Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Thank you guys for being here. Pleasure to have Jazz management join us before we kick things off, maybe I'll turn it over to you Renee to get us going.

Sure. Yes, happy to. Thanks for having us and thank you all for joining us. Just a few housekeeping items. We will be making forward-looking statements today. Please see our website and SEC filings for more information about our business. Should we make reference to financial guidance. We're not updating or reiterating today. All of our guidance is as of Q3 earnings call on November 8. And should we make reference to non-GAAP measures. You can find full reconciliations on our website. So turning to the business. I'm quite energized by where we are today. The business has been through a complete transformation over the last several years. In 2020, we had about $2.4 billion in revenues, 75% of that was coming from a single product. Our pipeline was more nascent and R&D capabilities more limited. Looking at where we are today in 2023, the midpoint of our top line revenue guidance is over $3.8 billion. So significant growth over that period of time. And importantly, the composition of that revenue looks very different today. That revenue is coming from a diverse and durable group of commercial products that collectively, when we look at our Q3 results, our collective key growth products increased 24%, Xywav, Rylaze and Epidiolex in the third quarter. So we're quite pleased by the overall execution of our business and what we've been able to accomplish from a commercial perspective that has obviously put us in a strong financial position. We generated over $900 million in cash flow in the first 9 months of the year, ended the quarter with $1.6 billion and a healthy net leverage ratio, which puts us in an ideal position to continue to invest in our business, to invest in growth in our commercial drivers, in our pipeline as well as corporate development, which has been an important pillar of growth and diversification for us over time. We were also able to allocate capital to share repurchases. We repurchased about $175 million of our stock in the second quarter and third quarter. And importantly, that does not limit our ability to keep investing given our financial position. We've also transformed our pipeline and R&D business back in 2020. As I mentioned, we had a more nascent pipeline. We now have full end-to-end capabilities in research and development. We have an early pipeline both internally and with external collaboration partners, and we also are positioned in 2024 to have up to 5 late-stage readouts, which gives us a number of catalysts to be able to look at going forward. And I'd love to have Kelvin just provide an update on the pipeline.

Thank you, Renee. So yes, I agree. I mean, transformation is very much the word that we would describe our R&D organization and capabilities. We have, as Renee was saying up to 5 potential late-stage readouts in 2024. The first will be for JZP150 for the treatment of PTSD and we expect to have top line data in January of '24, having fully enrolled that study. Secondly, JZP385, our treatment for essential tremor. We're expecting top line data from that study in the first half of 2024. And then also from an Epidiolex perspective, we're really pleased on the progress of our frontline -- of our pivotal study that's going on in Japan, where we expect that to read out in the second half of 2024. Turning to our early pipeline, as Renee was saying, we now have expertise from end to end now. We wanted to share some information around JZP441 Novel Orexin-2 receptor agonist. And we're announcing today that we have achieved proof of concept in our healthy volunteer study, which is primarily looking at MWT and determining proof of concept. So whilst we have achieved proof of concept, we're also showing today our decision to OX the 441 program. That's as a result of some emerging information around visual disturbances and some cardiovascular effects that we're seeking to understand and characterize much further. So this is early and emerging data, but we've taken this decision. I remind you that our Orexin programs in general are very much in the early stage, and that's across the board is what we're seeing some of the information from other companies as well. So we will be providing further updates. Don't expect anything too soon as we continue to understand fully and characterize these emerging data that we're seeing for JZP441. But Orexin agonists do remain a focus for us. We do have a backup program in Orexin agonists, and we do have a range of molecules, which are forming part of that backup program. If I would just very quickly then turn to -- back to our late-stage programs. I did want to share also that we have Zepzelca, which is in a frontline study combined with Tecentriq, we expect that study to report our top line data for PFS at the end stage of 2024 or potentially into 2025. But really, the area of greatest focus for us right now is Zanidatamab, probably our most derisked program we've shared before our ambitions about potentially up $2 billion plus in terms of revenue, and we're pleased to announce that we'll be submitting our rolling submission for Zanidatamab in biliary tract cancer second line, seeking an accelerated approval for Zanidatamab in BTC. So we'll submit that rolling BLA before the end of this year. We expect to complete that by the first half of 2024. And importantly for us, we have a late-stage program for Zanidatamab in frontline gastroesophageal adenocarcinoma that study continues to progress well, and we expect to have top line data for that in 2024. So lots to talk about, lots of excitement within our R&D program and happy to take any questions, perhaps get back to.

Yes. Maybe since you talked about an update on the Orexin program, I didn't actually plan on spending too much time there, but let me just close the loop. So you're pausing it but you're not terminating it? I guess you're bringing a backup program forward. Is that effectively what you're communicating?

Phil, would you like to.

Yes. So I would say we're pausing it at this time to further characterize these safety observations that we've seen. I think, as you know, this field is emerging, of course, and it's early days. We're seeing a lot of data at world sleep that would suggest that half-life is going to be important, therapeutic index with regard to on-target toxicity or on target effects versus off-target effects is also going to be important. So I think we just want to further characterize this as we got an additional analysis to do. But things Kelvin did allude to the fact that we have some other compounds that are at much earlier stage, as part of our Orexin overall program. But at this stage, we're not giving an update.

The visual disturbance is probably akin to what [ Alkermes ] reported as well, which was visual blurs on multi-dose but not single dose.

So we're not going to comment on the dose or on competitor data because that's limited, but we've actually entered world steep. I think you're familiar with the same posters and abstracts that we've seen. And it's hard to compare one study with another, but I think we're seeing these defects and we want to understand.

To the extent you're continuing to invest in Orexin, is it reasonable to think you don't believe this is a class effect. It's not because it's a stimulant of sorts, the visual disturbances.

I don't think we know necessarily at that time, and we're not going to comment. I think this is the work that we have to do to further elucidate the mechanism and characterize these effects, both from a nonclinical and clinical perspective, further with additional analyses.

And there was nothing preclinically that will into that. I'm only asking because there's a second program you're moving forward from preclinical?

Yes, I'd say it's very early days, and it's very early in terms of this data emerging. So it does require, as Phil and Kelvin have alluded, it does require additional work. So stay tuned. We will provide an update as appropriate. And I want to also affirm yes, we are pausing. We are not terminating the program, which was a question you asked earlier.

Got it. Okay. Okay. That's super helpful. So maybe stepping out of Orexin for a second. And maybe just actually the last one on Orexin, this ties back to your broader franchise. Do you believe, Renee, and I think this topic has come up previous as well, Orexin are add-ons to an oxybate in terms of treatment paradigm? Or how do you think about that broadly speaking?

Yes. We do think they're complementary to oxybate, would you like to comment further?

Yes. And I'll remind you, the oxybate is the benefit, the clinical benefit is both for the daytime symptoms and the night time symptoms, where is the wake-promoting agents such as the Orexin agonist will be predominantly for the daytime symptoms and taken during the day. So we do see it as a complementary oxybate. And even in today's world with oxybate, the many patients that are taking away promoting agent on top of oxybate therapy. But exceptionally important to understand that this is a 24-hour disease. And with oxybate, we have the ability to have effects on both daytime and nighttime symptoms. It's very much a complementary approach from our perspective.

Got it. Excellent. So maybe stepping back and where I initially intended to start the discussion, which was I know there were some press reports recently around exploring strategic options, perhaps in neuroscience business, separate from the rest of the business, just given the evolving R&D pipeline. How are you thinking about Renee? Is this like Renee is going narrow, and Bruce is going to the rest of the company, like what's going on there?

Yes. So we don't comment on market rumors or speculation, which is what was essentially out in the Bloomberg article. This was not information that we provided. I would say we are highly focused on Vision 2025 and what we've laid out as our strategic objectives, which is growing our revenue, continuing to diversify our revenue. If you look at our Vision 2025 targets, it includes both organic growth as well as potential growth through corporate development. That's been an important pillar for us that if you think about splitting apart of business, that would probably be less diversification versus more diversification. So it's not in line with what we have been stated as our focus. We, of course, will continue to look at all opportunities to optimize our business. And what we think is most appropriate right now is investing in growth, continuing to diversify our business and continuing to invest in the pipeline.

Got it. Okay. Excellent. Maybe tying back to your top line because there's several moving parts heading into 2025. I know consensus tracks a bit below, not dramatically below but a bit below. Is there a very clear disconnect UC where you see an opportunity for clearly performing well ahead of where consensus stands heading into the 2025 number?

Yes. I think that the primary disconnect when you look at consensus versus our targets, is that we are not getting credit for corporate development that has not been completed. And that is not at all a surprise. We laid out a $5 billion revenue expectation comprised of about $4.5 billion of organic growth and a $500 million placeholder for corporate development because we have a track record, a history of doing corporate development transactions that are revenue diversifying and growing in nature in 2020. We closed the Zepzelca transaction that's now annualizing at $300 million. It was a highly accretive transaction for us. And of course, '21 was GW with Epidiolex '22 with Zanidatamab. So if you look at our consensus targets, they're in and around that organic growth target of $4.5 billion, but we're not yet getting credit for transactions that have yet to be completed. So we believe we're on track for $5 billion. We're highly engaged with respect to corporate development transactions. We're also not going to overpay just to complete a corporate development transaction.

Got it. That makes a lot of sense. And as some of these moving parts evolve, the '25 guidance remains intact, and it would move based on anything strategic that does evolve. Is that correct?

Right now, we feel confident in that target. Of course, if we end up completing a transaction that impacts that target, we will update as appropriate, but we feel we're well on track.

Got it. And would you -- Renee from your perspective, is there a preference for clinical stage versus commercial stage? How are you thinking about prioritizing optionalities?

So we are highly focused on commercial-stage assets, but I would also say we've been looking -- continuing to look at clinical stage assets as well. We were thrilled to be able to execute these Zanidatamab in-licensing transaction last year. We think that was an excellent transaction for the company, $50 million upfront with the rest of the upfront being paid more in the form of an option after we have seen data. And as we look at that program now, as you heard from Kelvin, we think that's our largest potential product, our most derisked R&D program and 1 that we're investing heavily in. So we're thrilled to have been able to execute that transaction. We're accelerating and expanding our investment behind the asset. As we've talked about, we think it has $2-plus billion revenue potential and those are the type of transactions we'd also want to continue to do as we look at being able to continue to leverage our commercial footprint to be able to build long-term value.

Excellent. Okay. Makes a lot of sense. Any questions from the audience as we're continuing to move forward here? Okay. So I know another big readout for you. So that was very helpful on the 2024 readouts, but I know the lurbinectedin small cell lung cancer readouts are going to be very, very important. There's a couple of layers to them. The primary endpoint is both PFS and OS, mature OS might take a bit longer. How are you thinking about whether if it hits early on PFS and OS is immature, could that form the basis of submission?

Yes. So we have a number of opportunities to get confirmation and get the accelerated approval, formalized as an approval for Zepzelca. That will be through the confirmatory trial. So there's a second-line confirmatory trial that's being run by PharmaMar, where lurbinectedin will be compared to lurbinectedin plus [ irinotecan ] versus investigator's choice of irinotecan versus topotecan. That study is enrolling well, and we expect -- that we've expected -- we're expecting data from that study in 2025. We haven't disclosed exactly when. But also there's an opportunity in the front line as well. So as we were describing earlier, there's an opportunity for us to move into frontline extensive stage more so lung cancer. That's our collaboration with Roche and Genentech. And we expect that data PFS end of 2024 and beginning of 2025, as you said, [indiscernible] could come soon after. So there's a number of opportunities and shots on go there, and I think it really undermines our confidence or underplays our confidence around Zepzelca and the opportunity to bring that forward.

Got it. Okay. Maybe a bit more specifically. I know there's been a lot of chemo shortage in the marketplace right now. And I realize Zepzelca has a current line of usage based on the existing data, but do you foresee some of that becoming a lot more sticky in light of some of the chemo shortages that have been prevalent.

Yes.

Yes. So absolutely, we've been there for customers, reminding them since the shortage started that Zepzelca can be used in place of rechallenging patients with platinum therapy, and we have seen a number of customers who otherwise would have rechallenged the patient utilize Zepzelca. And we have all along had a number of patient customers who have been doing this and seen a really positive response. At the same time, we've been sharing some data that we haven't shared before our secondary endpoints around OS and PFS in this patient population, which is actually where we see the greatest efficacy in this patient population and they've been very impressed, and we think they're going to see very good results. So combined with the data and then seeing, I think, firsthand, the results you can get in using Zepzelca in this patient population, I can't help but think that some of that business will be sticky over the long term. Similarly, in the community setting, I think we've seen some increased use in the community setting with the profile of the product is quite nice, fits nice there in terms of ease of use, no need for inpatient monitoring of the product. So I think we'll see a little bit of return to practices, but some of that, I think will be sticky over the long term.

Excellent. I know we're past time, so I want to be respectful. Renee, there 1 major thing we should definitely touch upon before we wrap up? I know there's a couple of important readouts next year in the PTSD in essential tremor. But I also know there's some [indiscernible] as well as strategic optionalities all coming into front in to '24. Is there one take-home message you'd leave us with?

Yes. I would say we're very well positioned for both growth in the commercial business, but also a number of value inflection points through those 5 -- up to 5 readouts we've mentioned in 2024. I think of 2024 is the year of the pipeline for Jazz. So we're very excited to be able to get through those readouts. And importantly, we're very well positioned from a financial perspective to optimize that pipeline and be able to create a sustainable business.

Excellent. Fantastic. Thank you so much for making time and looking forward being in touch to lock into '24.

Thank you. Thank you very much.

So good to see you.

Very good to see you.

Thank you.