Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Next presenting company. I'm Charles Duncan. I'm a Biotech Analyst with Cantor. And it's a pleasure to introduce Jazz Pharmaceuticals, who's going to present at the Cantor 2023 Global Healthcare Conference. Jazz Pharmaceuticals is a company I've known for a long time. But I only recently had an opportunity to take over coverage. And so it's an exciting time for this company that I've previously known as a neuro innovator, but it clearly has a very interesting oncology pipeline as well. So it's a pleasure to introduce Bruce Cozadd the company's Chairman and CEO, Bruce. Nice to see you. Thanks for coming. Robert Iannone, the company's Global Head of R&D, Rob, nice to see you. And Kim Sablich, the company's EVP and GM. So sorry for the delay. I had to run upstairs and grab a tylenol, but with that, we'll have Bruce give us an overview on Jazz, and then I'll pepper him with a few questions. Bob?

Awesome. And Charles, thanks for the introduction. I'm glad to be here at your conference. Just a few opening words about Jazz, and I'm going to have Rob help me out on a couple of R&D highlights before we get to Q&A. I need to go through my disclaimers. I will make forward-looking statements it would be a boring conversation, if I didn't. So see the risk factors in our SEC filings. If I refer to guidance, it's as of the time we gave it when we reported the second quarter on August 9. And if I refer to non-GAAP financial measures, we always provide a full reconciliation to GAAP on our website. So see that. So we just reported what I thought were really exciting financial results and operating updates for our second quarter last month, led by double-digit growth in our 3 core growth assets Xywav, Epidiolex and Rylaze. It's amazing to think about the transformation of our business over just the last couple of years. And Charles, you mentioned, you've been following the company for a while. In 2020, 75% of our revenues came from one product, Xyrem, and the total revenues were about $2.5 billion. Fast forward to now, and you see that 66% of our revenues are coming from these 3 new growth drivers, Xywav, Epidiolex and Rylaze are all growing nicely. So the top line has really diversified over this period and of course, our revenue guidance for this year at the midpoint is now up at the $3.8 billion level. And as excited as I am about our commercial performance, I'm going to talk a little bit about that I'm equally excited about what we're doing on the R&D side, and I'll have Rob comment on that in a minute. But just clicking through to the commercial side, our oxybate franchise continues to grow led by Xywav. Xywav was up 39% second quarter over second quarter are showing really great growth, both in narcolepsy and a newer market opportunity, idiopathic hypersomnias. People understand the importance of low sodium for a chronic therapy in this at-risk population. So very excited about what's going on with oxybate and continue to be confident that this is a durable franchise that we've estimated will contribute about $2 billion in revenue toward our Vision 2025. Also really excited by what we're seeing with Epidiolex, both growth in the U.S. and growth outside the U.S., up 15% second quarter over second quarter. And we think solidly on track to become a blockbuster product. Rylaze grew 39% second quarter over second quarter, leading growth in our oncology portfolio with a midpoint for the portfolio at $1 billion for this year, again, well on track to be north of what we had said at the beginning of 2022 would be $1 billion or more in 2025. We think Epidiolex and oncology together will contribute about $2.5 billion in the future. So really great performance across the commercial portfolio and poised for what we think is continuing growth. I mentioned R&D in my intro real transformation in our R&D efforts and capabilities over the last few years. And now we're going to, we think, realize the fruit of some of those investments as we come up on some late-stage data readouts. And Rob, maybe you could summarize those.

Happy to. So I would focus your attention on 4 upcoming near-term late-stage readouts that we think address significant unmet patient needs, medical needs as well as a significant market opportunity. In this order, I would start with JZP-150 which is our FAAH inhibitor, fatty acid amide hydrolase inhibitor. We have an ongoing proof-of-concept study in PTSD. And we expect that readout by the end of the year. For JZP-385, which is our Cav III inhibitor -- sorry Cav3 modulator, I should say, to be precise. It's a state-dependent modulator of calcium-ion channels, which we know to be important in tremor networks. This is a trial that is a Phase IIb, it evaluates 3 different dose levels. With a placebo control and could serve as one of our pivotal trials, and we're expecting that data readout to be first half of next year. Next is Zanidatamab, and I would start by just describing what I think is a highly differentiated mechanism of action, which we believe makes it the best-in-class anti-HER2 antibody. And what differentiates it from the other HER2 antibodies is something called biparatopic binding. So it's a bispecific, each of the epitopes of the bispecific antibody bind to different parts of the HER2 receptor. But because of the proximity, they must find different receptors rather than on the same receptor and it causes receptor clustering. That causes internalization and interruption of the growth signaling through that pathway. It also triggers an immune response that includes ADCC, CDC and phagocytosis. Because of that, we think it's highly differentiated and even works, when patients have failed other HER2 therapies and we have preclinical and clinical data to show that. Our fast-to-market strategy is with biliary tract cancer using data that we have in hand that we think will support an accelerated approval. As a confirmatory trial, we're putting in place a front line, that will be second line BTC. We're putting in place a frontline BTC trial that would serve as confirmatory, but also expand the BTC market. We also have an ongoing Phase III frontline gastroesophageal adenocarcinoma trial that is well underway, and we expect the data read out by end of next year, and that would be our second larger market entry. Again, because of the differentiation here, we actually think we have significant life cycle management for this molecule. We've initiated early stage breast cancer trials, one through a cooperative group called I-SPY, and we're also planning late-stage refractory breast cancer trials one in HER2-positive patients, another in patients, who co-express HER2 and estrogen receptor. And that later trial will be a chemotherapy-free regimen based on data we've already published in a preliminary study. We also think beyond there are other tumor types that we've been evaluating could be addressed given the differentiation, even tumor types, where Herceptin wasn't particularly active, but are known to over-express HER2. So all total, we're envisioning this as being up to a $2 billion market opportunity. Very excited about a near-term data readout with Zepzelca. This is our drug that's approved in second line small cell lung cancer. We have a collaboration with Genentech in frontline, and that trial is progressing very well, where we expect to have a data readout as early as next year. And this would help move Zepzelca into the frontline, accessing more patients for a longer duration of therapy. And we think the rationale for doing this study is very strong because it's switch maintenance, when patients can no longer tolerate their standard chemotherapy rather than wait for progression, they switch over to Zepzelca, and that's given in combination with the Atezolizumab, the PD-L1 inhibitor. The comparison is no additional therapy. So it's in very low bar to beat. And then lastly, I would also mention the Orexin program, which is much earlier in development, but very important given the relevance of its mechanism to narcolepsy and the importance of narcolepsy to Jazz. And we've said that we would have proof-of-concept in healthy volunteers by the end of the year. Hope we are reiterating that. And we're adding that we think that the healthy -- the 2 healthy volunteers, single dose and multiple dose studies that we have ongoing will set us up for a more accelerated path potentially in multiple-dose patient studies.

All right. Thanks, Rob. I'll just conclude by saying in addition to our commercial portfolio and our R&D portfolio, we remain interested in ongoing corporate development, the company is doing well. Financially, we have $617 million in cash flow from operations in the first 6 months of the year, ended the quarter with $1.4 billion in cash and an undrawn $500 million revolver. So we certainly have the capacity to continue to invest in additions to our commercial portfolio and our R&D portfolio going forward. We're active in looking at neuroscience and oncology opportunities as well as some opportunities outside those areas that would build on our rare disease expertise. But again, really excited about continuing our progress to achieve Vision 2025.

Fabulous.

Hopefully, we left you some room for questions.

You have? Well, I've got plenty. So -- and I'm long-winded as some people know. So we can go for the next hour. Fabulous uncommon growth story, uncommon because of both leveraging opportunities in neuro as well as oncology. And I think some people like that. They like that you have a diversification of risk. But if you had to say what are the -- what's the majority of questions that you get from investors? Is it 1 or the other? Or is it on the commercial -- what -- what do you think is the greatest source market and efficiency on Jazz?

Those may be 2 different questions. What do we get the most questions on and what's the biggest disconnect. What we get the most questions on has changed dramatically over just the past 12 months. It used to be all oxybate all the time, and I'm not saying we don't get questions on oxybate anymore. But with the diversification, the multiple growth drivers I think people are able to look more into the future. And so we're starting to get more and more questions about the R&D pipeline. And then in terms of do we get more questions on neuro or oncology, with oncology hitting at the midpoint of our guidance, some $1 billion in revenue this year before we add in the zanidatamab opportunity, which, as Rob said, we see as a multibillion-dollar opportunity. I would say we're starting to get more and more questions about oncology. In terms of where the disconnect is, I still think there are people that are only focused on oxybate and are missing the epilepsy growth, the oncology growth and the upcoming pipeline and then people always find it hard to model in a deal you have not yet done, and I understand that. But the company has a track record of doing a significant transaction every 2 or 3 years for the past 12 or 13 years, I think it would be overly conservative to assume we're going to let cash pile up and not do anything to continue adding things to our portfolio. And if you rewound a couple of years and ask how do I model Jazz? You wouldn't have modeled Zepzelca. That wasn't in there. You wouldn't have modeled zanidatamab. You wouldn't have modeled our acquisition of GW. So expect there'll be more to come because of the financial strength of the company.

Yes. And the market, Bruce, I can imagine that the current capital market -- state of capital markets may present some interesting value opportunities.

Yes. I mean when we go through periods where all companies seem to be able to raise capital almost effortlessly, sometimes those companies are not as interested in partnerships, collaborations or potential acquisition that tends to change, when the capital markets get a little tougher. I personally love the cyclicality of this because I like it when we go through years, where people raise lots of money and invest in innovation.

Sure.

Because that innovation then becomes our hunting ground for things we might want to add to our portfolio.

Yes. And then on the downslope, they become more value-oriented and understanding of that and the value that you bring to the pipeline. So here's a question you won't answer, but I'm going to ask it anyway. If you had a favorite area, neurology or oncology in terms of opportunity set or maybe rare, and I'm not sure that's a distinction. But if you're targeting the next acquisition, where would you point us to?

Well, you said I wasn't going to answer the question. We intentionally always.

But I want to hear your thinking.

We intentionally always look at both areas because areas get hot and cool down, much like the capital markets at different times. We went through a period, where it felt like all oncology assets were priced for perfection. It's a little hard to see how you're going to add value, but that changes. So we always want to be looking at both -- and over the years, I will say every time we do a neuroscience deal, people say, "Oh, so your focus is just on neuroscience. " And then we do an oncology deal and they say, "Oh, your focus is just on oncology. " It's squarely on both, and we think that's an advantage.

So if we can bring Rob into the conversation, I'm going to ask him this a similarly difficult question. And that is, who's your favorite? You pointed to 4 potential readouts in a reasonable time frame. If you had to think about risk and conviction, et cetera, which is a question I'm asked all the time, so that's why I'm asking you -- do you have a favorite?

Well, I like the mix that we have because there are some things that are a longer shot, but potentially have a huge impact. So take, for example, our FAAH inhibitor. We had interesting scientific data to support that preclinically the fact that anandamide levels are lower, and we know we can raise them and normalize them. We had some experimental models in humans. We didn't have data directly in PTSD. So that's a little earlier than some of the other things. But if we turn that card over and it's a big impact, it's a very positive effect. The impact that will have on PTSD patients is huge. So riskier very big return. And then on the other side, you have something like zanidatamab. This is a drug and it's up to us to figure out how best it can be used to patients benefit and ultimately to the commercial value to the company. But it is a drug, and we know that it works wherever HER2 is amplified, so very different situation, where established but competitive area where you have to differentiate. I'd like having that mix.

Yes. I figured Zani might be a favorite certainly mechanistically. And the clinical data thus far. Congratulations on that. And GEA huge unmet need -- but before we talk about that, let's talk about a few of the neuro assets because of kind of my orientation. So I apologize if we don't dive deep into Zani, but -- let's talk about JZP-150 and PTSD. As you know, the PTSD market may be evolving, huge unmet need, but there is a thing called MDMA out there. When you think about the risk or the unmet need in PTSD, how do you consider that evolving treatment landscape there?

Well, first of all, it's great to see positive trials coming out in this space because we really need it. It's been many decades, since there's been an approval. And the only approvals are SSRIs, SNRIs, which are not particularly effective to help the PTSD symptoms. They probably treat some of the surrounding anxiety, et cetera. So great to see that. Nonetheless, we still see a continued high unmet need even beyond foreseeable approval, such as the 1 you mentioned, that might be appropriate for a pretty severe population that requires quite a lot of support around administration.

That particular candidate. Yes.

That particular candidate or a combinations of other drugs that have previously been shown to be effective in and of themselves. What got us excited about JZP-150 is the fact that the mechanism might be specifically related to some of the underlying pathophysiology. So the knowledge that the cannabinoid system may be involved in PTSD that PTSD patients tend to have lower levels of anandamide, which is a ligand for CB1 and CB2 receptors. And that you can specifically modulate that. So it's a discretely testable hypothesis that may get at some of the underlying pathophysiology. And again, this is the first proof-of-concept. We don't have data in patients yet, but some of the animal models and some of the experimental models that we've -- in humans that we have seen data on make it encouraging.

Could I, I mean, suggest that, out of any clinical experiment, there's really 3 possible outcomes. It works. It doesn't work or maybe it work, right? So that middle one is where there's often a lot of kind of value to be created because of interpretation of data. Could you see, call it, at works maybe outcome given that it's Phase II being an interesting one that could enable you to move forward?

Sure. And so one of the way that we define how it works is what the registration endpoint is and the trial that we're doing is a placebo-controlled randomized trial with 2 dose levels using CAPS-5s, which would be the registration endpoint, which is very critical to understand the impact on CAPS-5. Having said that, we'll measure other things to understand are there benefits to the patients that go beyond what the clinician is measuring the CAPS-5 versus what the patient would independently report around symptoms that are important to them, even things like sleep, et cetera. And so you could imagine a situation where you have good, but not knock it out of the park CAPS-5 effects, where you still think this is going to be valuable. You look at subsets of patients, maybe there are subsets, where it's working, you think about combinations that could still advance the field. But I think your question points out, it's a little bit early days here, maybe earlier than our essential tremor drug, where we already have clinical data that has sort of made us willing to start that first pivotal trial.

Yes. So that reads out. I'm reading the first half of next year. Correct. Okay. And the mechanism behind that is a calcium channel modulator. How do you achieve selectivity in that particular case state dependent? I know you mentioned but...

Yes. So we do emphasize that because we believe the calcium channels are important in the tremor network and are hyperactive in the neurological tremor networks. In screening multiple drugs, you can identify agents that are more or less active for channels that are either in the resting state or the active state. And we believe we have a modulator that is more active in those calcium-ions that are actively exchanging across the membrane. And what that does is allow you to sort of have potentially a bigger therapeutic index in a pathologic state versus a normal resting state. That could ultimately lead to greater efficacy, if you're able to push the dose. And then the trial that we're doing the Phase IIb trial, we actually have a threefold post range, 10, 20 and 30 milligrams being compared to placebo. And we hope to be able to see that we can push that dose and get a maximal effect.

Any requirement for ongoing monitoring of cardiac function?

Not because we have a specific concern. We actually have quite a bit of data around that just to reassuring. Now we have QTc studies, et cetera. So I would say just routine, but not because there's any particular concern.

So the last area in neuro that I get questions on and I know of or of interest, is the Orexin-2 receptor agonists, I'll call it O2 [indiscernible]. How do you establish clinical proof-of-concept in a normal human volunteer? Can you help us understand that?

So they are very well established models and healthy volunteers, who have been sleep to prime that predict how alerting an agent can be. And this goes back decades. In fact, I did studies with histamine 3 inverse agonist 15 years ago, when I was at Merck. And so it's a well-established model, for which we have benchmarks for just about every learning agent that's out there. And [indiscernible] use similar models in their development program. So there's even an opportunity to benchmark within the class. Because it's so reproducible, it's a nice way to narrow your dose range before you go into patient studies, which, as you know, take longer to recruit, we can get healthy volunteers in about every week to go to another dose level and evaluate this. Essentially, what you do is keep people up all day. You dose them late in the evening and you do something called the maintenance of [ wake caller steps ], which is put them to bed periodically, ask them to stay awake. And typically, at 2 a.m., 4 a.m., 6:00 a.m., people can only stay awake a matter of seconds. And then you can test to see, can you actually normalize that to what it might be for someone, who is well rested during the day. And as soon as they fall sleep, take them back out, keep them awake until the next interval, and it becomes a very good predictor. We're using it to accelerate our drug development, so that when we get to patients, we have a narrower range of doses to be evaluated.

So do you allow for equity analysts to enroll in those.

During earnings season.

During conference prep. Yes. So looking forward to that, 441 from a class that has a history, do you think it will prove to be safe and why?

Well, time will tell. I think it is very early for all the compounds in development. The reason we've been interested enough to develop our own is we do think the mechanism is directly involved in the underlying pathophysiology for NT1 in particular. And NT1, there's a loss of hypocretin, which is the ligand for the Orexin receptors. And so with that loss, you get massive upregulation of Orexin-2 receptors and it becomes a druggable target. And so we think it's directly related to pathophysiology, perhaps less so in NT1 and other sleep disorders, but that pathway is relevant for wake sleep cycles. And so we think it will be alerting across all conditions. So it's better -- it's very relevant to the central pathophysiology. Do we think it will replace Orexins. I mean I certainly don't think so -- sorry, oxybates, thank you. This is a drug that will be given during the day and be washed out at night. We think oxybates play a central role in correcting disruptive nighttime sleep, which then has an important impact during the day. So we think of them as potentially complementary.

Yes. Interesting. So you could imagine a therapy landscape that involves both in the future?

Yes. We've been down this road before even after having oxybate on the market, which we believe is the gold standard for narcolepsy treatment, even Jazz went out and tried to develop a better daytime agent. solriamfetol. Because we believe patients generally use a daytime agent in addition, probably about 80% of patients also use a daytime agent. And we knew they wanted something with more efficacy. We think solriamfetol had some of that more efficacy, but orexin class holds the promise. It's still early of maybe super seeding that and providing an even more optimal combination of therapies.

Interesting. So in the last, well, 0 minutes that we have, I'm going to ask you a last -- 1 last question. If we're sitting here in a year talking, what will you be most proud to talk about? What are you most looking forward to, what card turning over? Anything in particular that you look forward to talking about any here?

Well, I think if we're sitting here in '24, late '24 talking, our Vision 2025 will be just around the corner. But we'll be able to continue to measure that progress. Are we on track for $2 billion in oxybate revenues? Are we on track for $2.5 billion from Epidiolex and oncology together? How are we doing on those late-stage data readouts, what's been pushed forward -- in some cases, even going to market with zanidatamab, will be much more visible to people than it is today. But then we'll also be talking about whatever CorpDev deal we did.

Okay. We did Okay. Very good. Well, thank you for sharing your thoughts on Jazz Pharmaceuticals. Thank you to the audience for your interest and looking forward to that next year.

Yes. Thanks for your attention.