Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Akash Tewari. I cover pharma and biotech companies here at Jefferies, day 3 of our Healthcare Conference. I have the pleasure of hosting Jazz Pharmaceuticals, Renee and Rob are joining us. Why don't I hand it out to you Renee for some intro remarks, and we'll get it started with one-on-ones.

Sure. Sounds great. So just as a reminder, we will be making forward-looking statements today. Please see our SEC filings and website for more information about our business. Should we make reference to guidance, we're not updating or reiterating today. Our guidance is as of our most recent earnings call last month. And then finally, should we reference non-GAAP financial measures, you can find full reconciliations on our website. So just turning to the business. Our Q1 results were well within line of our expectations. We, as a result, reiterated our financial guidance, top line revenue is expected to be 4 -- between $4 billion and $4.2 billion for the year. Our commercial business is performing well. We had 12% year-over-year growth across our collective key growth drivers of Xywav, Epidiolex and Rylaze, and we're making further investments behind those commercial drivers to see growth throughout the remainder of the year. On the R&D side, investing in innovative programs in terms of our pipeline, and now very well positioned to have a number of readouts over the next 6 to 12 months. Rob will turn to you to give some updates there.

Yes. I mean I would highlight zanidatamab. And where I'd start is, zani, to us, is a highly differentiated HER2 monoclonal antibody that is bispecific for 2 epitopes of the HER2 receptor. We think that underpins its strong activity across multiple different tumor types as monotherapy in combination, multiple lines of therapy. Since the time that we did the deal, we've seen a steady flow of encouraging data. We saw the BTC data and now the update. We saw 2 separate studies in frontline gastroesophageal adenocarcinoma, zani with chemo and then zani with a PD-1 and chemo. And we've also seen breast cancer data. Regulatory update. We have -- as you know, we have a BLA under review for second-line BTC for accelerated approval in the U.S., and we now have a PDUFA date of November 29 with priority review. We've also completed the MMA in Europe as well. We're just coming back from ASCO, where we had the opportunity to highlight updated data on the second-line BTC using a data cutoff that corresponds to what we provided to the FDA, and it was very well received and that the response rate was maintained. The duration of response, actually extended by about 2 months to meeting at 14.9 months, and we showed the first overall survival data of more than 15 months median and in the highly overexpressing 3-plus population more than 18 months. So very well received. Additional updates on the program. As we mentioned, the GEA frontline pivotal trial is ongoing and progressing as planned and we're maintaining our guidance there. As we announced at our March 19 R&D Day, we've also initiated a Phase III trial or plan to initiate a Phase III trial in metastatic breast cancer.

Understood. Very helpful. And I was at ASCO. I know I was very impressed with your BTC data, I definitely want to talk about ZW25. Let's start on sodium oxybate. And I think the question I get a lot from investors is you've put out Vision 2025. And I will -- to your team's credit, you usually do not miss guidance. I can actually -- you give a wide range. I traditionally see you hit guidance again and again. There is a perception right now. Avadel is launching well. It is a good product that the business will "break", that Jazz will walk away from Vision 2025. And you've talked about roughly $2 billion in sales between the royalties, Xyrem and Xywav in 2025. Talk to me about where you stand right now and your confidence that the business won't "break" on the sodium oxybate side over the next 2 years?

Yes. So just stepping back in terms of Vision 2025, we provided that guidance at a time that we were coming into a competitive situation for oxybate at a time that we had just done the GW transaction, which was a meaningful transformative transaction for us. And the intention was to provide the external world on where we were headed and what to expect from Jazz as a company. So $5 billion in revenue based on $4.5 billion of organic growth, a placeholder of another $500 million from a corporate development standpoint since we have had a long history of revenue diversifying transactions and meaningful pipeline transactions. It's been critical for our growth and diversification. And specific to oxybate, we had provided an estimate of about $2 billion in 2025. I'll note that business today is annualizing at about $1.9 billion. So our business today is fairly close in terms of being in line with that estimate. And when I look at a company like Avadel, new product, more options for patients, of course. At the same time, you're talking about a company that has consensus estimates for this year, I believe, around $155 million versus Xywav being the lead product of our oxybate franchise annualizing currently at about $1.3 billion. We had 650 patient adds, split 375 narcolepsy, 275 idiopathic hypersomnia, and those are net adds for the first quarter. So the business is performing quite well. We see idiopathic hypersomnia as an important growth driver for the company. Xywav is the only medicine, not only the only oxybate, but the only medicine approved for idiopathic hypersomnia. So we're quite confident in the durability of that business. And we suspect that Xywav will continue to be the oxybate of choice, both across narcolepsy and then also an idiopathic hypersomnia, given the importance of low sodium, in particular, in this patient population.

Understood. Now maybe to your point, I think one thing that isn't necessarily well understood by investors is, there are kind of 3 buckets. You have naive. You have sodium oxybate refractory patients. These are patients that may be who try to Jazz product in the past and then you have actual switches. If you look at Avadel's [ competence ] in Q1, what they said was actually we didn't take a lot of patients from a Jazz regimen. In fact, they said it was 50-50 naive and then patients who were refractory to a sodium oxybate treatment. There is this dynamic where everything is binary, right, where a patient for Avadel is not a patient for Jazz, and I think that's how we simply think about these things. What about the paradigm that both products would be able to grow, let's say, Xywav and Avadel's product LUMRYZ over the next 2 years? And have you seen patients currently switching off of a Jazz sodium oxybate regimen onto Avadel? Or actually, have you seen the reverse?

Yes. So first, just stepping back, any time you have more branded products in a marketplace where additional marketing dollars are going into discussions with physicians and education for physicians and patients who tend to see market expansion. That is certainly expected. With respect to switches, we -- if you think about where the vast majority of patients are today, they're on Xywav. That is the treatment of choice. So it's natural that you would see some of those patients migrating to different options. And that's consistent with what we expected when we set our guidance, which we just reiterated at our call early May. We've also seen the reverse. We have seen some patients that tried Avadel's product come back to a Jazz product. So ultimately, we continue to be confident that from the perspective of patients, narcolepsy as a market has grown year-over-year. We do think, as I mentioned, that there's a much larger growth opportunity with idiopathic hypersomnia. I think of that market a little bit like what the narcolepsy market looked like many years ago, when we -- as Jazz, started educating on sodium oxybate on oxybate therapy in general, have now come forward with a low sodium oxybate. The only low sodium oxybate on the market and the importance of health benefits aside from just the narcolepsy treatment with low sodium being a modifiable risk factor. And Rob, maybe you want to comment on some of the data that we've generated around this, above and beyond even the general knowledge of sodium and its impact on cardiovascular health.

Sure. I do think that's the starting point that across medical society recommendations, it's clear that sodium is unhealthy from a cardiovascular perspective. If you think about the amount of sodium one gets as part of a maximal sodium oxybate regimen, it really pushes up against the recommended total daily sodium intake. So even for some -- for a person who is not at risk, that's challenging. We know that narcolepsy patients are at high risk of cardiovascular morbidity and mortality, and you can refer to the CV bond study, it's nicely illustrated that in the CV RHYTHM study, we saw that it's recapitulated. So we know generally speaking, that sleep is important for cardiovascular health, and disorders where we have substantially disrupted sleep like narcolepsy and IH, there's a high rate of cardiovascular morbidity. The impact of daily sodium has been well established. So even the data that we provided about a year ago at AAN, showing that patients who are starting on sodium oxybate about a 50% increased risk of new onset, hypertension is not at all surprising. It doesn't take long. So it wouldn't be surprising to me that patients start on a high sodium product and actually have to come back because of incident hypertension.

Understood. That's very helpful. Now maybe going and stepping back. Another part of Vision 2025 is the M&A component, about $500 million. I'm guessing that refractory BTC for ZW25 is probably $50 million. So you still -- we're still talking about $450 million. Phil, who, by the way, is beloved from [indiscernible] investors, I consistently hear that. I think he gave an interesting comment on the Q1 call where he's like, look, we're not going to do a value-destructive deal simply to hit Vision 2025. By the way, when we think about the rate -- like the revenues and how quickly you'd have to buy it and then the multiple, I don't think people would be happy if you bought Pacira or something like that. I'm just going to say. So what does he mean by that? Can you expand on what Phil meant by that comment? And how committed are you to the framework of Vision 2025 of about $450 million in revenues that would have to come probably by next year? Is there appetite for maybe more biological risk -- a BD deal where it's not actually revenues that are on the market today? How do you think about the risk benefit of one of those approaches?

Yes. So -- well, we're thrilled to have Phil on board to start with. So he's beloved at Jazz already as well. When we think about -- again, going back to the Vision 2025 target, we set the $4.5 billion is what we thought was the growth that we could achieve from organic products that were in-house. The $500 million target was out there to ensure that people didn't forget about all of the cash that we generate, combined with our history of putting that to work from a revenue diversification and revenue growth perspective. So it was a target from that standpoint. But as you've heard also from Bruce and I in the past, we have no intention of doing a bad business development deal. And maybe said otherwise, we're setting the bar quite high in terms of what would be required because the Zymeworks transaction to bring in zanidatamab. That transaction was completed after we had set Vision 2025. We did not look at that deal simply because it wasn't going to meet that $500 million revenue target, we looked at that as just an incredible asset for which we were able to structure a transaction that enabled us to put $50 million upfront and then see the data and opt-in, and every data package we've presented since then has just continued to build our confidence. We would continue to do those deals all day long. So it's really looking at what is the opportunity that we have to invest in our business currently. How does that compare to a corporate development, business development deal? We're not going to do a bad deal just to meet target that was always meant to be a target if we find the right transaction.

Understood. I mean this is kind of a question that I think people have from neuroendocrine as well. They have a very important readout with the [indiscernible] in Q3 and then people say, "Hey, Kevin, are you going to do a BD deal ahead of that or after? And I think a lot of investors want -- even in your case, you have a similarly big card flip, which is ZW25, Horizon GA at the end of the year, is a pivotal data set. . Why do a deal, especially if maybe it would require equity value until you've had that card flip, considering it's such a big value driver from how your company internally feels about that asset? So again, appetite for BD before the Horizon GA card flip and after? Do you feel like there's a difference?

I'd love to be able to look into a crystal ball and be able to predict exactly when business development, corporate development deals are going to come together, but it seems like a great transition for Rob to talk about our confidence in GEA and some of the excitement that we just had at ASCO in terms of conversations with KOLs and others.

Yes, I mean, as I alluded to earlier, since the time we did the deal, we've -- our confidence has only grown and that does come from the series of new sets of data that we've had on zanidatamab. It also comes from the external interest that we're getting from KOLs across tumor types to develop zanidatamab. And that's in part why we undertook a new program in breast cancer. Specifically with regard to this...

Is that your post in HER2 program?

Yes. Yes. I'm happy to speak to that in detail if you'd like. Specifically on the GEA program that's progressing as planned. We have 2 separate studies: one published, ASCO GI 2023, which was zani chemo. And another published ESMO 2023, showing impressive response rates, but even more importantly, duration of response in the 20 to 22 month range, which is practically double anything else that's been given. So here's a trial where we are up against Herceptin then with third arm, zani plus PD-1 and chemo against Herceptin.

So Rob, to the point, I was at ASCO as well. I think one of the things maybe investors aren't appreciating right now, if I look at BTC and GA, there are both instances where there's heterogeneous virtual expression. I think the pushback a lot of investors have is if we look at Herceptin PERJETA in a similar setting to what you're running in first line, that failed. You did not see a benefit on Herceptin PERJETA chemo versus tras chemo. Why would that show up with a bispecific antibody that's hitting kind of the same epitopes? Can you talk to me about what Herceptin PERJETA showed in BTC compared to your data? And number two, there's this -- in HER2 is like the looming Shark and anything HER2 related. Can you also maybe compare your BTC data to an HER2 and BTC -- and like [line] BTC.

Yes. So the first key is that zanidatamab is differentiated as a HER2 therapy and monoclonal antibody. It's bispecific in that it binds to ECD4 and ECD2 domains of the HER2 receptor. They do correspond to Herceptin and PERJETA. And so therefore, it interferes with dimerization between HER2 and HER3, so blocks HER3 signaling and also block HER2 signaling. What's different is when you represent them on the FAB fragments of the same monoclonal, they necessarily have to bind different receptors. It more effectively causes receptor cost during internalization and interference of that signaling. And this has been shown in the Nature Communications publication, and we detailed those data on our March 19 R&D presentation. Head-to-head preclinically that outperform the combination of trastuzumab, pertuzumab. And we've also shown that unique to HER2 monoclonal antibodies, zani fixes complement and has CDC in a therapeutic range. That's substantiated when you look at the clinical data. So BTC, we show over 40% response rate, 14.9 months median, duration of response compared to when the prior study where Herceptin was given with PERJETA where they had 23% in about 10 months median. So superior in that setting. And again, you can look at the data on GA that I mentioned as well. So I think, ultimately, that bodes well, and I would just highlight that a failed JACOB study doesn't mean that pertuzumab wasn't adding anything, it just wasn't adding enough to be meaningful. And so we think we have a differentiated antibody that will do far better than that combination.

I think the question comes for Horizon GA, what's the bar? And I've noticed your team is not -- a lot of times these companies -- I think if you look at your powering, especially when you've increased the power at least for last for next year, you can kind of do this that math on PFS. I think you'd be able to hit with the effects as the smallest 2 months. It doesn't seem like that's the bar that your team is looking for, for this study. It seems like on PFS, the bar internally for you guys is maybe 4 months plus. Talk to me about what investors should be looking at for what's clinically meaningful for PFS for Horizon G.

Yes. So the bar versus our expectation might be different, right? So if you just look at other references around PFS, so what was it for KEYNOTE-811 less than 2 months, right? So you might say, well, that's the bar. Based on what we've seen, we expect to blow that away, frankly. So if you asked us what our expectations are, they're pretty high for PFS, and we have confidence that, that will allow for a full approval based on PFS. We also...

In both PD-1 high and PD-1 low?

Yes. So PD-L1 does not predict response to HER2 therapies.

Understood. Okay. Blow away is the quote from today's fireside. Okay. I'm going to ask a strategic question, and this is -- I wish Bruce was here for this, but I'll try for you guys either. . So in late '23, there was a Bloomberg article, did not come from Jazz. Let's be very clear. saying, hey, there are options [ with ] Jazz both strategically as a takeout or b, breaking up the company, I think this stock has chronically been viewed as -- in terms of free cash flow, far more valuable than what investors are describing because you'll have these competitive overhangs. And it's just difficult to maybe model some aspects of the business from '25 to 2030. I cover Exelixis, right? Exelixis is a $2 billion drug. It's got an IP overhang. It's going to trade somewhere between $6 billion to $8 billion. You guys are trading at close to a 10-year low, you may be technically trading at 5x next year's earnings. If -- let's just play Horizon GL. You get approved in PD-1 high, PD-1 low. And our math, that suggests that could be a $1.5 billion indication in first line in of itself. You have IP for zani out to 2038. You have $1 billion oncology franchise right now. When I look at that business, it looks Exelixis like when you think about the growth trajectory of that on a stand-alone basis over the next decade. Why not spin off your oncology franchise trade at $6 billion to $8 billion as a stand-alone company and then keep the CNS business for yourself. Would that be a way to maybe unlock value for the stock right now?

So that question is for Renee. But I will point out, you mentioned breast cancer in zanidatamab, and we've already kicked off that program. That's essentially a head-to-head for -- against Herceptin, where we know we have data to beat that in a field where it's really wide open after in HER2 on third line potentially in second line. You also didn't mention some of the other near-term readouts we have such as the first line in [indiscernible].

So yes, a lot happening in the oncology business. But I would say also broadly, when we look at the business, we look at all options for value creation, right? And if we determine at some point in the future that either a separation or some other large transaction is in the best interest of our shareholders then certainly, we would do our best to understand, pursue and execute that. When we look at our business today, we think it's a well-diversified business. You noted earlier this report came out. Certainly, if there was any substantiated nature to that being an Irish company, we would be in a position. In most cases, that we would have had to comment, you did not hear us comment. But from a corporate strategy perspective, in general, this is a group that I oversee. We spend a ton of time looking at all aspects of our business, ensuring that we're being very disciplined with respect to capital allocation, ensuring that we are focused on a high-performance culture. I know there have been some comments in the past about transactions that haven't played out the way that maybe the market had expected that to play out. Our expectations, our projections are in line with how we're executing right now. And we're -- we have the good fortune that from a pipeline perspective. We have way more to invest in then right now, what we're allocating capital towards in R&D and ensuring that, therefore, we're continuing to prioritize and put our money towards what we think is both going to have the biggest impact for patients and also the biggest return for ultimately our shareholders. So we're going to continue to do our best. We're going to continue to set a very high bar for those investments, including corporate development and continue to push forward with our zanidatamab development, which we've said, we expect to be a $2-plus billion product. And given we have $1.8 billion of cash on the balance sheet, we have very healthy cash flow. We're also in a very strong position to be able to see those investments play out.

Last question for you, and I realize we're almost out of time. sleep, Takeda's data, I think, Rob, you see that type of CGI improvement, especially when patients wash out of the sodium oxybate. There is kind of a sense where these drugs are starting to arrive. These are going to be -- you're showing a remarkable biological signal. . The question, I think we all have is really the effect of corrections on sleep architecture. It sounds like Takeda is sitting on some of that data, they've alluded to it at their investor event. Rob, how would you view your sodium oxybate franchise and whether narcolepsy will be in orexin, sodium oxybate combo treatment. How does that change if, let's say, an orexin shows a meaningful benefit on sleep architecture as a standalone agent?

So we know that the root cause in narcolepsy has disrupted nighttime sleep. And so the advantage of Xywav is it directly addresses that. Unlike wake-promoting agents where you can improve some of the symptoms of narcolepsy, such as daytime sleepiness as measured, I'd say, the upward sleeping the scale. You don't ever correct the underlying disruptive nighttime sleep. And it's sort of like as a physician in training, in doing an overnight shift, you have a cup of coffee because it does help keep your awake, but you certainly don't feel good in the meantime and it's not the same as getting a good night sleep. So we think that any therapy really has to address nighttime sleep. And in the field, while the Orexin agonist certainly are proving to be the most potent wake-promoting agents, we don't yet know whether there is improvement in nighttime sleep and how that ultimately will play out. And there certainly is even a risk for especially longer half-life drugs have insomnia that may be counterproductive. So we continue to think it is potentially complementary to Xywav, and time will tell as the data.

Understood. Thank you so much for everyone joining us. Thanks so much for the call. It's really awesome.