Jazz Pharmaceuticals plc (JAZZ) Earnings Call Transcript

Okay. Good morning, everyone. Welcome to the 11:20 session here at the Goldman Sachs Global Healthcare Conference. My name is Graig Suvannavejh. I cover European biopharma as well as U.S. biopharma for the firm, and I'm delighted to be hosting in a fireside chat with you today, Jazz Pharmaceuticals. With us today, we have Bruce Cozadd, who is CEO and Co-founder of the company; and Rob Iannone, who heads up R&D. So thank you both for joining us. Maybe just to kick things off from a very high level, maybe we'll start with you, Bruce. You were a Co-founder of the company. This goes back several years now. And obviously, you've been CEO for over 10 years now. And so first, let me congratulate you on the successes that you've had with Jazz.

And maybe we could start off, just at a very high level, as you find the company here in mid-2020. Could you just recap for us some of the highlights that you've had over the past 10-plus years? And as you think about where the company has come from, where it is today and where do you like to take it or see for the company over the next 3,5, perhaps even 10 years.

Yes. Thanks, Graig, for having me, and thanks for that question, which I'm sure could consume the entire fireside chat so I'll try to limit my answer. Yes, so I co-founded Jazz back in 2003 and stepped into the CEO seat in 2009. And I'm really proud of what we've built over time as a company with north of $2 billion in revenues, excellent after-tax profitability, good growth top line, good growth bottom line and a broadened R&D capability and pipeline. So that would be my big framing. We still have lots to do in terms of diversifying our revenue mix, making sure we've built out a strong pipeline both in the sleep neuroscience and the HemOnc oncology side, more globalization. We've got a direct presence in the U.S., Canada and major European countries, but there are still places we want to expand. We have more indications we can seek for the products we already have and we're excited to bring some of our earlier-stage R&D to fruition. But as we sit here in 2020 and I think about where we are as a company, it's a particularly sort of catalyst-rich year, as we said coming into the year. And despite COVID-19, we're finding that we're making excellent progress toward our top priorities, which are gaining approval of and launching JZP-258, which I'm sure we'll talk about today, also gaining approval and launching in the U.S. lurbinectedin, continuing our commercialization of Sunosi, including in Europe where we launched last month, progressing JZP-458 through its pivotal trial toward a BLA as early as the end of this year and continuing to focus on corporate development. You've seen what we've done in terms of our recent financing to make sure we have the capacity we'd like to have to be ready to move when we find the right opportunities that are both a strategic fit but also offer our shareholders great returns and continue to diversify our growth drivers going forward.

Great. That high-level perspective, really appreciate it. I do want to -- before we go into the different assets and the opportunities you see, I have been getting a lot of questions just around kind of where is Jazz today in terms of the financial metrics, financial performance. And you reported results last month with guidance that was lowered. And I just wanted to see if there were any updated thoughts on how you're seeing the year flesh out. And as I believe some of the drivers of that might have been related to COVID-19, we're seemingly in a different place right now, at least with COVID-19. Let's hope it continues the downward trends, obviously. But maybe if you could just talk about how you're thinking about the business for this year.

Sure. Well, I have to make a joke first, which is when you say we hope we're in a different place. I think we're all sitting in exactly the same place we've been sitting for a couple of months, judging by the video. But yes, when we gave guidance on May 5, and to be clear, I'm not going to update that guidance specifically today. But when we gave guidance on May 5, we absolutely tried to take into account the impacts of COVID-19 on a couple of fronts. We took it into account in terms of diagnosis and treatment of new patients, when we saw visits to doctors dropped, when we saw scheduled procedures being delayed or canceled, when we had to freeze our sales force to do virtual-only interaction with customers, when we realized that running healthy normal clinical trials was not ethical in the time of COVID-19, when we realized that starting a brand-new trial would probably be more difficult, when people were being told to stay away from health care facilities unless they had an urgent need. We had to factor all of that into our guidance. We also tried to take into account potential changes in payer mix with the huge spike in unemployment that all of us, I think, were surprised by, initially by the scale and speed of that. So we tried to take all of that into account. We did suggest in our guidance that we envision that things would start returning to normal or toward normal, I guess, I should say. And we've seen that. We've seen sleep centers that offer polysomnograms for diagnosis of narcolepsy reopening, we've seen stem cell transplants be scheduled again. So we're seeing some of the things we thought we would see. But I'd also point out, we're not even halfway through the year yet. And I think all of us can admit, there remains some uncertainty as to whether we continue to see a fall in viral spread and morbidity and mortality or whether we see in different parts of the world, and we are really operating around the world, whether we see spikes in that again, that again start to impact that delivery of care that's so important for patients and our business.

Yes. I think what struck me with your new guidance is that it seemed as if your Xyrem franchise, your sleep franchise, you had guided it to being relatively resilient despite COVID-19. And I think that's something that we can talk a little bit more about. And then interestingly, it was your oncology franchise that seems less resilient. And so maybe just for those who may not know the story that well, it just seems optically something you wouldn't necessarily think about in terms of anything that's cancer related. I mean can you spend a moment just kind of describing that dynamic?

Sure. And it's a great question. So in the case of Xyrem, we have a product that's been on the market for many years. It's the only product that's indicated to treat both excessive daytime sleepiness and cataplexy in narcolepsy, which is a very serious chronic neurologic disorder that impacts the lives of people with narcolepsy profoundly. And so most of our Xyrem business in any period is a continuation of patients who've already been on therapy. And what we've seen during COVID-19 is that patients who are on therapy tend to stay on therapy. If anything, sort of our refill rates and our stickiness of existing patients seems as solid or maybe more solid than it's ever been. The impact of that business is more adding new patients to the top of the funnel, which requires either a new diagnosis of narcolepsy or somebody with narcolepsy who hasn't previously been treated with Xyrem or has been off therapy for a while, reinitiating or starting therapy for the first time. And that was impacted starting at the end of March and going into April. We started to see it come back even as we were giving our guidance in early May, but for sure, we saw that impact. I understand your question about being surprised that the HemOnc side of our business was actually more impacted. But what we saw was patients being -- doctors trying to have less interventional, less facility-based resource treatments. And so in some cases, that meant going to oral treatments rather than coming in for an infusion of therapy. Even if the efficacy of that treatment is a little less, the doctors were making their own judgment that patients' overall health was better protected by keeping them out of the health care facility at that time. I think we're already seeing a resumption of going back to what's the best therapy for the patient. That certainly impacted Vyxeos. I mentioned the slowdown in stem cell transplants. They were actually less being performed than the baseline coming in. That impacts products like Defitelio, which treat a complication that occurs after a stem cell transplant. I'll contrast that with what we're seeing in lung cancer. As you know, we're awaiting approval of lurbinectedin and looking forward to launching that product for relapsed small cell lung cancer. In our conversations with lung cancer treaters, they've made the decision that maintaining therapy for their patients during this period is the best thing they can do for their health. In other words, COVID-19 is a distant second concern relative to aggressive treatment of the small cell lung cancer.

Okay. We'll revisit lurbinectedin in a little bit. But obviously, given your mix of revenues, Xyrem and your sleep franchise continues to kind of dominate a lot of at least the questions that I get from investors. So let's spend a few moments kind of on where Xyrem is today. And I think for the investor, there's lots of noise in the space right now. There's lots of new drugs that are getting approved, this is obviously good for patients and prescribers to have more options. You've launched Sunosi recently. We'll talk about how those launch dynamics are going. But how should one make sense of all of the moving parts in terms of new entrants and in terms of how we think about the Jazz core sleep franchise?

Yes. Well, as we look at narcolepsy, and I'll start with narcolepsy, today, there are essentially 3 promoted products in that space, 2 of which are ours: Xyrem and Sunosi, Sunosi for EDS in narcolepsy. And we think those are both terrific products in terms of what they offer patients in terms of benefit. Xyrem is really the standard of care for treatment of narcolepsy and Sunosi, we think, relative to the other wake-promoting agents and stimulants that have been available for years, mostly genericized, really offers great efficacy for up to a 9-hour period each day. In our clinical trials, we saw maintenance of that strong efficacy over a long time. So we think our products are really well positioned in terms of therapeutic benefit, in terms of access, in terms of payer coverage. So when you talk about a lot of entrants, there's talk about other future entrants, but there are 3 products today. Of course, our ambition in sleep goes beyond narcolepsy. So Sunosi is approved for EDS in obstructive sleep apnea as well, which is actually a larger market opportunity. And we're also looking at idiopathic hypersomnia for JZP-258, where we completed enrollment of our Phase III trial ahead of schedule in the first quarter. Looking forward to getting that data out. This is another serious sleep disorder, in this case, with no approved treatment where we have evidence historically of efficacy of Xyrem, and we're looking forward to expanding that opportunity as well. So as we sit here today and looking forward, we believe we're really well positioned with leading products in sleep.

Yes. I think that color is great. If we were to focus, maybe dial in a little bit about your narcolepsy franchise, it would appear that you've got a strategy to kind of help maintain, if not grow that franchise, but then there's authorized generics that are coming as well. So in terms of narcolepsy, do you see continued growth? Or do you see that business kind of more perhaps leveling out, but the sleep -- overall sleep franchise might grow, given, again, expansion into other non-narcolepsy indications?

Yes. Well, we've seen continued growth of Xyrem over the last few years. We certainly were guiding for good growth again in 2020. We had to temper that a little bit with COVID-19 and the slowdown, which we hope was temporary in new patient starts, and taking into account potential changes in payer mix over the balance of the year. But I'll remind you, there are more undiagnosed narcolepsy patients than there are diagnosed and treated narcolepsy patients. So there continues to be a real opportunity to grow that market in terms of treated patients. We're looking forward to bringing JZP-258 to market with a 92% reduction in sodium. We know there are patients that don't get Xyrem therapy today because of the sodium load alone, that's what doctors have told us. There are patients I would put on Xyrem but for the sodium load. We think that will expand the opportunity. I already mentioned the idiopathic hypersomnia potential. So there's good opportunity for growth. Now we do expect authorized generics in 2023. Remember that authorized generics mean we have economics in those products, and we've talked about that being very meaningful and actually rising over time in the case of our deal with Hikma, the first filer. We have 3 other authorized generics that will be very limited volume and then the potential for generic, not authorized generic, competition out in 2026. So there's some time and we have economics in those. But if you think about the launch of JZP-258 and getting people on a product that has that lower sodium load, lower by 1,000 to 1,500 milligrams per night, so a very substantial reduction. If you have patients on that product and an authorized generic of Xyrem comes along, you'd be asking patients to increase their sodium load more than tenfold to a level that's regarded as unhealthy according to guidelines, AHA and other guidelines, for recommended maximum daily intake of sodium. And remember, we're just talking about medication. This is before dietary sodium as well. So I think the importance of JZP-258 is largely that we can offer patients a healthier option today. But it also, I think, has relevance for what happens later when there are generics to the higher-sodium Xyrem.

Maybe if I could ask you just a follow-up on 258. It would seem to me at least that converting a patient or switching a patient might be something in their best interest from a health perspective. How do you think we should be -- for those who have to model this, how do you think we should be thinking about what that conversion over might be? What that switch dynamic is? Any color you could provide for us that gives a sense of how you're envisioning whether there's a stickiness to the base Xyrem patient segment because it's tried and true that works for them and they want to stay on it even though there is a lower sodium version. Just how should we be thinking about that?

Yes. Really great question. Every time you launch a new product that you believe is an improvement over the standard of care, it always feels to me like everybody should be on that product the next morning. And of course, that's not what happens. Not everyone sees their doctor every day, right? So when is that patient next visiting their doctor? Not every doctor the day after approval is fully up to speed on the story, understands the benefits, understands how to prescribe, right? So there's always a period of time involved. So I don't want to predict that overnight, everybody is on the new product. But I do believe, if you look at the 2 products, Xyrem and 258, it's hard to imagine a doctor saying Xyrem is the better product for you. It has the same active moiety in the same amount in terms of oxybate, but with a reduction in the sodium. And the Phase III data we rolled out at World Sleep in Vancouver in September, I think demonstrated to people that not only did we hit our end points of our pivotal trial but in fact, you could see the comparison as people transition either from placebo on to 258, how did that look relative to our historical data of placebo on to Xyrem. If people converted from Xyrem on to 258, how did that work in terms of their symptoms? So I think that data was important -- an important part of that story. But the last piece of this is understanding how that conversion of a Xyrem patient to a 258 patient would happen in practice. One of the things that often causes physicians or patients to decide not to transition is they don't want to go off an effective therapy, right, wean off and then have to start a new therapy and ramp up, right, titrate up. So one of the really important things that was in our clinical data was the ability to take a patient who's on a Xyrem dose on Tuesday and switch them to that same dose of 258 on Wednesday, right? This isn't a case of going off therapy and back on to therapy. It's a switch that can happen instantaneously. I think that's very relevant in thinking this through, again, from a physician and a patient perspective. And the last thing I'll say is we're going to work very hard to make sure access for patients is good, coverage is good. We did enter into contracting, not only on Sunosi, a new product launched last year in the U.S., but Xyrem as well. So we have relationships with the payers around our narcolepsy franchise. I think that will be helpful as we bring 258 to the market. And what we don't want to do, Graig, is create a disincentive, an economic disincentive for people to use 258. So this is not going to be one of those cases of, I've got a better product for you, is it worth the extra premium for that? We want to make sure patients really do have good access to this new therapy.

Maybe before switching on to Sunosi, I did want to ask about a potential new product that might be coming out that just reported some positive Phase III data. Based on my conversations with investors, they do see that the data look good, but obviously, it's more than just data. There's some other intricacies involved. And so obviously, we're talking about the once-nightly version. And so for those who have a worst-case scenario in their mind that, well, why wouldn't we just see a scenario where the entire Xyrem franchise might switch over from twice nightly to once nightly. For those who have that still in their head, why won't that be the case? And whether it's because of the product attributes or perhaps from other strategies that Jazz has in mind, if you could just walk us through how you're thinking about that potential competitive threat.

JZP-258, I've just told you why we developed the product. And we've been developing this product for almost 10 years, right? As the leader in this space, as a company with a substantial franchise in Xyrem, we went out and talked to physicians and patients about what could we do to improve Xyrem. And the most important thing to improve was, in fact, the sodium content, right? And that's why we prioritize bringing this product to market. You know because we publicly disclosed it, that we also have a once nightly in development. But importantly, it's once nightly and low sodium, not once-nightly high sodium. So given the choice between a product that's healthier in a chronic condition, right, a lifelong treatment condition, where we know there's high cardiovascular comorbidity, right, 70% to 80% of narcolepsy patients are being drug-treated today for one of their cardiovascular risk factors, right? This is not some hypothetical. We believe that when someone comes along and says, I can give you convenience, which is how many times you need to take the drug versus health, I think the health is more important. And again, that's what drove us to prioritize the products the way we did. What I'll also say is once-nightly has benefits and drawbacks. And the benefit is it sounds better to say I only need to take my drug once. But in fact, for patients who do get up to take that middle-of-the-night dose, these are narcolepsy patients who, before treatment, were waking up 10 or 12 times a night. For them waking up once a night is not the end of the world and getting up in the middle of the night gives them the opportunity to do things like go to the bathroom, right? And there are people who need to go to the bathroom over the course of the night. Once-nightly dosing means you've got a sedative hypnotic, right, a version of the date rape drug onboard all night and don't have the ability to get up and go to the bathroom. You might not have the ability to get up and check on your young children. And if you take that first dose, I'd say first dose because we have 2 doses. If you take that first dose later at night than your normal routine, you have the opportunity with our drug to not take the second dose and thereby be able to get up in the morning, drive your car, go to work. If you've got the once-nightly fixed dosing, you don't have that flexibility. Once you've taken it, you've signed up for the entire period of activity. So I think it's important to recognize those differences between the 2 drugs in terms of salt content, dosing flexibility and what's most important to patients. And you know we talk to patients all the time, so we have a sense for how those products stack up. The other thing I'll say is we've seen top line Phase III data for the other product. We haven't seen the full data. We have lots of questions about what that full data will show. I think that company has indicated that data might not be available until next year, so we'll wait to see it along with everyone else. But then they need to submit that for approval. They need to get approval and they need to launch. And there are some complexities there, too, in terms of intellectual property we have, Orange Book-listed patents we have, on Xyrem, which is an application they're going to have to reference using their 505(b)(2) strategy. They're talking about regulatory strategies where they're going to construct the label in their language that doesn't read on our IP. FDA, in the end, is the arbiter of what that label says. You can propose whatever label you want, but in the end, FDA will decide what needs to be in the label, and that might influence whether they need to certify to our patents. Even if they don't certify to our patents, we have relevant patents and we can take actions to defend our IP appropriately. And the last thing I'll say is bringing an oxybate product to market involves important considerations around REMS, around making sure that drug is safely used by patients, right? This is a black box warning drug with significant concerns if you don't use so properly, including making sure you discontinue alcohol, right? You don't want another depressant, respiratory depressant on board. But it's also important to make sure there isn't abuse, misuse and diversion of this scheduled substance. And we've said we hope to get approval on a PDUFA date, which is next month, for JZP-258. But we've also said we probably won't launch until the fourth quarter because it takes a while to implement that REMS. I'll remind you that they all need to implement a REMS too, whether they create their own, whether they're trying to join a REMS that exists on paper but not in practice yet in the case of the waiver REMS of the generics, but they're going to need to figure out a way to do that safely as well. So there are some chapters of the story not written yet.

Okay. And maybe just a quick follow-up before maybe we move over to lurbinectedin. But in this situation, is your base case that there will be a 30-month stay?