Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Welcome back, everybody, to our next session. I'm Marc Goodman one of the biopharma analysts. Thanks for joining us. And lucky enough, we have a robust group of people from Jazz Pharmaceuticals public limited Company, which I absolutely love, that it's a public limited company. Renee Gala, who everybody probably knows President, who previously was the CFO and you've been here 5-ish years or whatever. And Abizer Gaslightwala, this went down over here and Obviously, everybody knows Rob, who is the Head of R&D here. And I think people also know P.J. pretty much do. You've been around a while as well. So we got a lot of people, people kind of.

PJ has been here longer than the 3 of us.

I was going to say, like how long have you been at the company?

Since 2004.

That's I was going to say. All right, I figured it was a long time. Well, anyway, thanks, everybody, for joining us. Really appreciate it. And Renee, I'll let you make an opening comment or 2, and we can get going into the Q&A.

Okay. Sure. Great. Well, just as a reminder, we will be making forward-looking statements today. So please see our website and filings for more information about our business. Should we make reference to guidance. We're not updating or reiterating today, this is all as of February 28, our year-end earnings. And you can also find full reconciliations to any non-GAAP measures we may reference on our website. So turning to the business. Now that we got the housekeeping done, 2023 was a year of significant execution for Jazz. We had top and bottom line growth. We generated over $3.8 billion in revenue, had our first $1 billion revenue quarter in the fourth quarter and continue to see that growth primarily driven by our key commercial products of Xywav, Epidiolex and Rylaze. We also have an increasingly diversified revenue base, nearly half of our revenue in 2023, approximately half of our revenue in 2023 was generated from Epidiolex and oncology with oncology now being a $1 billion franchise for us. So a significant transformation of our business. Looking forward to this year in 2024, we recently provided financial guidance, again, looking for top line growth. $4 billion to $4.2 billion of revenue as our total revenue guidance for 2024, about 7% growth at the midpoint. We're looking for double-digit growth with oncology. In 2023, we had 27% combined growth across those key commercial growth drivers of Xywav, Epidiolex and Rylaze and we also expect in 2024, those combined growth drivers to generate double-digit growth for us. Now as we look forward throughout 2024, not only do we expect growth at the top line, but also in neuroscience and oncology. And while we don't provide quarter-to-quarter growth, although Marc, I know you would love to have that guidance. I will just remind you that in the first quarter of every year, we tend to see seasonality, in particular, within our sleep business related to reauthorizations and other primarily health care insurance issues. So we would expect again to see that in the first quarter of this year. As we think about our pipeline, this has become an increasingly important area for us one that we spend a lot of time on. And as we look at 2024, we have a number of meaningful readouts, value potential catalysts ahead of us that we're really excited about. And at the end of this first half, suvecaltamide and essential tremor will read out in the second half of this year, we have Epidiolex in Japan reading out either at the very end of this year or early next year, our first-line study of Zepzelca in combination with Tecentriq and extensive stage first-line small cell lung cancer. And on top of that, we have a number of advancements across Zanidatamab. We just started the first-line BTC study. We started the rolling submission for the BLA in BTC and that should be completed within the first half. And then we're targeting reading out the GEA study, at least the first PFS readout by the end of this year. So a lot of exciting things happening with Zanidatamab. And then importantly, we're well capitalized, $1.6 billion at the end of 2023 in cash. supported by strong cash flow in the business. So we're in a great position to continue to invest in the business, whether that be commercial growth drivers, the robust pipeline that we're looking at or continued corporate development, all of which positions us well for Vision 2025. Back over to you, Marc.

Maybe we can just start with, I think, spending guidance for 2024 was a little bit higher than people were expecting. There's also this 2025 kind of guidance that's sitting out there with respect to margins. And maybe you can just kind of bridge how the company is thinking about those 2 kind of features of spending is a little bit higher versus I think people were expecting a little bit more leverage this year.

Sure. So with respect to our 2024 guidance, we did provide that. And what's embedded in that guidance from an OpEx perspective is continued investment in research and development and continued investment in commercialization of our products. In particular, we are investing a bit more to support our idiopathic hypersomnia indication in Xywav particular growth drivers there with respect to expanding the breadth and depth of our prescribing. That's an important part of the future growth for Xywav. Getting to the operating margin, we have guided to $5 billion of revenue in 2025, $4.5 billion of that coming from our organic growth $500 million as a placeholder related to corporate development and our operating margin target is connected to that broad $5 billion estimate in revenues. Importantly, we're going to continue to invest in growth, and we will continue to look at what is the best way to invest across all of our capital allocation priorities to ensure that we have a sustainable and growing business.

So how should we think about the operating margin next year? Like how should we be thinking about.

So I would say we've provided the operating margin for 2024 as part of our guidance. It equates to roughly 43% at the midpoint. We've always said the operating margin wouldn't necessarily be linear in terms of the improvement for 2021 to 2025. In fact, we improved it from 43% to 48% going from '21 to '22. So I would think about the operating margin in 2025 is based on $5 billion of revenue, 48% operating adjusted operating margin -- and we'll have to continue to see what the growth drivers are and where we are with corporate development because we've long said we're not going to do a bad deal just to meet a target.

Yes. Yes. PJ, maybe we can start with -- so what are the new investments in IH? What's -- how are we going to get this thing continuing to grow? because year 1 was pretty good or year 1.5 or whatever it's been.

Yes. I mean, it's really exciting. I mean Xywav was the first and only drug approved for the treatment of IH, which is different from the narcolepsy treatments that have always been focused on the treatment of a specific symptom. And this is the first time the FDA went out and gave the treatment for idiopathic hypersomnia. And really excited to see the growth that we've already seen with that. There's a high overlap in the prescribing universe between narcolepsy and idiopathic hypersomnia. And many of those physicians are familiar with Xywav already. So it's really about educating them and driving the depth in those prescribers and where IH fits. I think the excitement for the expansion is really -- it's not just the sales force, it's a sales force, it's the medical team. It's the reimbursement team. Because there's a number of idiopathic hypersomnia prescribers that aren't as familiar with oxybate. And we believe there's tremendous opportunities the first and only treatment to really drive adoption and grow that breadth in that group going forward.

And one more thing is the -- how do you think about the growth curve of this product? Because I think there is a little bit of confusion out there with respect to -- oh, it is an orphan type of curve? Or is it more of a long kind of winded curve?

Yes. So I mean before Xywav was approved, the focus is only treating the excessive daytime sleepiness in patients with idiopathic hypersomnia. So really weren't -- because they didn't have any tools for any of the other symptoms. And part of the journey we've been on is really educating around the breadth of symptoms, including things such as sleep inertia. Because when you're focused only on the excessive daytime sleepiness, there's plenty of things in the physician's [indiscernible] around excessive daytime sleeping. It's a lot of weight-promoting agents that they might pull. But when you start looking beyond excessive daytime sleepiness, you look at things like sleep inertia and what good is a wake-promoting agent if you can't get up to take it. And that's really where the value proposition for Xywav comes in. So that educational journey is obviously continuing to see incremental growth with 70% of our physicians saying they're going to increase their prescribing of Xywav in idiopathic hypersomnia over the next 6 months. And these incremental investments can certainly bend the curve. It's not going to go -- it's not going be a hockey stick, but I think it gives us an opportunity to really continue to drive and grow in it. And really, with the failure of Pitolisant in its Phase III trial, the orexins focused on the orexin-deficient patients like NT1, IH is really an opportunity where we can really own share of voice for the foreseeable future.

Let's flip to Epidiolex and the growth of Epidiolex. Give us a sense of how the growth is going in the U.S. versus O U.S.? And how we're thinking about the Japanese study and how important that's going to play into the growth in the future.

Yes, absolutely. Well, Epidiolex is a long-term durable growth driver for us, and it's a global product, as you said. So we're seeing growth in the U.S. We're seeing growth in Europe. And when we read out the study in Japan in the second half of this year, we'll be well positioned to be able to pursue regulatory filings in Japan. In terms of what does that market look like? There are about 20,000 patients in Japan that fall into our approved indication set that we're studying there. So we feel quite confident that that's a meaningful market.

Dravet, LGS?

And TSC. Yes.

Versus how many would in the U.S. for those 3?

Know that I have those in front of me.

50%? 50-ish? 50% to 60%, maybe.

Yes, a little bit north of there when you sum them all up -- but as you think about where the growth will come from, because I think that's the important part that you're getting at in terms of your question. We do -- we are growing in the U.S., and we expect continued growth in the U.S. similarly in Europe and then also, of course, going into Japan. Where we're seeing more of the growth is an appreciation from physicians on the continued synergistic benefits when taking Epidiolex with Clobazam on seizures, but also beyond seizures, the data that we've published on cognition benefit.

That's what's resonating.

And that's really resonating both of those things. We also see an opportunity in the adult segment in the adult long-term care segment. So -- we do think there's plenty of growth ahead of us, and we see Epidiolex as being on track to become a blockbuster product.

Rob, I want to get to Zani in a second, but can you talk about Zepzelca a second, there's a study that reports out around the end of the year and it's probably one of those underappreciated kind of readouts, I think.

Really excited to see those results. So we have Zepzelca in second line small cell lung cancer where we think it's really highly effective in the treatment of choice there. What we've done is to move that to the front line in patients who get a limited course of chemotherapy. And the situation in frontline extends us to a small cell is the patients tend to get a good response to chemotherapy that they can only get it for about 4 cycles or 3 months because they can't tolerate the continued platinum. So the hypothesis is do a switch maintenance where you introduce Zepzelca to those patients rather than waiting for them to progress and we know that we're selecting for the population who are sensitive to Zepzelca because they're having a good response to platinum. So you switch over, you preempt that progression and you get a longer duration of therapy on Zepzelca as well as capturing a larger proportion of patients because many times when patients do progress, they don't make it to second line or they don't get durability out a second line because their condition has deteriorated. So we think that the switch maintenance where you're randomizing Zepzelca versus nothing else, it's a high probability of success. We also have data and there's some publication -- there was a publication at ESMO in combination with KEYTRUDA. We think that giving Zepzelca in that setting with atezolizumab, will synergize with immunotherapy give an opportunity also for overall survival net.

And from moving from a second line to a first line, how many extra patients we're talking about.

Yes. We go from -- I have a friend here to help me...

Sure. So roughly, they're about 27,000 patients with extended stage lung cancer that are treated in the front line. That number dropped significantly below 20,000 when you get to second because you have a number of people who just fall out of the treatment paradigm or too sick to get further treatment. So we do everything a significant increase in terms of the eligible patients in the frontline setting.

And then importantly, much longer duration of therapy in frontline.

Let's talk about Zani. I think everybody understands the lead indication, but it's some of the backup indications, I think, are still a little bit underappreciated. If you can talk about that.

Yes. So where I would start with that is Zanidatamab is a highly differentiated HER2 therapy. It's not like anything that's come before it. And the data we have really are bearing that out. So it's a biparatopic antibody, which means that each of the FAB fragments of a single antibody necessarily have to bind to different receptors. We have a nature communication publication that shows that when that happens, you get much more effective clustering of receptors on the cell surface and internalization and then interferent to those growth pathways. And remember, that's HER2 growth pathway, but also HER3 has to dimerize with HER2 in order to signal. And so Zani actually interferes with that dimerization. It also induces complement fixation. So in addition to, say, ADCC, we see complement-dependent cytotoxicity as well and that's why it's differentiated. Experimentally, preclinically, you see that it outperforms Herceptin outperforms a combination of Herceptin PERJETA, and that holds up in the clinic as well. So BTC for example, no approved therapies, approved HER2 therapies will be the first. The data that we have in monotherapy far better in terms of response rate and durability than you would see if you give Herceptin and PERJETA combined, that's been published. So that will be our first to market. We've already initiated the frontline trial, so we'll ultimately expand into frontline BTC. We have an ongoing frontline gastroesophageal adenocarcinoma trial that we've said we're targeting PFS results by the end of the year. Obviously, it's event-driven, so we don't have a precise timing just yet. And we think there the data that we've published both Zani plus chemo or Zani plus a PD-1 inhibitor, atezolizumab and chemo really bode well for the outcome of that trial. And then we're super excited about getting into other tumor techs and the data we have so far really suggest that anywhere that HER2 is amplified or overexpressed, Zanidatamab is going to work and it's differentiated in how it works. Breast cancer is really the next big opportunity, 150,000 new patients, breast cancer in U.S., Europe and Japan every year. That whole field has really changed in that -- and HER2 is currently in second line is very likely to get the front line. And the way the field has changed is, docs really don't have the data to support what to give after in HER2. And the reason is that there may be some cross resistance. So we've generated some data showing activity of Zanidatamab after other HER2 therapies like the combination of Herceptin and PERJETA like [ T-DM1 ], like T-DXd or what it's known as in HER2. And we think we would be positioned well in that setting as well. Just broadly, Marc, in the interest of time, I'll be brief, but broadly, in addition to those advanced metastatic settings, there's a lot of interest in using Zanidatamab in the early cancer setting because it's so well tolerated. So we envision ultimately getting into early-stage gastric cancer, especially early stage breast cancer, where we're already partnered with I-SPY on a neoadjuvant study. We're partnered with MD Anderson also on the neoadjuvant study. And the reason is this is a curable population of breast cancer patients who get 6 months of chemotherapy with a lot of toxicity associated with that. And so the idea is to maintain that efficacy and really have a better tolerated treatment.

It's interesting, Jess has done a lot of deals over the years and all of them have been in niche areas where the populations are smaller. This is probably the biggest population like right breast cancer that you would be going into?

Yes.

So that's definitely a big change. Let's talk about Rylaze just for a second, another growth driver, just to come back to it. Maybe just a quick journey on why Rylaze is still a growth driver.

Yes, sure. So just to kind of summarize, we had about 40% growth year-on-year for Rylaze sales netted over $100 million -- I mean, sorry, $394 million in the U.S. last year. Felt really good about the uptake in particularly in the pediatric segment for leukemia, acute lymphoblastic leukemia and we're universally adopted in all the treatment protocols for pediatrics, and that's been driving a lot of the growth. What we're really excited about is our growth opportunity in the adolescent young adult population. That's again the kind of 18- to 30-year old group roughly and where we kind of see asparaginase use, maybe not all patients, it's our opportunity and focus this year as we continue to educate health care providers. They get the best outcomes with the asparaginase therapies and Rylaze is a piece of that. So we continue to expect growth, double-digit growth in Rylaze, driven by that adolescent young adult market this year.

Rob, let's come back to another pipeline asset, suvecaltamide, which -- we've already heard data coming this year. Talk about that asset and the differentiation and why we think this is going to work.

Yes. I mean, so first of all, prevalent disease and essential tremor high unmet need. We say there hasn't been approved therapy in 50 years, but really none of the approved therapies, propranolol or [indiscernible] work particularly well. Alcohol is probably a better treatment for essential tremor and that's approved. We now we're increasingly convinced that this has a tractable target [ CaF3, Calcium III ] channel. We have proof-of-concept data with the TCOM study that was completed before we in-licensed the agent. Of course, there are other molecules in development that I think provide additional proof of concept around that target. In doing the TCOM study, we think we learned a lot about how to optimize and ensure success of the pivotal trial that's ongoing in terms of selecting the right patient population, selecting the right endpoints, which we have FDA agreement on, also learning how to measure those endpoints. There are some pitfalls in doing -- measuring the performance endpoints that we learned from. And I would say, importantly, we've been able to dose up even beyond the exposures that we achieved in TCOM. We now have a once-daily formulation. One of the reasons we think we can dose up is that suvecaltamide unlike some of the competitor molecules has much more potency for active ion channels, meaning that it's state dependent, if you give it to a patient with essential tremor, the impact is much more likely to be in those disease pathways in the brain that regulate tremor. And so that gives us a therapeutic index that we think we can dose up against and we see that as being differentiated relative to other compounds that are in development. So that readout is late this year for -- late in the first half of this year, and we're super excited to see those results.

Excellent. Maybe we can talk about Orexin just for 1 second. What's the latest on Orexin. And just so I'm clear, when you brought the product in from Sumitomo, they had a Phase I study -- and then you went and did your own Phase I study that was separate, right? Yes. And so maybe you can just talk about where the issues that have come up that have caused you to haul the study, which one were they in? And -- what's the plan there?

So at the time that we initiated our Phase I program in healthy volunteers, Sumitomo had dosed to a certain level in healthy volunteers in a very traditional paradigm where healthy volunteers dosed in the morning, et cetera. We dosed and did a dose escalation in healthy volunteers who were sleep to price. So we dosed it through the evening and kept them sleep to product and measure their MWT so that we can establish proof of concept in that dose escalation.

So they didn't get to the maximum tolerated dose?

So they didn't get to the maximum tolerated dose nor did they have an estimate of the wake promoting effect using an established paradigm like the MWT and sleep deprivation. So first of all, we established proof of concept at a level that we think is on par with competitors. In the course of that dose escalation, we identified some tolerability issues, in particular, around cardiovascular effects that we were getting from our automated ECG recordings, as well as noting visual disturbances. So we've taken a pause in that program. We haven't discontinued it, while we did a deeper examination of the findings. And what we're trying to establish is do we have a therapeutic index in patients ultimately. And therefore, our next steps will be based on that. So I appreciate that we announced that pause a little while ago. So we certainly will be forthcoming as soon as we have a plan for...

I mean it's certainly going to be this year, right, or you don't have a plan?

Certainly.

I mean, I give you a lot of time saying early in the year. Not holding you too much there. But if you decide not to pursue that asset, -- what's the plan? Do you have a bad...

So we certainly think the Orexin pathway is interesting and important, and we are continuing to invest in and we have multiple backup programs around it. It might be worth my commenting a bit in terms of how I view Orexins generally in the claps. -- mean certainly, again, we think it's an important area to be active in. We see it based on the data that have been published both in healthy volunteers in patients as one of the more effective wake-promoting agents. And I go back 15 years or so in my career when I worked on H3 and versus agonist. And we've seen other mechanisms come along. And then clearly, this is a potent wake promoting agent. It has incumbent with that, some of the issues that you have with wake-promoting agents, you certainly want to be able to give this during the day and have the intended effect without bleeding over into the night. We know that if the compound has too long a half-life or you've overdosed that you'll get in some, and that will be sort of counterproductive for narcolepsy patients. We also think that giving an orexin agonist is not the same as correcting the underlying pathophysiology. It's not like replacing Orexin. It's an agonist at the receptor. And therefore, we do not expect nor do we know of any data to suggest that it will correct the fundamental underlying problem in narcolepsy or IH or any other sleep disorder, which is abnormal nighttime sleep. We do see it as complementary to Xywav, which ultimately is the only drug oxybate or the only drugs in the market that really improve the quality of nighttime sleep in those populations. Sorry. Okay. Thank you.

So Orexins, this product is moving forward or the backup, so moving forward -- you're committed to Orexin?

Yes. And I do think it's early in the field to see what ultimately will be the best-in-class, which compound has the best characteristics, et cetera.

Renee talk about business development a little bit and how it's evolved from when you got here to where we are now as a company.

Absolutely. So Jazz has had a long history of both diversifying and growing revenue through corporate development. But we've also leveraged it to expand our pipeline. The GW acquisition, for example, was a transformational transaction for the company, bringing in Epidiolex, expanding our capabilities and it was one that we were able to both transact on and then deliver on delevering very quickly. What we've been more focused on right now is not necessarily a "transformational transaction" because our underlying business right now has multiple growth drivers affording it. But we are looking for late-stage and on-market products. You've also seen us doing some early deals recently, which continue to expand out the entire pipeline. Importantly, when we look at our business today, we have a number of commercial growth drivers, but we also have full end-to-end capabilities and expertise in research and development. That affords us the ability to go after multiple new targets like Orexins, for example. -- to be able to take on something like zanidatamab. When we brought that in, it was such an incredible deal for a transaction for Jazz and quite frankly, for patients to be able to see something where -- we paid $50 million upfront. We were able to see the data then fully opt into that program and then move it forward very rapidly to be able to now expand it to also look beyond BTC beyond GEA to go after breast, which we think, again, for patients is a much better outcome to be able to have the drug in-house in an area where, from a commercial perspective, we believe we're well positioned to be able to launch in BTC and continue to build out the program needed to make that launch successful. And when we look at Zanidatamab as being the biggest potential product in our portfolio, not just in our current commercial construct, but potentially in our current portfolio at $2-plus billion we get really excited about that as a global product as well.

Well, Rob, maybe you can just talk about how the R&D organization has changed from a capabilities perspective.

Certainly. So I've been at Jazz 5 years now, and we really have steadily been building both organically and through acquisitions to have end-to-end capabilities. And we now have our discovering molecules in our chemistry labs and bringing them into development. We certainly have a couple of examples like Xywav and Rylaze where we brought them from the preclinical stage quite rapidly approval. As we brought in different companies like, like as we brought in zanidatamab and the employees from Zymeworks, we built new capabilities in oncology that I think are now complementary to what we've...

Which you didn't have before.

Which we certainly didn't have before. For myself, I've been working in oncology pretty much since I finished my fellowship in 2001 on drugs like KEYTRUDA, Imfinzi, Trodelvy. I brought in people who have similar experiences at some of the big companies both in terms of clinical development, in our clinical operations, even our translational and research capabilities. So I feel like if you talk about business development, I feel like over the 5 years that I've been at Jazz, we are increasingly a credible partner. In fact, I think we sometimes have an advantage because once the partner is convinced that, yes, you can do right by this compound. -- they'd rather work with a company like Jazz that's relatively small, pretty flat structure is not so complicated. And believe me, I sit on external boards where we have collaborations with bigger companies, it's not so simple.

And BD has evolved a little bit because of those capabilities where we're looking at oncology assets are continuously being brought in. Is that a focus now? Or is that kind of equal...

I would say we look at areas where there's a significant unmet need where we think Jazz has a unique insight -- we're looking across neuroscience. We're looking across oncology. We've even looked at and we'll continue to look at other rare orphan diseases outside of those 2 therapeutic areas because the vast majority of our products currently are within that rare orphan space. So there is a level of expertise and knowledge that can be transferred over to other therapeutic areas. And as we look at growth drivers going forward, ensuring that we're able to identify the unmet need, that it is a focused patient population and call point to be able to cover the market opportunity efficiently. It's also important to note with our global footprint that opens up a lot of additional opportunities for us to scale by leveraging that footprint in the U.S., in Europe and even beyond.

Last question outside of Zani, which I think would be the answer to the what's the most underappreciated aspect of Jazz. But what would be like the second or the third most underappreciated behind Zani. What'd you say?

I would back up and say more thematically, the breadth and depth of our pipeline as well as the underlying commercial growth drivers that we have. I think they're not fully appreciated.

So the fact is people don't believe that the idiopathic hypersomnia is as good a growth as you think or Epidiolex or Rylaze like that's one aspect of it.

Yes.

Just the longevity, the duration and the growth.

I think that's one aspect of it, certainly, the longevity and the growth, as you stated. And also looking ahead at the catalysts in our pipeline just in the next 12 months is pretty incredible with suvecaltamide, Epidiolex in Japan with Zepzelca first line. And then we've just spent quite a bit of time on Zanidatamab.

Okay. Thank you.

Great.

Thanks for being here. And we're looking forward to the Zani Day. When is Zani day?

March 19.

March 19.

March 19. Not too far from now. Okay. Thank you. Thanks for joining us.