Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Jess Fye. I'm a Senior Biotech Analyst at JPMorgan, and we're continuing the 42nd Annual Healthcare Conference today with Jazz. I'm joined by the company's Chairman and CEO, Bruce Cozadd, who's going to give a presentation. And then we're going to move into Q&A with a couple of other members of management team on stage. If you are in the room and you want to ask a question, you can raise your hand and someone will bring you a mic or you can always use the portal to send me questions on the iPad up here. So with that, let me turn it over to Bruce.

Thank you, Jess, and thank you all for being here. So the 42nd Annual JPMorgan Healthcare Conference, I've only been at the last 33, so I missed a couple, the last 20 representing Jazz Pharmaceuticals. And I have to say, I'm delighted to be here to give you an update on the accomplishments of the company in 2023, but more important, why I'm excited about 2024 and beyond. I will say, thanks to the passion, the innovation, the collaboration, the pursuit of excellence of our talented and dedicated employees around the world, we had a great year in 2023. Helped more patients, achieve record revenues, advanced our pipeline, and I believe position the company for success in 2024 and beyond. This is the slide you've all been waiting for. I promise I'll make some forward-looking statements, but realize those are based on assumptions. For more information about those assumptions, how results could be different, risks and uncertainties, please see the disclosure on this slide or also our SEC filings, including the 8-K we filed this morning. I'll also refer to some non-GAAP financial measures. We always provide a full reconciliation to GAAP in the appendix to our slide deck posted on our website. And if I refer to guidance today, which I will, that guidance is as of the time we delivered it on November 8, unless I explicitly update it, which I will do a couple of times today. So with that, let's dive in. Jazz Pharmaceuticals purpose is to innovate, to transform the lives of patients and their families. And pictured here on this slide as well as several other slides in the presentation, are some of our actual patients who really do inspire the work we do each and every day. On this slide, I've got a couple of catalysts that make me really excited about 2024 and also very confident about our progress toward achieving Vision 2025. And we've highlighted it in three key categories: commercial, pipeline and corporate development. On the commercial side, we do expect our key growth drivers, Xywav, Epidiolex and Rylaze, on a combined basis, to grow double digits in 2024, as they did during 2023. Those products are, of course, on top of other products, legacy products that also have sustainable revenues that are driving financial growth and cash flow. On the pipeline side, multiple near-term catalysts targeting significant market opportunities. And to just highlight one, we're very pleased that we can report we did initiate our rolling BLA submission for Zanidatamab in biliary tract cancer, second-line biliary tract cancer in December. And on the corporate development side, we have the financial strength to transact on assets that will continue our growth and our diversification. And we believe if you look at recent transactions, we're establishing a reputation as a partner of choice. Let's spend a minute on growth and execution. Jazz has a good track record of commercial execution and delivering top line growth. In fact, 2023 represents the 19th consecutive year of revenue growth for the company. Growth, on a compound annual basis, averaged 15% over the past 5 years. And I can confirm today we will meet our previous guidance on total revenues of $3.75 billion to $3.875 billion. We will also meet our specific neuroscience revenue guidance and our oncology revenue guidance. I'm also happy to say, 2024 will be year #20 as we do expect good revenue growth again this year. What's interesting if you look at the growth, what's striking and perhaps underappreciated by the Street is the degree to which we've achieved that growth while rapidly diversifying our revenues. If you look back to just 2018, our $1.9 billion in revenue came almost 75% from 1 product in Xyrem. But through some smart R&D investing, corporate development transactions, we've transformed the business so that in 2023, you can see that virtually half of our revenue comes from our oncology portfolio and Epidiolex, with the rest coming from SLEEP. So over this period, we've built on what's already a successful SLEEP franchise and driven more growth through our diversification. If we zoom in on Vision 2025, of course, we have already set out a target of achieving $5 billion in revenue in 2025. Note that about 40% of that, about $2 billion, is projected to come from our existing SLEEP franchise, led by Xywav. But the rest is projected to come from other products, including oncology, Epidiolex and ongoing corporate development. So this diversification has allowed us to build growth on top of our durable revenues from SLEEP. I mentioned corporate development, and let me point out, I think we've got a good track record of corporate development, having completed 6 revenue-diversifying deals over the past decade, specifically the Azur, EUSA, Gentium, Celator, Zepzelca and GW transactions. Each of which built our capabilities, and together, I think, have positioned us well as a partner of choice. And you'll notice that some of these deals lead naturally to some of our future growth opportunities. That use of transaction way back in 2012 ultimately led us to Rylaze, a very successful product. The Zepzelca transaction in 2019, I believe, helped pave the way for bringing Zanidatamab into the company in 2022. And we remain focused on corporate development, targeting corporate development opportunities to drive top line growth and diversification in our Commercial portfolio, but also layering in additional R&D assets that will help to build our R&D portfolio. 2 years ago at this conference, we rolled out Vision 2025, which remains our road map for creating sustainable growth and enhanced value. And it was built on three strengths of the company: commercial, pipeline and operational excellence. On the commercial side, we've been hard at work executing successful launches. We've got leading franchises in narcolepsy and epilepsy and a growing oncology portfolio. On the pipeline side, we've been able to meaningfully invest in R&D, expand our capabilities and the breadth and depth of our pipeline while entering into strategic R&D collaborations. And on the corporate development side -- I'm sorry, on the operational excellence side, disciplined capital allocation has put us in a strong position. And even in the year after we rolled this out, we improved our margins to the extent that it gave us more flexibility to invest in things that we believe drive growth for the company. And while we remain very focused on Vision 2025, we're also focused on the company of the future and how we continue to innovate to benefit patients and reward our shareholders for entrusting us with the capital we need to innovate for patients. I want to review now areas of the company's operations, starting with our pipeline and R&D. So if you look at our R&D capabilities, they've expanded dramatically over the past few years. And at the same time, we've been adding new programs, programs indicated with a dot on this slide, including a number of mid- and late-stage programs. Given the increased breadth and depth of our pipeline, I think we're very well positioned to achieve our Vision 2025 target of bringing 5 new novel approvals before the end of the decade. And to that end, over the next 18 months, we have a number of key pipeline catalysts, all of which are in significant areas of significant commercial opportunity. Starting with Zanidatamab, I mentioned we did initiate our BLA submission for BTC, we intend to complete that in the first half. And we believe Zanidatamab has the potential to raise the standard of care for the treatment of HER2-expressing tumors. If you look at Zepzelca, Epidiolex and suvecaltamide, these are all clinical trials based on data or proof of concept that gives us a strong rationale for pursuit of these agents in these indications. Let's start with Zanidatamab. Since we brought Zanidatamab into the company, we've rapidly progressed development across indications. And based on the totality of the data we have with Zanidatamab, we are highly confident in this molecule. That data includes demonstrated monotherapy activity, demonstrated activity of the agent in combination, positive early survival data and activity in patients previously treated with other HER2 agents. We've also seen a rapid progression of data readouts since this deal across, again, indications, BTC, GEA and breast cancer, with notable presentations at ASCO GI, ASCO, ESMO and San Antonio Breast. Zanidatamab is a derisked near-term opportunity with more than $2 billion in revenue potential. And our strategy for Zanidatamab does start with BTC, an area of particular unmet patient need. We believe, coming to market in BTC will enable a fast-to-market strategy in other indications, where we can leverage sBLA filings. GEA is next on the list, a substantially larger patient population than we see in BTC. And the near-term driver here is getting to PFS data at the end of this year in our Phase III GEA trial. We have elected to increase the enrollment target for that trial from 714 to 918 to improve statistical power for overall survival. But notably, this maintains the earliest possible time to approval based on that PFS analysis, which is still on the original 714 population. To do that analysis, we obviously need to wait for a certain number of events in the trial, and we will complete full enrollment before we do that analysis. But again, near-term readout in GEA. In breast cancer, we're excited about the opportunities in early stages of the disease and late stages of disease. We're also very excited about the potential for a chemo-free regimen, which we know would be of great value to patients. And we think our inclusion in the I-SPY program and our recent MD Anderson collaboration demonstrates the excitement of breast cancer specialists for this agent. Of course, there are many opportunities beyond these and other HER2-expressing tumors. Zepzelca is a great example of our corporate development process. Since bringing this product in, it's been rapidly accretive, has become the second-line small cell lung cancer treatment of choice and has generated over $820 million in revenue. We expect our Phase III top line progression-free survival readout in extensive-stage first-line small cell lung cancer in combination with Roche's Tecentriq late this year or early next year. And we're confident about this trial, both because of the mechanism of action of Zepzelca, but also the trial design. We're adding to first-line standard of care plus or minus Zepzelca against no active comparator. And the commercial opportunity here is significant. We'd be moving from a second-line patient population into a larger first-line population and with longer duration of therapy. Suvecaltamide represents a near-term data readout in essential tremor. We expect top line data from our Phase IIb essential tremor trial late in the first half. And we're confident about this, too. Based on our learnings from the TCOM study, we were -- got proof of concept and also informed our trial design and patient selection. And there's very high unmet need here, with no new approved essential tremor pharmacotherapy in over 50 years. We have a differentiated mechanism of action here as a highly selective and state-dependent modulator of T-type calcium channels. Beyond some of the later-stage programs I've highlighted, other earlier programs continue to advance, including several differentiated molecules with novel mechanisms of action, including [Audio Gap] our track record of commercial execution and delivering top line growth -- diversified growth. And I've talked about our key growth drivers, Xywav, Epidiolex and Rylaze, which I'll dive into in a few more minutes. But I also want to highlight the blue part of the bar at the top. Our oncology portfolio is on track to be a $1 billion portfolio in 2023, and that's before we add in Zanidatamab, which is a near-term launch with multibillion dollar potential. Let's start with Rylaze, which is a great example of our R&D prowess. We brought this from Phase I initiation to product launch in 2.5 years. And that product launch has been very successful. Freed from the supply constraints of the prior product, we've really generated real value here with over $660 million in revenue since the launch in mid-2021. We see continued strong demand, driven by increased use in the AYA setting, and we do have a dedicated effort to inform prescribers about proper use in adolescent and young adults. We're also seeing good switching to Rylaze at the first sign of hypersensitivity response and due to other treatment-related issues. And we are seeing some first-line use, though that is off-label and not promoted, by treaters who like the short-acting profile of Rylaze relative to other available agents. We've seen significant uptake of our Monday, Wednesday, Friday dosing regimen. And we're now expanding internationally. Having received the European approval last year, we can confirm we did do our first European launch before the end of 2023, and that will continue on a rolling basis in '24. Epidiolex is the growth asset we brought in through the GW acquisition. We said at the time of acquisition, it would be a blockbuster product. We're well on track, annualizing at $850 million or more, based on our most recently reported quarterly results, and having achieved $1.8 billion in revenue since the time of the acquisition in mid-2021. The growth opportunities here are numerous. Treaters are really appreciating with Epidiolex the beyond-seizure benefits, what they're seeing on behavioral and cognitive side. And we're seeing that reflected in some of the data we've presented and other data we're generating. They also appreciate the power of Epidiolex in combination with Clobazam, which really differentiates this from other antiseizure medications. We're delivering programs in education to support optimal dosing, and we're enhancing the focus on additional opportunities in the adult patient setting. There's a geographic expansion potential here, too, with additional launches in Europe and in new indications occurring during 2024. And importantly, we expect top line data in the second half of this year from our pivotal Phase III trial in Dravet, LGS and TSC in Japan. We think this could be a significant commercial opportunity, with about 20,000 patients in Japan across just those three indications. Our success with Xywav reinforces our confidence in the durability of our SLEEP franchise. And we think this really demonstrates our expertise in SLEEP as well. We identified the unmet patient need for a low-sodium product in a chronic therapy. We also identified the opportunity to move into idiopathic hypersomnia, received a quick approval and remain the only approved treatment for idiopathic hypersomnia. And I'll remind you, we're indicated to treat the full condition of IH, not just excessive daytime sleepiness, to include sleep inertia, which has significant impact on patients' quality of life and daily function. And I'll say that benefit of reduced sodium is continuing to resonate with both patients and treaters, both in IH and narcolepsy. So Xywav is doing really well, again, annualizing at $1.3 billion as of the most recent quarter. In addition to that, we do have some continuing Xyrem sales. And importantly, we're announcing today that we do expect royalties from AG Xyrem to exceed $200 million in 2024. Now that reflects the higher royalty rate that kicked in on January 1, and we'll continue for the length of that agreement. And there's continued growth opportunity here. With new prescribers driving demand, we've expanded our salesforce to go even harder after the IH prescriber base. And our recent survey of SLEEP specialists indicates 70% anticipate increasing their use of Xywav for IH. On this slide, I list some of the catalysts across the business that have us so excited about 2024 and 2025. On the Commercial side, I've talked about Epidiolex and Rylaze and Xywav. But remember that Zanidatamab is a near-term launch we estimate in 2025 or earlier. And those pipeline catalysts have highlighted, are going to pile up fast over the next 12 to 18 months, including completing the BLA submission in BTC in the first half of the year, unbinding the suvecaltamide Phase IIb data late in the first half, getting to Japanese pivotal data on Epidiolex in the second half, getting to a progression-free survival data in GEA with Zanidatamab and then the Phase III data in first-line small cell lung cancer combination with Zepzelca at the end of this year or early next year. And beyond the commercial highlights and the pipeline highlights, again, we are active on the corporate development side, where we believe we can continue to add assets that are built on our infrastructure and our expertise to drive additional growth and diversification. All of that's made possible by the financial strength of the company. We ended the third quarter with $1.6 billion in cash, an undrawn $500 million revolver, and we had $925 million in operating cash flow over the first 3 quarters. So we believe we can use that to invest in our commercial growth drivers, to invest in our pipeline and to invest in corporate development to drive growth and build shareholder value. That's why I'm excited about 2024. And with that, we'll open it up for questions. Thank you.

Great. So thanks for the presentation. I want to ask about the increase in enrollment for the HERIZON-GEA study. I think you said it was to improve the [ statistical ] power for overall survival. Can you talk about what triggered that decision and how you're able to maintain timelines?

There's really the opportunity to get that without giving anything else up. So once we had agreement with health authorities that we could maintain our plans for PFS analysis based on the original sample size, we knew we could increase the sample size that would not only improve overall survival, but allow us to build an interim that might even bring that timeline for final [ data in ]. So it felt like a win-win. We certainly knew when we in-licensed the drug that Zymeworks had made a decision to prioritize the timeline to the earliest approval with PFS and had powered OS to a fairly large effect size that was maybe bigger than -- would be needed for a label around OS.

So is that to say that the decision was not based on how you're seeing OS events accruing and more based on the initial powering was...

Definitely not on the basis of anything we're observing from this trial. That's one of the prerequisites for making a change to an ongoing trial that wasn't influenced by anything from the ongoing trial. It was really just an opportunity to increase the probability of overall survival hitting stat [ set ] without having to give up.

Got it.

And that, again -- just so I'm clear about that, oftentimes, there's an expectation that you fully enroll a trial before reading out an endpoint or that the PFS endpoint is based on all of the enrolled patients. Here, FDA and other health authorities are satisfied that it provided -- we fully enrolled the trial. It's okay to look at a subset of patients for PFS. And that's partly because we're so well powered for PFS, it's really to no advantage to accumulate additional patients into that analysis.

Okay. So the number of PFS events you'll be analyzing is unchanged?

Correct.

And is that what triggers the interim that you're now building in for OS?

Essentially. So you want to have an OS interim analysis at the time of the final PFS. And the reason is that the FDA certainly will want to see that there's no detriment to OS, which is unusual, but it occasionally occurs. So you want to be able to show a robust PFS and a trend in the favorable direction for OS to get an approval based on PFS. So that will be the first interim analysis. There will be a final OS analysis. And then there's an opportunity for another interim, which if we see a robust OS effect, which we may well, that actually could bring in the OS timeline in as well that would update the U.S. label and would support pricing globally, et cetera.

Got it. And I guess given the Herceptin [ KEYTRUDA ] data was emerging right around the time this study started, can you talk about how the data that you're going to generate from this trial will position Zani effectively to take share in frontline KEYTRUDA?

So the most clear cut is in the PD-L1 negative patients. KEYTRUDA no longer has an indication for PD-L1 negative patients. And remember, that could be a sizable proportion of patients. What was enrolled in Keynote-811 most likely doesn't represent real world. I think docs are putting their PD-L1 positive patients preferentially on that trial. So that's a sizable proportion of patients whose standard of care will remain Herceptin, chemo. We now have published data last year at ASCO GI frontline single-arm data with Zani and chemo, showing really strong data, including survival trends that would predict success of our own Phase III in that population. And then recently at ESMO with PD-1 combination, [ atezolizumab ], Zani, chemo, similarly high response rates, duration of response that gives you reason to believe in that second arm. So clearly, the PD-L1 negative patients, standard of care remains receptive. In those PD-L1 positive patients where KEYTRUDA is likely to be used, we think that PD-1s are essentially interchangeable. We think that Zani is best-in-class HER2 antagonist. And so there's an opportunity for Zani, atezolizumab, chemo to become the new standard of care in that case, or where docs have the option to make substitutions or other PD-1.

Got it. And I think you talked about a $2 billion -- maybe it was $2 billion-plus potential for Zanidatamab. What indications does that or does that not include? Is that just the PD-L1 negative in GEA plus BTC? Or how do you kind of get there?

Well, certainly, even though small starting with BTC, as Bruce mentioned, we've initiated that submission. We'll complete it at first half of this year. We'll own that space. Our confirmatory trial is frontline, whereas the initial [ rule ] will be second line, so really owning BTC. Gastric is a place where unlike BTC, there has been an approval for HER2 drug, but it's been Herceptin only. And we certainly think that we can displace Herceptin only. So again, we'll own gastric with frontline indication and a life cycle opportunity to go into earlier stages of the disease. A lot of interest with -- amongst KOLs presented to be an early-stage disease because of how well tolerated it is. It's not an ADC, it doesn't carry chemotherapy. And so combines well with other drugs. And so we see owning late-stage as well as early-stage in gastric. And then beyond that, breast cancer is, of course, the place where HER2 therapies were initially developed because of the prevalence. That whole space has been entirely disrupted through an HER2, which is rapidly now in second line, most likely moving to first-line therapy for those patients after an HER2 has not been studied. And most docs will tell you that frontline therapy is not going to become second line because an HER2 is essentially Herceptin with chemo on it, it wouldn't get Herceptin after Herceptin failure. So that space becomes wide open for a drug like Zani, where we've demonstrated activity after even combined Herceptin/[ PERJETA ] after an HER2, will be the first to be evaluating in a pivotal trial, Zanidatamab after failures in HER2. And so it has an opportunity to be relatively early. And remember, that captures the lion's share of metastatic breast cancer patients as these patients do fairly well and can go on to subsequent therapies. So we think breast cancer, in the metastatic setting, is a near-term opportunity. As I mentioned, a lot of interest were in the I-SPY study. We're collaborating with MD Anderson. A lot of interest in early-stage breast cancer, where survival outcomes are great, but the toxicities are really hard to tolerate for patients who have curable disease. So docs very interested in using Zanidatamab to deescalate toxicity in the neoadjuvant and adjuvant setting. So breast cancer now, much larger population of patients that are probably about 150,000, could be in the metastatic setting as well as in the late-stage setting. There are many other HER2-driven tumors, where Herceptin was never approved because Herceptin isn't a particularly good HER2 agent. And so if you compare, for example, BTC, our data with Zani, over 41% response rate, over a 12-month duration of response. Herceptin in that very same setting had low 20% response rate, much shorter duration. So we think many tumor types where HER2 agents weren't aggressively pursued are sort of open for Zanidatamab. We have data in colorectal cancer across many other tumor techs. So we would have an opportunity to get into additional tumor types as well. Even those rare tumor types, which might fall into what FDA would consider a tumor-agnostic basket indication, we would consider. So it's really -- given the differentiated mechanism of action, it's really possible to use this wherever HER2 is amplified or overexpressed.