Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript & Summary

Good morning, everyone. Thanks so much for joining us. I'm Andrea Newkirk, one of the biotech analysts here at Goldman Sachs, and I'm really pleased to be joined by Phil Johnson, CFO; and Robert Iannone, EVP and Global Head of R&D and CMO of Jazz. Thank you, guys, both for joining us this morning.

Thanks for having us.

Maybe we'll start at a high level here. There's so much macro uncertainty going on right now. Maybe just talk to us about the overall business and why you continue to have confidence in the forward growth trajectory.

Sure. So I think we're making great progress across our main priorities, both in our commercial operations with the pipeline as well as corporate development. In the first quarter, we had really strong growth with both Xywav in our sleep business as well as Epidiolex, had some softness in the oncology business in part because we had one fewer shipping week in the quarter. That will not only impact us going forward. And then we've got a number of upcoming catalysts, including launches for second-line BTC for zanidatamab in Europe, first-line maintenance with Zepzelca, hopefully as well this year. And then obviously, with the acquisition of Chimerix, dordaviprone with the August PDUFA date could lead to a launch this year as well. So see good momentum on the oncology side of our business as well. Maybe leave it to Rob to talk about the pipeline, but had a number of presentations, oral presentations at ASCO, highlighting progress we're making in the pipeline there. And then on the corporate development side, we had a number of questions when Bruce had announced his retirement last year if we would place corporate development on hold until we had a new CEO named. We said at the time, no, that's not the strategy of the company. We know the kinds of assets that we're looking for, and we'll continue to progress [indiscernible] on the development front in this interim time frame as well. I think many investors looked at us and said, "No, we don't think you're going to do that. We think he'll actually pause things." So obviously, we did not pause things. We feel really good about the Chimerix acquisition opportunity that we have there to benefit patients that have pretty rare aggressive form of diffuse glioma, and Rob may want to talk more about that. And we're positioned to continue to do additional corporate development, very strong financial position. End of the first quarter, $2.6 billion in cash, about $400 million in operating cash flow in the quarter. Even after we pay for Chimerix and some of the litigation settlements we had discussed, we're in a really strong position to invest in the business, both commercial assets we have in-house, pipeline assets as well as additional corporate development. I know some of the uncertainties, there's a number of them that have come up. Certainly, tariffs has been one that has been discussed. We think we positioned the company quite well for near-term potential impacts from that and have identified a number of actions that we can take to buffer that impact further in the medium to longer term as well. So we feel good about where the business is headed. Obviously, we'll need to be very agile as we work through what's been a more volatile sort of regulatory political environment, but we're -- I think well prepared to do that.

Maybe on that point, what actions have you taken as a company to better position yourself?

So the sort of the main one we've done so far, the easiest one is to ensure that we have sufficient finished goods inventory already here in the U.S. to serve forward demand for quite some period. At the time of our last earnings call, we've said effectively at that time, we already had enough inventory to cover demand for 2025. I think it's safe to assume that we're now -- we've continued that trend that we're well covered for this year and into next year. So we don't anticipate if tariffs were to come, there would be any impact in 2025 that would cause us to have to move off the guidance that we had issued before. And we'll continue to look for ways that we can go ahead and buffer the medium-term impact. One of the things we've already mentioned is, we do have the ability to produce our largest selling product, Xywav, here in the U.S. that would effectively eliminate that impact. And there are suppliers that we could work with for things like Epidiolex to have more production done here stateside that would further reduce the impact to us in the medium to long-term.

You mentioned Bruce's departure or the transition that's happening right now, where do things stand with the CEO search? And what is the background or strategic vision that the company and the Board is looking for?

So the progress is continuing well on the search. Bruce had wanted to give the Board sufficient time to go ahead and have the ability to get the right person in, and have to make a quick decision. This is a little bit different than some companies have handled the CEO search, but he said, "Hey, listen, I'm around at least for the next year so that the Board can go ahead and conduct the search and get the right individual to lead Jazz into the future." Clearly, the Board is not sharing sort of who they're talking to and whether that's with internal or external candidate -- constituents, but it is both internal and an external search that they're conducting. I do think Bruce founded this company for 2 main reasons: one, to really have a strong impact on patients; and two, to have it be a great place to work. I think those kinds of founding principles and sort of the ethos, the culture of the company would be high up on the list for potential successors for him from the Board's perspective. That includes someone who can continue to drive the growth and transformation of the business. 5 years or so ago, the company had 75% of its revenue with Xyrem. That product and the associated AG royalty income was less than 10% in the most recent quarter. So really significant transformation and diversification of the company in the past 5 years. I think bringing in someone who can complement the current team to continue that transformation of the company. During Rob's tenure, in particular, the company has done more and more to build earlier clinical and even preclinical capabilities, to position itself more as a biopharma company, less as sort of traditionally viewed as a spec pharma company. I think that kind of transformation is also important that it continues, so the company can impact patients and create significant value for shareholders.

Maybe on that point in the transformation to having much more of a focus on the R&D, Rob, let me bring you in here. We're coming on the back of ASCO. You also had a webcast yesterday with respect to Zepzelca. What did you find to be most exciting out of your data presentations there at ASCO?

Well, thanks for the question. I certainly feel like in my 6 years, that was actually my seventh ASCO because I started just before ASCO with Jazz, the most impactful one that we've had with multiple presentations, but specifically 3 oral presentations including on dordaviprone, zanidatamab and Zepzelca. And I would say as a headline the lung session on Monday was really, I would say, a historic one for small cell lung cancer, and that was noted by the presenters and some of the more experienced questioners around the progress that's been made in small cell lung cancer recently versus over the last 30 years. And a big part of that was the IMforte results, showing that when Zepzelca is given as part of a switch maintenance regimen for extensive stage small cell lung cancer patients that there was a meaningful overall survival and progression-free survival benefit. We expect that to become the new standard of care. I think there was good discussion around how well tolerated Zepzelca was in that setting with only 6% discontinuation due to AEs compared to 3% in the control arm as well as the study really demonstrating the importance of being proactive in the treatment of these patients and not allowing them to progress to second-line before getting additional therapy upon what had been the standard of care. We've now said that the FDA has given us priority review for supplemental on that with an October 7 PDUFA date, and we have submitted to NCCN in the hopes that they'll meet off cycle and quickly adopt this into their recommendations. We were also very pleased to see updated data in first-line GEA, our Phase II trial with zanidatamab plus chemotherapy for the first time having mature enough overall survival data to show a median of 36.5 months in the centrally confirmed patients where the PFS and the response rates were all consistent with prior reports. That trial in addition to previously published data with zani, tislelizumab and chemotherapy in that frontline GEA setting will give us confidence for our readout later this year for frontline GEA. And then, of course, I'm really pleased to have dordaviprone now, as Phil mentioned, in our portfolio. I think a great fit for Jazz in terms of wanting to serve patients who have a very high unmet need in areas where we think we have fully already the capabilities to do so from a commercial and development perspective. We have a PDUFA date there for the second-line indication of August 18. So very exciting that's coming up soon. And we're pleased on the progress of the confirmatory frontline trial that would bring dordaviprone to the front-line setting. So yes, big ASCO for us for sure.

Let's dig into zani. So obviously, a nice update there at ASCO. And to your point, these prior studies have increased your confidence as you head into HERIZON-GEA. But maybe for the audience here, just remind us how the study is structured with your 3 arms? And what is success here?

Sure. So this is a 3-arm trial. The control arm is Herceptin and chemotherapy as the backbone. Arm B is zanidatamab on that same chemotherapy backbone. So a head-to-head comparison of zani versus Herceptin. And all the prior data preclinically, et cetera, suggests we should do very well against that. And then given how the field has evolved in terms of the potential value of PD-1 inhibitor, in particular in patients who have inflamed tumors as measured by some level of baseline PD-L1 expression, the Arm C is tislelizumab, which is BeiGene's PD-1 inhibitor, which I feel is a best-in-class PD-1 inhibitor in combination with zani and chemotherapy. In terms of what does success look like there? Well, certainly, we need to demonstrate that zani is contributing to that in order to get approval for zani. And we also need to demonstrate that tislelizumab is incrementally contributing to any benefit compared to the control arm. Talk about contribution of components in that regard. The magnitude of benefit, there's a regulatory consideration there, of course. There's a practice consideration. There is a payer consideration, and those are all somewhat different globally. What I'd say is there has been recent precedent in this setting. There's been 3 Phase III trials, where the control arm has actually been quite consistently in that PFS of 6.7 to 8.1 range, 8.1 being most recently with KEYNOTE-811. And the precedent for approvals certainly with the first trial, ToGA and then with KEYNOTE-811. KEYTRUDA was approved, recall on an accelerated basis from a subset of data in that trial on ORR and duration of response and then confirm with the PFS endpoint. Ultimately, overall survival is also added to that. So I think that gives us a reasonably good precedent for what the health authorities are looking for and what practitioners are looking for in terms of incremental benefit.

So it's you're understanding that maybe the regulatory benefit or the magnitude of benefit is consistent with what clinicians would want to see to adopt this new treatment paradigm.

Yes. I think they're generally consistent for sure. And we feel the study, we've said this before publicly as we changed the sample size, has always been well powered for PFS in terms of what would be considered a clinically meaningful benefit. When we took the study on from Zymeworks, we knew and as did they that it was not as well powered as it could be for overall survival. It had a sample size that was about that of KEYNOTE-811, which had only 2 arms. And of course, this has 3 arms. And so, we increased the sample size from about 714 to a target of 918 in order to be sure that we have sufficient overall survival power, which I think is important here because now we know KEYTRUDA has survival data that we want to be able to compare favorably to. We were able to do that without much -- without any really impact on the ongoing trial. We've maintained now 2 interim analyses and then a third final analysis. The prior plan was 2 total overall survival analyses. So we've essentially been able to add one without really changing the target for the first 2.

Great. And how does the triplet or Arm C need to perform relative to Arm B? And then how does the triplet need to perform relative to the pembro triplet, recognizing people will be making cross-trial comparisons?

Yes. And maybe I would start with that one. It's inevitable that we'll make cross-trial comparisons. And I understand the logic of doing that in this particular case, given where pembro is. It will be very important, though, to do so while understanding maybe potential differences in the patients that were enrolled or different characteristics of those patients. And one key factor is when we talk about "PD-L1 positive" patients, where KEYTRUDA has their indication, remember, in the PD-L1 negative patients, standard of care globally remains Herceptin...

Yes.

Chemo. It will be very important just to recognize that there are differences in those assays. The assay that was developed for tislelizumab uses even a different antibody architecture as well as a slightly different scoring system. So we'll have the ability within that trial to look at a range of PD-L1 expression to really try to identify what's optimal. It's possible that with zanidatamab that maybe there'll be broader activity even than was observed with pembro. But in making those cross-study comparisons, it would be important to as much as possible, compare apples-to-apples as you bridge between those 2 assays.

Do you see scope for physicians to essentially just replace Herceptin? In their pembro triplet right now, they're using Herceptin. Is there scope for them to simply replace Herceptin with zanidatamab?

Sure. And we think that's the central question of this trial is, is zanidatamab better than Herceptin as the backbone for this therapy. And we certainly believe it is based on all the prior data we have where you can do comparisons to Herceptin. We know we have activity in patients who progressed on Herceptin and Perjeta and other HER2 agents, especially in the breast cancer setting. Of course, we have the 2 Phase IIs conducted independently in different parts of the world by Zyme and BeiGene. So we think we will compare favorably there. We think that PD-1s are roughly similar. And certainly, tislelizumab is approved. The prior data, I think, are very comparable. So I would consider it a best-in-class. So I don't see the PD-1 selection as the variable here. Now I think there's no reason if zani, tisle and chemo shows promising results that, that regimen just shouldn't be adopted broadly by prescribers. But if there's some reason for a prescriber, I don't know, maybe it has to do with an approval or something else or just some preference, there's no reason that zani couldn't be combined with pembro as well. And there's certainly the opportunity for us to do some evidence generation to kind of support that practice in combination with pembro.

Got it. And as you think about the OS endpoint here, you'll have your first interim when you have your top line data here. But how important is that to get that on the label to see significance do you need to have significance on the label?

Sure. I mean our best understanding from talking to global health authorities is that overall survival in a stat sig manner is not required for approval provided that the PFS benefit is large enough. It's always the case that FDA would want to see interim OS data to ensure that there's not a negative trend. That could happen. Things like this happen. You saw that negative trend with pembro actually in the PD-L1 negatives. I'm not sure exactly why, but sometimes if a drug is actually causing toxicity and no benefit, it might actually result in a detriment. So that's our best understanding. We do think this situation is different than others that have maybe been highlighted recently and that this is frontline therapy where clearly, there's a strong association between PFS and OS. There's a big difference in the time between median PFS and median OS. And there are subsequent therapies that are highly active that could confound the measurement of OS in the context of this trial. And just because you can't measure it to a stat sig, it doesn't mean that the drug is not providing a survival benefit were you to be able to study outcomes line of therapy over line of therapy. And so generally, health authorities recognize that in the frontline setting, which is different than a second-line setting where maybe those increments are shorter and there's not necessarily a third-line drug that's active. So that's certainly how I'm thinking about that. Remember, the PFS will read out with the planned level of maturity well ahead of when we have the full maturity on OS. That doesn't mean that OS can't hit. IMforte hit on the interim analysis, right? And that was because the magnitude of benefit was larger than we anticipated that it would be. So it's certainly possible. I mean power is an assessment of based on what you think the clinical benefit is going to be. So if it's larger, you might turn out like, hey, actually, we're more well powered than we thought we were at that first or second interim. But it may well be that for one arm or the other, we're waiting on the next OS readout. And I think ultimately, that -- while that may not be required for approval, could be important in the marketplace.

And if the profile of zani holds and is consistent, maybe take the haircut to what you've seen in the prior trials, how do you -- maybe how do you quantify or maybe how are you thinking about the commercial opportunity afforded by zani in GEA?

So we've talked overall about the potential commercial outlook for BTC, GEA, breast cancer and the pan tumor trial, which we said we see as a $2 billion-plus opportunity. We have not broken down in dollar terms the numbers by BTC, GEA, breast cancer and pan tumor. Certainly, GEA is a larger patient population to be addressed than we have with BTC. Currently, in the markets where we have rights to zanidatamab, you're probably at 12,000 patients total in BTC, first and second-line, about 3,000 of those here in the U.S. In GEA, it's a much larger number, about 60,000 in total with about 8,000 here in the U.S. in first-line. So certainly, a much larger opportunity relative, but we've not quantified it specifically in dollars.

Fair. Maybe jumping to your commercial business here. To your point, you did see nice growth in the sleep business. Maybe speak to us a little bit about the dynamics you're seeing both in the narcolepsy and the IH patient populations as it pertains to Xywav?

Yes. So we see really good growth in Xywav. We've been really pleased with how the product has been performing in narcolepsy. This is an area where we've had both branded competition for some time now as well as authorized generic competition. Despite that, we've continued to have net patient adds, 125, in the most recent quarter, which we think does speak to the benefit that physicians and patients see to having low sodium. Xywav is the only product that has low sodium, and we've had data we've published that shows within 6 months of switching to and going on a high sodium oxybate, there's increased incidence of new diagnosis of hypertension. So again, this is something this patient population, in particular, we think should be avoided as we do look at every narcolepsy patient as a potential patient for Xywav. Narcolepsy patients, along with IH patients have about a 2x to 3x greater incidence of cardiovascular events, heart attack, stroke than the general population. So I certainly think this is an important feature of Xywav and one that's clinically meaningful for patients. FDA has recognized as such that low sodium content is safer than the high sodium content oxybate, including both the brands that are available and the AG. On the IH side, that's where we've seen the most growth. In fact, in the last couple of quarters, we've seen that growth begin to accelerate, adding 325 patients in this most recent quarter. Last year, we're probably averaging around 250 a quarter. So we continue to build that market. There really was nothing available prior to Xywav for patients with idiopathic hypersomnia and really see a significant amount of additional growth there. If you look at the published numbers, you'll see numbers that are roughly half as far as the size of the IH market, number of patients relative to narcolepsy. But many of the physicians who treat these patients tell us they think they have as many IH patients as narcolepsy. So see -- still see a lot of room for growth with IH moving forward as well. We are the only product that's approved there and currently the only product that can be marketed for that indication given the current label land from a legal perspective.

Maybe as you think about the landscape moving forward, how are you contemplating the impact of generic sodium oxybates coming on to the market?

So with generics, there's a couple of dynamics to keep in mind. First would be effectively the generics that are not potentially offered by Hikma and then second would be Hikma. So just in terms of timing and ability to come to market, generics can come to market effectively January 1 of next year. Uncertain if they will do that or not. If they do come to market, they'll need to have a REMS program to facilitate the distribution of the product. Hikma actually has a different dynamic. Since 2024, they've been able to come to market with their own generic. If they do come to market with their own generic, that would accelerate when other generics can come. So their calculus is probably a little more complex. But they can only market either the AG or the generic. So let's go to a scenario where Hikma actually is marketing a generic. Whenever that would occur, clearly, our AG royalty income would go away. We'd also expect when you have generic Xyrem available that remaining revenue, which is going to be pretty small at this point, but remaining revenue for Xyrem would go down substantially. And the question mark really is what happens to Xywav. Xywav is not AB-rated to Xyrem, would not be AB-rated to the generics. We think has a significant benefit offered by the low sodium content that is meaningful from a safety perspective for these patients. But I think it will be highly dependent upon how many generics come to market, what their pricing strategy is and how much payers also value that safety benefit that can be offered by Xywav. So we're planning for different scenarios. We don't know exactly what the generics will decide to do and when, but certainly believe we've got a strong position with Xywav to continue to serve patients with narcolepsy and IH for the years to come.

You mentioned that if a generic were to come to market, they would need to establish their own REMS program. How difficult is that?

It's not the same as you normally have with the generic product coming to market. There is additional investment of time and expense and resources to put it together. It certainly is doable. Obviously, you had a branded competitor, Avadel, put their program in place to support Lumryz. Their economics are probably a bit different than the generics. So again, an additional requirement, something that they need to do to be able to sell the drug effectively, probably not precluding them from coming to market, but may weigh into some of their calculations on when they want to come, how many might be coming, et cetera.

Got it.

And it's not just standing it up, it's obviously operating it.

Yes.

Patients who have prescribed, you have to track those patients and the regulatory oversight of that as well.

Okay.

Phil said it, but I would just also emphasize that we're talking about generics to high sodium oxybate, whereas Xywav, of course, is a safer and low sodium alternative that's considered safer for every patient with narcolepsy who has a significant increase in cardiovascular risk over time. And that's been recognized by the FDA in its orphan drug exclusivity determination. And certainly, the cardiology experts that I've spoken to talk about the importance of minimizing risk due to sodium intake throughout the life of a patient. It's not like maybe there's an analogy to cholesterol where you don't want to start actively managing your cholesterol after your first heart attack, you want to be doing it in advance. And there is an analogy around the impact of kidney function and hypertension through lifelong increased sodium intake. So it's a real risk factor in a population of patients who are already at elevated risk. So as that -- when that comes to payer conversations or as we're doing now and prescriber and patient conversations, I think there's -- continues to be a meaningful advantage of Xywav over the high sodium oxybates.

And as you think about the durability of this business, how does that get impacted by an orexin agonist coming to the market?

Yes. So for me, it's still pretty early days in terms of the impact orexin's will have in narcolepsy or beyond. I think it's not yet clear what the best-in-class profile would be and the potential risks of profiles that are suboptimal, like where there might be a longer half-life, and then potentially excess exposure as you head into the evening hours and throughout the night where you could actually have disruption of sleep. Some of the earliest data suggests certainly that orexin's are not correcting the root cause of narcolepsy, which is disrupted nighttime sleep, less deep sleep, multiple awakenings after sleep onset, like on average, 80, whereas for the average person, it would be a few or even total sleep time, the important measurement. Very little data yet published from the orexin field. What has been published suggests that there's actually potential for disruption, but more work to be done there. And ultimately, I think in addition to just measuring sleepiness on a patient scale, we need to measure all the symptoms of narcolepsy and the potential impact of not getting fully restorative sleep at nighttime. So with having said all of that, I continue to think that orexin's will be a very potent wake-promoting agent that for patients who are appropriate for Xywav and benefiting from Xywav could be complementary during the day in the same way that other wake-promoting agents are used. And you'd want to optimize that so that you don't have residual effects into the evening.

Maybe to that point, give us an update here on your own orexin program?

Sure. So we have JZP441, which as we had previously disclosed, when we pushed the doses to the highest levels in healthy volunteers to determine what our maximum effect would be on wake promotion in a healthy volunteer sleep-deprived model, we saw cardiovascular effects that we would want to clearly stay away from in practice. We also saw some of the other adverse effects that were noted in the field such as visual disturbances. And so in order to take that program forward, we feel we need a much better therapeutic margin than those maximum doses studied. We think there's potentially an opportunity in narcolepsy type 1 where the exposures could be lower, a little bit akin to what Takeda has done in terms of not wanting to push their dose on a drug they feel might have hepatotox liability. So we've started a trial now. It's going to be approximately 8 or 10 patients. It's a crossover to placebo in NT1 patients where there's a 4- to 5-week treatment duration and then the safety follow-up.

And where do things stand with your second gen?

We're still pursuing a backup program, and it's in the preclinical space, and we haven't yet given an update yet on the timing there. But again, still of interest to us because I personally feel that it's not clear what the best-in-class agent will be, and there's an opportunity to differentiate, particularly on the basis of having an optimal half-life. I personally would much rather have a shorter half-life where you might have to dose 2 or even 3 times during the day and minimize that risk of carryover effect.

Maybe in the last 3 minutes, much of your business we have not touched on here. But Phil, any place you want to go here with Epidiolex in terms of the tail of revenue that can now be expected given the settlements with the ANDA filers or even Rylaze and what you're seeing in the oncology business, bring us on there.

Yes. So definitely think Epidiolex is one, as we had talked about earlier this year, feel really good about the resolution with the 10 ANDA filers, including the disclosure we made on our prior earnings call that we now have exclusivity to the very late 2030s. You saw the stock go from probably $120-ish up into the low $140s based on that news. I think as the market recognized the longer durability of that franchise compared to prior expectations. So a couple of practical implications of having gotten that resolution, certainly making sure that we're investing appropriately behind Epidiolex to maximize benefit to patients and revenue for Jazz over this long runway that we have. And then on the corporate development side, we've been looking and continue to look at opportunities to build that part of our business with additional molecules. So certainly, with the longer runway and having that significant revenue, it's a great platform for us to build upon. And then in oncology, broadly, I'd say, as I mentioned at the beginning, first quarter was affected by the number of shipping weeks that we had. Beyond that, there were a couple of dynamics that affected 2 of our major products there. One was the change to pediatric ALL protocols last year by COG, where we are seeing it take a bit longer for sales of Rylaze to normalize. We continue to expect that, that will occur in large measure from some of the discussions we're having with treating physicians who are saying they still expect to use asparaginase as before and to follow these protocols that don't change the overall number of doses of asparaginase, simply the timing of when that's administered. So therefore, if people are still taking the same amount of asparaginase over time, potentially when they have hypersensitivity reactions, we'd still have the ability to have Rylaze used in that setting. So we look forward to that progressing as we go through 2025. Zepzelca, Rob mentioned, we really have seen, and we've been messaging for a while the great potential that we see in that first-line maintenance setting and are thrilled with that we were able to present at ASCO. We have seen a reduction in some of the first or second-line utilization, one, as you've seen adoption of IMDELLTRA as you would expect with the new entrant coming in. And then more recently, with the really strong results in that limited-stage first-line patient population from the ADRIATIC study, a delay in those patients getting to the second-line. Again, that will eventually sort of wash out, and we will then be really focused on that first-line maintenance opportunity with the opportunity for some patients to also get second-line treatment with Zepzelca as well.

Great. Well, with that, right on time. Thanks so much guys for joining us. Thanks, everyone.

Thank you, really appreciate the opportunity.