couple of years down the line, the kind of polypharmacy strategy that we've seen in narcolepsy, how much that can translate in idiopathic hypersomnia as well that potentially other agents come on with different mechanisms of action, actually orthogonal mechanisms of action that kind of a rising tide lifts all boats in terms of patient involvement with therapeutic intervention.

So I think it's likely that you're going to see use of daytime agents along with oxybate continue. That's certainly what we see in narcolepsy. The difference is those agents have not shown themselves to be as efficacious in IH. They're still used. So people seek additional benefit during the day. We certainly saw that in our clinical trials, although the patients using those daytime agents still scored very poorly on the measures coming in, in terms of symptom relief. So I think it's likely. We'll wait to see for the agents that are being specifically studied in IH, how they perform, but I think you can see that polypharmacy approach.

Okay. So maybe shifting gears entirely off oxybate on to other neuroscience, so let's talk about Epidiolex a little bit. If we can get a little update on the progress with the kind of the commercialization of Epidiolex, both how it's used in monotherapy in the treatment paradigm, and more importantly, in combination with other agents in epilepsy.

Yes. So in the first quarter, we saw 20% year-over-year growth with Epidiolex. So we're very pleased that we've got this on a nice healthy growth trajectory, and we really think this is due to a number of opportunities that we've been working on, and we'll continue to see growth opportunities in, not only in terms of that we're finally, after post-COVID in the last year, be able to get in and talk to customers on a more regular basis and have deeper conversations, but our conversations really are focused around a number of places. One is around efficacy. And we've got 2 data sets that are helping us further strengthen the efficacy proposition in the minds of the health care provider. And that is data that we have that shows that when you utilize Epidiolex in combination with clobazam, which the vast majority of their patients are already taking, that you can get a 60% reduction in seizures in patients with LGS and Dravet syndrome and 50% in TSC. So these are seizure reduction numbers, unlike anything they normally see in this space and really do give them pause and get them to think about utilizing this product earlier in the treatment regimen and more broadly than they're using it today. The other efficacy data we've been out focusing on is beyond seizure, what we call beyond seizure benefits, that the health care providers have been hearing about really since the launch of Epidiolex from the caregiver. We went out and did a caregiver survey that showed that not only did the caregiver report that their loved one they're caring for saw a reduction in seizures, but they also reported improvements in behavior and cognition, multiple endpoints there. So this is something that is unique to Epidiolex that HCPs will tell us is very important to them, very important to the caregiver and not something that they see with other AEDs. So a very big opportunity for us to continue to leverage that data and we think helping to drive the growth. A couple of other areas that we are focusing on to drive growth have to do with optimization of the dosing. We think there's an opportunity for health care providers, both in the U.S. and especially outside the U.S., to try titrate up more to a more optimal dose. So we're educating around that. The clobazam combination data helps us do that. They can see that dose response and that data and they find that impressive. We are looking at the adult market is driving perhaps some incremental growth. We've had nice penetration, both in pediatrics and adults. But many of these adults, in particular in the U.S. live in long-term care facilities and those facilities were slower to open up post COVID than the health care provider offices. So we've been, in recent months, seeing nice growth there and expect continued growth there in the adult segment. And then lastly, we continue to get approvals and reimbursements outside of the U.S. The ex-U.S. is further behind the U.S. We've got all 5 major markets in Europe now fully approved and fully reimbursed and are continuing to look for other opportunities in other markets such as Japan. So lots of reason to feel that we will absolutely achieve blockbuster status globally with this product.

Interesting. So maybe shifting gears entirely and go to oncology, the side of the coin, so to speak. So I think we'll start with the Rylaze where I'll say that I think I think collectively, we've been very surprised and impressed by the kind of progress made with that franchise, certainly relative to Erwinaze. And so how are you guys thinking about growth of Rylaze both kind of more proximally in the coming year and on a long-term basis, and some version of like how much bigger can Rylaze get relative to what we've seen with Erwinaze?

Yes. So we are very happy with the penetration and uptake of Rylaze in this marketplace. We have had very positive feedback from customers about the fact that it is able to maintain a clinically meaningful level of asparaginase throughout the dosing period. They're happy that we've brought to market on a Monday, Wednesday, Friday dose. That dose is not necessarily going to drive incremental revenue for us, but it is the preferred dosing regimen of many of our health care providers and institutions. So they're very pleased that we've brought that. But most importantly, a lot of the growth is driven by the fact that this product is not supply constrained. And the customers are now feeling much more confident about really going after identification of these hypersensitivity responses and switching the patient at the first sign of a hypersensitivity response. It's been incorporated as a result of their experience with it and their confidence in the supply into all of the pediatric protocols at this point in time. And we're seeing nice growth and penetration even into the adult market, in particular the part of the adult market where the adults -- and yes, adolescents and young adults are treated in pediatric institutions under pediatric protocols. We do believe there is opportunity for Rylaze to grow further and specifically at the start of this year and throughout this year, we're focusing shifting a little bit more towards that adolescent and young adult market, particularly those institutions that are not operating off of pediatric protocols and trying to drive greater understanding of hypersensitivity responses and education about Rylaze in those institutions.

And I'll just add, we've got an application pending in Europe. We think that approval could come later this year. And in addition to supply constraint, really short-changing optimal treatment of pediatric and AYA patients, as Kim described, we turned off all our asparaginase-related research efforts during those years of shortage. We now have the ability to explore, and this will be longer term, but explore potential other uses of Rylaze beyond just ALL.

Interesting. So maybe shifting beyond Rylaze in oncology. Obviously, you all have had one of the big transactions over the last 6 to 9 months has been the zanidatamab license from Zymeworks. And you guys recently presented data at ASCO on the kind of first big randomized controlled trial in that set. So can you talk about kind of that data you presented at ASCO? And I guess what a lot of questions we are getting are, what is the next step? What is the kind of regulatory process? What will we get kind of more clarity on that front?

Yes. So we only just got out of ASCO last week. We were really delighted that the BTC Horizon study was selected for an oral presentation, but also for Best of ASCO. The data were very well received. We were very pleased that the impact of the data was really felt across the board. When you think about what that current standard of care is as well, when you compare that to the data we shared, what we saw with zanidatamab was a confirmed objective response rate of 41.3% versus approximately 5% to 15% for the current standard of care, a median PFS of 5.5 months with zanidatamab again versus the current standard of care of 1.4 to 4 months. So there's no question that the data itself had a very big impact. We recognize that it's a relatively small population, about 12,000 patients in Japan, U.S. and Europe diagnosed every year with BTC, HER2 positive. But you're right to ask around what the future looks like as well. So whilst our focus, as of today, we're in dialogue today with the FDA around a pathway for BTC. The opportunity for gastroesophageal adenocarcinoma is a significantly bigger one. We have a frontline study which is currently running for GEA. We expect data from that study to read out in 2024. And with this approach of establishing BTC first, that could potentially lead to an accelerated approval, could potentially lead to an SBLA for the bigger opportunity, which is in GEA. And we're thinking around -- I think our estimates are around 63,000 patients per annum who could be potentially impacted by a HER2 positive gastroesophageal adenocarcinoma. If I just finish on just one final point. I think what's really exciting for us is that we believe that zanidatamab as a highly differentiated bispecific antibody targeting HER2-positive tumors has the potential to transform this market. And that's because we know from our earlier data that zanidatamab is effective in monotherapy in combination with chemotherapy, also across a number of different tumors expressing HER2-positive biomarkers and that in itself means that the opportunity outside of BTC, GEA is much bigger as well. And so we're thinking, for example, breast cancer. We have a collaboration ongoing with the I-SPY network looking at neoadjuvant treatments of locally advanced breast cancer, but also in other tumors as well. So there is, as you were describing, a big opportunity for us to go out there.

I would just add, Kelvin, you emphasized the efficacy side of the equation on BTC presentation. I'll also say the AE information, both of our agents and other agents, we're taking a look at too. I think there's an excellent profile here.

So maybe a follow-up. I'll briefly ask about kind of thinking about competitive position is this small drug you've probably never heard of called Enhertu that takes up a lot of oxygen in the HER2 landscape. So how do you think of where your drug fits in relative to that and other kind of next-generation HER2 agents?

Yes, I mean, that's a great question. There's no doubt that there's been a lot of chatter as well around that. We looked at that data. Again, it hasn't really changed our positioning around where do we think our plan is? How are we progressing through that? What I would say is, you've got to be careful when you look at those trials. There are significant differences. One is a pan-tumor trial. I was specifically looking at HER2-positive BTC. Theirs for BTC was a much smaller population. I think about 41 patients versus our 80 patients in our BTC Horizon study. And the final thing is, again, whilst there are limitations in cross-trial comparisons for the DESTINY-PanTumor trial, their objective response rate was about 22% for BTC, and we were seeing 41.3% for zanidatamab. So all of those things are positive. We see that the market is clearly thinking about therapies that have actionable biomarkers to address. But from our perspective, it hasn't really changed our plans. We have a clear plan, and we think there's still a very clear path forward for us.

Great. So maybe stepping back and thinking about corporate development, which Bruce mentioned at the beginning, what is that landscape looking like for you all today? And where do you think Jazz's strategy is going to be probably in the next couple of years on that front?

Well, corporate development has long been a major pillar of our strategy. We generate a lot of cash flow. We've shown an ability to invest that cash flow to broaden our commercial portfolio, to add interesting R&D assets. Last year alone, we did the Werewolf deal that should lead to an IND this year. We did the orexin agonist deal that Kelvin was talking about, and we did the zanidatamab deal. But we now have the opportunity to do, given our improved financial condition, is consider larger deals, again, that could contribute to our Vision 2025 revenue goal, that could contribute to our goal in Vision 2025 of bringing additional molecules all the way through to the marketplace, and continue to broaden the business. Our strategy is to always be looking at a deal dashboard that includes neuroscience and oncology assets. Occasionally, we also look at assets that would be outside neuroscience and oncology, but would fit with our expertise in rare disease, either clinical development, regulatory strategy or commercial strategy, and to look at opportunities from on market or near market all the way back to earlier development or preclinical. And so by having that wider set of assets under surveillance, we found that over time, we can consistently identify opportunities to put our capital to good use with good return opportunities that really fit with our strategy and continue to advance our goal of being sustainably growing over a long period of time.

Okay. So last question, the question we ask every company at the conference is, what is the reason to own Jazz stock in the next 12 months?

Yes. So we're going through a critical period as a company demonstrating that the commercial assets we have, have good growth and good durability while we unveil a later-stage pipeline with near-term data readouts. That is not a situation that has existed in this company for many years. We're really proud of where we are as a company in terms of the investments we're making. So it's a good time to watch us perform and we think we'll unlock a lot of value, including on the pipeline readouts over the course of 2023.

Great. Well, thanks so much, Jazz team, for joining us. Good to catch up with you guys ahead of, as you said, an interesting crossroad. So look forward to hearing what's next.

All right. Thank you.

Thanks.

Thank you.