Jazz Pharmaceuticals Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

There are 18 speakers on the call.

Operator

Thank you, operator, and good afternoon, everyone. Today Jazz Pharmaceuticals reported its Q2 2024 financial results. The slide presentation accompanying this webcast is available on the Investors section of our website. Investors may also refer to the press release we issued earlier today, which is also posted to our website. On the call today are Bruce Cozad, Chairman and Chief Executive Officer Renee Galla, President and Chief Operating Officer Rob Unone, Executive Vice President, Global Head of R&D and Phil Johnson, Chief Financial Officer.

Operator

On Slide 2, I'd like to remind you that today's webcast includes forward looking statements such as those related to our future financial and operating results, growth potential and anticipated development and commercialization milestones and goals, which involve risks and uncertainties that could cause actual events, performance and results to differ materially from those contained in these forward looking statements. We encourage you to review the statements contained in today's press release, in our slide deck and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward looking statements made on today's webcast. We undertake no duty or obligation to update our forward looking statements. As noted on Slide 3, we will discuss non GAAP financial measures on this webcast. Descriptions of these non GAAP financial measures and reconciliations of GAAP to non GAAP financial measures are included in today's press release and the slide presentation available on the Investors section of our website.

Operator

I'll now turn the call over to Bruce.

Speaker 1

Thanks, Andrea. Good afternoon, everyone, and thank you for joining us today. I'll open with a brief overview of the Q2 and then move to an update on our view of the business moving forward. Beginning with the results for the Q2 on slide 5, our strong commercial performance generated our largest revenue quarter ever, with more than $1,000,000,000 in total revenues across our growing and diversified portfolio of medicines. Looking at our neuroscience therapeutic area, Zywave remains the oxivate of choice and its durability is underscored by a 13% increase in net product sales compared to the same quarter in 2023.

Speaker 1

In narcolepsy, we see strong patient demand and Zywave remains the number one treatment. For idiopathic hypersomnia or IH, Zywave remains the 1st and only approved therapy for this condition and we are continuing to build the market. Closing in on its 6th year of availability, Epidiolex continues to grow with sales reaching approximately $247,000,000 in the quarter, reinforcing our belief in its blockbuster potential. Patient demand is being driven by multiple U. S.

Speaker 1

Commercial initiatives, which Renee will cover in more detail, and we're pleased with our progress on market expansion outside the U. S. Our oncology therapeutic area continues to perform well, and I'll highlight that Zebzelka had a particularly strong quarter. With Rielly's, we continue to see high utilization in the pediatric population, while adoption in the adolescent and young adult market is proceeding a bit more slowly than anticipated. Moving to our R and D and pipeline efforts, we are expecting data readouts from late stage and derisk programs within the next several quarters, including fersenidatumab in first line gastroesophageal cancer or GEA, Epidiolex in Japan and Zepzulka in first line small cell lung cancer, each of which represents a potentially meaningful value inflection point.

Speaker 1

On the operational front, we continue to generate strong top line growth and cash flow during the Q2. This ongoing financial and operational strength is a result of our focus on maintaining disciplined capital allocation and investing in opportunities that we believe have a clear value proposition and return on investment. Later in the call, Phil will provide an overview of our updated guidance, which was also outlined in today's press release. Turning to Slide 6, I want to comment on Vision 2025, why we rolled it out, the progress we've made and how we'll handle 2025 going forward. In 2021, investors expressed significant concerns about the future of our business, given looming oxybate competition.

Speaker 1

We saw a brighter future where we could drive substantial growth in our business while diversifying away from ZYRA. In early 2022, we introduced Vision 2025 to communicate that we expect that our oxyvate franchise to grow through the entry of generics, as well as branded competition, driven by Zywave in both narcolepsy and IH. We saw potential for Epidiolex to become a blockbuster product. We expected substantial growth in our oncology business. We would use corporate development to augment our pipeline and future growth prospects.

Speaker 1

And we saw opportunities to increase operating margin as our business scaled. Turning to slide 7, how have we delivered against those priorities? Comparing our 2021 revenue to our 2024 revenue guidance, our overall revenue is projected to grow from $3,100,000,000 in 2021 to $4,000,000,000 to $4,100,000,000 in 20 24. We We have grown our total oxybate revenue to approximately $1,900,000,000 over the past 4 quarters, which is higher than it was in 2021, with Zywave having grown from $535,000,000 to approximately 1,350,000,000 In the last four quarters, Epidiolex revenue was approximately $920,000,000 including approximately $247,000,000 in the second quarter, and we're confident in achieving blockbuster status. And our oncology business has already achieved blockbuster status, generating nearly $1,100,000 in revenue in the last year, up from roughly $734,000,000 for the full year of 2021.

Speaker 1

In terms of diversification, this quarter Xyrem, including AG royalties, represented approximately 11% of our total revenue, down from 41% in 2021. On the corporate development front, Sanitiza map was not part of Jazz's pipeline when we rolled out Fizz in 2025. While it won't contribute $500,000,000 to revenue in 25, over the long term, we believe it has the potential to provide much more revenue and value than other corporate development deals we could have done that offered more near term revenue, but less peak revenue and durability. In terms of operating margins, they will vary with where we are in the product lifecycle across our portfolio. You should expect margins to be lower when we're investing in late stage clinical development of promising assets and when we're making early commercial to drive uptake.

Speaker 1

And you should expect them to move higher as revenues scale post launch, as we experienced in 2022. We'll continue to use a mid to long term framework to ensure we allocate capital to maximize benefit for patients and value for Jazz, not just maximize near term margins. Continuing to Slide 8, Vision 2025 provided a useful roadmap externally and internally. However, it's become clear in our conversations with investors that is no longer the case. And it is creating too much focus on 1 single year in our future, including whether or not we'll manage our business for long term value or to achieve near term metrics.

Speaker 1

So we are no longer providing the Vision 2025 metrics and we'll revert to how we manage and communicated with you about our guidance pre Vision 2025. We will provide our 2025 guidance on our Q4 2024 earnings call, which will reflect our expectations on key developments and advancements across our business. Our commercial, R and D, corporate development and operational excellence priorities remain unchanged. Specifically, achieving commercial excellence to drive growing and diversified revenues, reaching more patients and creating value for shareholders by making smart investments in our pipeline, including through corporate development and being disciplined capital allocators, making trade offs across our business to best invest for long term sustainable growth and value. We are focused on executing on these priorities and continuing to make the changes to and investments in our company that we believe will drive success for Jazz.

Speaker 1

We also remain committed to being a great place to work and cultivating a high performance organization that is focused on bringing innovative medicines to more patients and delivering shareholder value. In terms of people, capabilities, assets and financial resources, We are as strong a company as we've ever been and I'm very confident in our future. I'll now turn the call over to Renee to review our commercial performance, after which Rob will share an update on our R and D progress. Phil will provide a financial overview and then we'll open the call to Q and A. Renee?

Speaker 2

Thanks, Bruce. Starting on Slide 10, I'm excited to provide an update on our commercial progress during the Q2. Total revenue from Sleep, which includes Xylwave and Xyrem net sales plus royalties from high sodium oxybate authorized generics or AGs was approximately $485,000,000 during the Q2 of 2024 compared to approximately 492,000,000 dollars during the same period in 2023. In the Q2, BI Wave net product sales grew 13% year over year approximately $368,000,000 We remain confident in the growth and durability of Viwave and expect it to continue to be the reauthorizations and churn we experienced with Cywave during the Q1 returned to normalized levels during the Q2. I'll also note that a large number of narcolepsy patients initiated XYOSTED therapy in the Q1 of this year as a result of Xyrem being removed from certain formulary, with a meaningful percentage of those patients initially utilizing bridging and support programs as they transition to XYOST.

Speaker 2

In the Q2, we've seen a normalization in the use of these programs as many of those patients who initiated in the first quarter resumed commercial coverage following the usual benefits review and authorization process. Turning to our quarterly patient metrics, there were approximately 9,925 narcolepsy patients taking XY Wave exiting the 2nd quarter, an increase of approximately 25 patients from the prior quarter. I'll highlight that we are receiving promising early feedback from the field nurse educator program we launched earlier this year. This program enables new XYOST patients to interact in person with trained healthcare professionals as they begin OXIVATE therapy, providing an additional layer of support during the time when patients are tie trading and optimizing their OXOBI therapy and are most likely to have questions or discontinued treatment. Moving to IH, we continue to view this indication as the strongest growth opportunity for XYOST.

Speaker 2

Exiting the Q2, there were approximately 3,300 active IH patients on XYOSTED, an increase of approximately 250 from the prior quarter. Our expanded field force has been active in the market for a full quarter now with a particular focus on increasing the depth and breadth of IH prescribers, which continues to drive demand. Similar to narcolepsy, our field nurse educator program is active and helping patients navigate initiation of Octavate treatment. This is especially important in the IH community which has less experience with oxybate compared to the narcolepsy community. Outside of the branded oxybate business, we recognized approximately $54,000,000 in AG royalty revenue in the 2nd quarter.

Speaker 2

We remain confident that high sodium AG royalty revenue will exceed $200,000,000 in 2024. Moving to Slide 11, Epidiolex growth remains strong with net product sales of approximately 2 $47,000,000 in the 2nd quarter, representing a 22% increase compared to the same quarter in 2023. Given slightly different inventory build and burn patterns affecting the 1st 2 quarters of 2023 and 2024, I think it's helpful to look at Epidiolex growth over the first half of twenty twenty four, where net product sales increased approximately 14% compared to the same period last year. Overall growth in the Q2 was driven by our U. S.

Speaker 2

Commercial initiatives as well as ex U. S. Geographic expansion. We remain confident in the long term growth prospects and blockbuster potential of Epidiolex. Key drivers of increased demand in the U.

Speaker 2

S. Included the positive response to data on the benefits of Epidiolex beyond seizure control such as language and communication, cognition, executive function and emotional and social function, as well as synergies from treatment with Epidiolex plus clozavail. We're also continuing to see increased penetration in the adult patient setting, which is supported in part by data showing that many patients may reach adulthood without a specific LGS diagnosis and by providing HCPs with clear diagnostic tools for adult patients. We also launched a virtual nurse navigator program during the quarter, providing Epidiolex patients and their families with a resource to discuss medication related topics such as optimized dosing. It's still early, but the initial response to this program has been exceptionally positive.

Speaker 2

Further opportunities for growth include continued education to support optimal dosing, focused data generation and geographic expansion beyond the more than 35 countries where Epidiolex is currently approved with additional launches and market reimbursement expected later this year. Moving to Slide 12 and our oncology business, total oncology revenue for the quarter was approximately $277,000,000 Rylase net product sales of approximately $108,000,000 represent a 6% increase from the Q2 of 2023. Rylaid's demand continues to be driven by several factors, including its near universal adoption in pediatric asparaginase based oncology protocols in the U. S. And adoption of the Monday, Wednesday, Friday dosing regimen.

Speaker 2

We continue to see the most opportunity for growth in the adolescent and young adult or AYA market and we are continuing to educate oncologists to treat these patients about the benefits of asparaginase therapy. Turning to Slide 13 and Zephelka, we saw significant growth this quarter with net product sales increasing 15% year over year to $81,000,000 Zepselka remains the number one treatment for second line small cell lung cancer patients and the overall survival and real world evidence data underscore the positive benefit risk profile for this difficult to treat population. We also believe that physicians gain valuable experience with Sefzelka during the platinum chemotherapy shortage that has influenced their treatment decision. Healthcare providers continue to deliver positive feedback on the product's clinical benefit as well as ease of use and administration for patients and their healthcare practices. Beyond that Falco's use in second line treatment, there is a clear unmet need for small cell lung cancer patients in first line treatment.

Speaker 2

If our ongoing Phase III trial of Zafalka in first line small cell lung cancer is positive, we believe we have an opportunity to drive significant growth and most importantly improve patient lives and outcomes. With that, I will turn it over to Rob for an update on our pipeline and upcoming milestones. Rob?

Speaker 3

Thanks, Renee. Slide 15 provides an overview of the key clinical programs in our diversified pipeline. We have catalysts across oncology and neuroscience in the near future, including anticipated data readouts from late stage derisk programs. I'll begin with oncology and zanodetimab, our highest priority pipeline program. Since our last quarterly report, we have made significant progress toward advancing our regulatory strategy.

Speaker 3

During the Q2, FDA accepted and granted priority review for our BLA for the treatment of previously treated unresectable locally advanced or metastatic HER2 positive second line biliary tract cancer or BTC, setting an action date of November 29, 2024. Based on communication with the FDA to date, we do not expect the agency to hold an Oncology Drug Advisory Committee, or ODAC, meeting in connection with the review of our BLA. In addition, the EMA has validated our zanodatabat marketing authorization application with potential approval as early as the Q2 of 2025. We are also progressing our Phase 3 first line gastroesophageal adenocarcinoma or GEA trial. Enrollment remains on track.

Speaker 3

As a reminder, this is an events based trial and the readout timing is not exact. Based on an updated blinded assessment of progression events relative to the initial protocol assumptions, we estimate top line progression free survival or PFS data will be available in the Q2 of 2025. If the trial is positive based on PFS and supported by a trend in the interim overall survival analysis, we expect it would support registration. I'll speak more to our zenodatumab development plan in just a moment. We're also pleased with the progress of the ongoing ZYPZELCA small cell lung cancer first line trial.

Speaker 3

We expect top line PFS data for ZIPCELLCA in combination with Tecentriq in first line extensive stage small cell lung cancer in late 2024. If approved, this new indication would enable more patients with small cell lung cancer to potentially benefit from longer duration of therapy with SYBELCA. Turning to EPIDIOLEX. We anticipate top line data from our Phase III trial in Japan in the second half of twenty twenty four. We were disappointed that the Phase 2b trial of suvacaltamide for essential tremor was not positive.

Speaker 3

While we do not anticipate further substantial investment in the ET program, we are continuing to analyze the data to better characterize the treatment effect and larger than expected placebo response. Pending results from the ongoing Phase II trial in Parkinson's disease tremor, which are expected in the Q1 of 2025, we will determine next steps for the program, if any. I'd also like to provide an update on GACP-four forty one, our clinical stage orexin 2 receptor agonist. Based on further review of the Phase 1 data and pending feedback from the FDA, we are planning to initiate a small Phase 1b trial of JCP-four forty one in NT1 patients. We expect data from this trial to further our understanding of JZP-four forty one and orexin-two agonism, providing key learnings that could inform future development efforts.

Speaker 3

Now turning back to zanidetimab, Slide 16 provides more detail on our development plan. We have meaningfully progressed sanadatumab development across multiple indications since bringing it into Jazz. And we remain excited about the potential of nanodetimab to transform the current standard of care in multiple other HER2 expressing cancers, including in cases resistant to prior HER2 therapies. Our development plan represents a robust investigation of this molecule, including an ongoing trial in GEA that we believe would support registration in that indication and several trials in breast cancer. We are pleased to announce we have initiated the Phase 3 EMPOWUR trial, which is designed to evaluate sanodetimab in combination with chemotherapy after progression on HER2, where we have the opportunity to be the 1st HER2 targeted therapy to demonstrate efficacy and safety in breast cancer patients post in HER2.

Speaker 3

On Slide 17, we continue to be impressed by the maturing data in BTC. At ASCO in June, we presented overall survival and longer term follow-up data from the Horizon BTC-one trial, evaluating zanodetimab in patients with previously treated HER2 positive biliary tract cancer. For the trial's primary endpoint, results demonstrated that a confirmed objective response rate was maintained at 41.3% and one additional patient achieved a complete response since initial findings were presented at the ASCO Annual Meeting in 2023. The median duration of response, one of the trial's key secondary endpoints, increased by approximately 2 months to 14.9 months. Senadatumumab also demonstrated a median overall survival of 15.5 months in all patients with HER2 positive BTC and 18.1 months in patients with centrally confirmed immunohistochemistry 3 plus tumors.

Speaker 3

In our view, these results highlight the clinically meaningful benefits of sustained responses with continued treatment with zanodetimab, also supporting its differentiation from other HER2 agents. Overall, we're excited about delivering Zanadatimab to B2C patients in the near term, and we're executing on a robust development plan based on our conviction that Zanadatumab has significant potential to improve care for patients with multiple HER2 positive tumors. Now, I will turn the call over to Phil for a financial update. Phil?

Speaker 4

Thanks, Rob. I'll start with our top and bottom line results on Slide 19. As a reminder, our full financial results are available in our press release and 10 Q. In the Q2 of 2024, we achieved more than $1,000,000,000 in total revenues. This was driven by growth of our key products in both neuroscience and including 15% growth of Zywave, Epidiolex and Rylase combined compared to the Q2 of 2023.

Speaker 4

Our disciplined capital allocation and focus on operational excellence drove adjusted net income of $365,000,000 which represents an increase of 12% compared to the same period in 2023. We continue to generate significant cash from our business, recording approximately $331,000,000 of cash from operations in the Q2. Our strong overall financial position means we have significant flexibility to invest in priority commercial and R and D programs as well as corporate development opportunities. Turning to Slide 20, our guidance updates do not reflect substantially changed expectations for the year, rather they reflect the fact that with 6 months of actual results under our belt, we have greater visibility into the likely variability around our estimates. With two exceptions, our oncology revenue, where we do foresee modestly lower revenue and our share count, which we expect to be substantially lower.

Speaker 4

The primary driver of our Avaya outlook for full year oncology revenue is that as previously noted, in the first half of the year, we've not seen the uptake in the adolescent and young adult market needed to support our initial expectations for second half Riley's revenue. This is being partially offset by continued strong performance of Zepzelco. On Rylase, we continue to see opportunity for growth in AYA, but it will take time to build that market. For neuroscience revenue, year to date performance gives us confidence we're tracking well to our expectations and points to less variability on both sides of our estimate. So we're narrowing the range accordingly.

Speaker 4

The net effect of these changes is to narrow our expectations for total revenue from a range of $4,000,000,000 to $4,200,000,000 to a range of $4,000,000,000 to $4,100,000,000 Moving on to the next slide and the rest of the income statement. Gross margin percent guidance is unchanged at 93%. Expectations for operating expenses are largely unchanged as well, but we do think it's unlikely we'll achieve the lower end of our initial guidance range, we've narrowed the ranges accordingly. For SG and A, items we discussed on the Q1 call like higher litigation expenses and the bad debt write off contribute to making the low end of our initial guidance range unlikely. And we're making targeted incremental investments to drive up the dialect sales and to prepare for the ZYNADATA MAP launch, funded in part by reduced investment in other areas.

Speaker 4

On R and D, I would note that our Zenidatumab development program is progressing as expected, giving us greater visibility into our expected full year R and D spend. In addition, we've narrowed guidance for our effective tax rate to a range of 10% to 12%. Adjusted net income guidance remains unchanged at $1,275,000,000 to $1,350,000,000 while our GAAP and non GAAP EPS guidance range has been increased by approximately $1 per share to reflect lower shares outstanding, driven by the election to repay the principal of the 20 26 convertible note in cash and to a lesser extent our Q2 2024 share repurchases. Earlier this month, we finalized a repricing of our term loan B, reducing the interest rate by 86 basis points. At the current amount outstanding under the term loan, this equates to anticipated annual interest savings of roughly $23,000,000 and we've reflected the expected current year savings in our updated guidance.

Speaker 4

I would note that the election we made to repay the principal of our 2026 convertible notes in cash is similar to the election we made last year on our 2024 convertible notes. The 2024 notes maturing mid August and we're evaluating whether to refinance the notes or to repay them with available cash. As outlined in our earnings press release, in the Q2, we effectively exhausted our prior share repurchase authorization, repurchasing just over $161,000,000 in shares in June. To enable future share repurchases, our Board has approved a new $500,000,000 authorization with no expiration date. As you think about allocation of capital moving forward, note in the recent quarters, free cash flows primarily increased our cash and investment balance.

Speaker 4

And as of June 30, our cash investment balance stood at approximately $2,000,000,000 We believe this balance provides sufficient cash to fund operations and positions us to act quickly should value creating corporate development opportunities arise. Going forward, we expect modest growth in our cash investment balance above this $2,000,000,000 level. So after we've made prudent investments to drive the future growth of our business, a significant portion of free cash flow is likely to go toward debt pay down, share repurchase or some combination thereof. With that, I'll turn the call back to Bruce for closing remarks.

Speaker 1

I'll conclude our prepared remarks on Slide 23. We remain focused on creating a high growth global biopharma company with a diverse pipeline and healthy balance sheet that we can leverage for value creation. On the commercial side, we are seeing continued growth of our key growth drivers in 2024. And on the R and D front, we look forward to several near term catalysts, including data readouts for zanidetamab, Epidiolex and Zepselka. We're excited about the future of Jazz and believe we're well positioned to deliver growth and shareholder value.

Speaker 1

That concludes our prepared remarks. I'd now like to turn the call over to the operator to open the line for Q and A.

Speaker 5

Thank you. We will now begin the question and answer session. Our first question comes from the line of Jason Gerberry with Bank of America. Please go ahead.

Speaker 1

Hey, guys. Thank you for taking my question. So mine is just a follow-up on the Vision 2025 update. And I get why you decided to kind of remove that. Just curious if you would still agree with some of the general premises on the revenue side, which is basically stable oxybate business and then meaningful growth from some of your other non oxybate product growth drivers.

Speaker 1

Is that still kind of a reasonable thing to be thinking about as we head into 2025?

Speaker 6

Yes. Thanks for the question, Jason. Short answer would be yes. While we've removed the specific numerical targets for 2025, we continue to be very pleased with the way our oxybate business is developing, particularly the growth of Zywave. You're seeing really nice growth in Epidiolex and the oncology business.

Speaker 6

So the general trends that we're highlighting for the Q2 in our guidance for 2024 and moving forward remain the same.

Speaker 5

Our next question comes from the line of Mark Goodman with Leerink. Please go ahead.

Speaker 7

Yes. Hi. Can we talk about Ziwave just a little bit and the number of patients, ARCO has gone up quite a bit. If you just look at 2Q last year versus 2Q this year, and yet if you strip out the IH, it just seems like revenues are flattish. So what is going on behind the scenes with pricing or and gross to nets and just maybe you can just help us there.

Speaker 7

It seems something we're missing. I thought in the Q1, you would explain it where you went up in the patients, but you didn't book the revenue because of the programs. But if the programs went away in 2Q, why wouldn't revenues have been higher? Thanks.

Speaker 6

Thanks, Mark. Renee, you want to jump in a little bit on the Zywave business?

Speaker 2

Sure. So thanks for the question, Mark. So certainly we did see a higher influx of patients in Q1 with some Xyrem formulary changes, which ended up causing a number of patients to choose Zywave. Now it's important to also remember the difference between narcolepsy and idiopathic hypersomnia. Our narcolepsy patients when they come on through a shift, they're generally coming on at the same relatively similar dose.

Speaker 2

And when they transition, it is highly likely that they do access our support programs, which we did see in the Q1. And of course, we also see payer authorization reauthorizations for both narcolepsy and IH in the Q1. And so that did have an impact. The use of those programs, leveraging those programs did largely normalize across the second quarter. So despite a higher volume from not just reauthorization, but also transitions, we did see more of that normalization.

Speaker 2

When it comes to IH, when those patients begin, they are typically not prior oxybate patients. And so they do have to go through a full titration, which does take time. With respect to gross to nets, we have not seen meaningful impacts in terms of our gross to nets. But as with any product area where you see greater competition coming into the market, there are impacts of that. So largely what you see is a change, positive change in terms of patient adds.

Speaker 2

Recall that we do give net patient adds on a quarterly basis. So that's what you're seeing for the Q2. And we continue to have strong pricing near universal coverage 90% on the commercial front. And then also good confidence in the future growth with idiopathic hypersomnia. But this is really not anything other than some seasonal impacts that we're seeing between the quarters on revenue.

Speaker 5

Our next question comes from the line of Jessica Fye with JPMorgan. Please go ahead.

Operator

Great. Thank you for taking my question. Sticking with Zywave in narcolepsy, you're still growing net patients, albeit modestly. What's the right way to think about the outlook for Ziwave net adds in narcolepsy from here?

Speaker 6

Renee?

Speaker 2

Yes. Great question. So with respect to narcolepsy, I would say that is not a market that is growing broadly in the same way that I would think about idiopathic hypersomnia. So we did have that larger patient add in the Q1 that I mentioned just a few moments ago. And as we look at Q2 and the number of net adds there, I would say that's a little bit more in keeping with what we would expect going forward as compared to Q1.

Speaker 2

I think what's remarkable about the Ziwave narcolepsy adds is that despite having a market that is not growing immensely, we continue to see very strong performance of Ziwave as the treatment of choice in narcolepsy, strong underlying business that equates to patients and physicians valuing long term health and valuing the benefits of low sodium. And then as we turn to idiopathic hypersomnia, I would say we continue to see that as more of a stronger growth driver for the Zywave brand and an area where we continue to invest in different programs to both increase diagnosis and support patients that are starting therapy through both field nurse educator programs and other patient support services.

Speaker 8

And then I'll just note,

Speaker 2

going back to Mark's question before, just as a reminder, we did see year over year growth from the Q2 of last year to the Q2 of this year of 13% for Zaiwave. So we are seeing some nice growth overall in the brand, very much in line with our expectations.

Speaker 5

Our next question comes from the line of Annabel Samimy with Stifel. Please go ahead.

Speaker 8

Hi. Thanks for taking my question. So I just wanted to go back to Vision 2025. When you said it from a revenue and margin perspective, I guess you had a certain idea about the prospects for your core portfolio driving organic growth and the margins you could still attain to support that. And I guess after that you made a number of other investments in your core portfolio as well as in Zansani.

Speaker 8

So with these additional investments, whether it's for Zywave or Epidiolex or even international growth, Is it a stretch to think that you could possibly bridge this gap that's been removed, but sort of drive more revenue out of the core than you initially anticipated given some of the investments that you made since you made that set that goal? And I guess the other question related is, should we just take the idea of corporate development out of our thinking? Thanks.

Speaker 6

Yes. Thanks, Annabel for the question. With respect to the first part of your question, yes, we have more in our portfolio now than we did when we set division, notably, Zanidatumab. And as we said in our comments earlier, while that's not going to contribute $500,000,000 in revenue in 2025, we see that as a very sizable product opportunity. And so investing behind that as opposed to, for example, a corp dev deal that might have brought near term revenues, but less growth over time, we see a better return profile for the Zany Datamap asset.

Speaker 6

So that's with respect to the products we currently have on the market and currently have in the pipeline? And then maybe to the second part of your question, should you take corp dev out? The short answer is no, but maybe I'll let Phil elaborate a little bit on how we continue to think about corporate development as a core part of our strategy.

Speaker 4

Yes, happy to, Bruce, and thanks Annabel. I definitely would keep corp dev on the radar screen. This is the area where we see opportunities to continue to build our business, both in oncology as well as in neuroscience. We simply aren't focused on driving to get $500,000,000 in revenue in calendar year 2025. We've been clear on that for the last couple of quarters, but corp dev does remain a vital part of our strategy moving forward, continuing to be focused on looking for medicines that can significantly improve standard of care, would have a pretty efficient commercial call point, can leverage our U.

Speaker 4

S. And expanding global footprint and create a durable revenue stream for the company. We do like the ability to have multiple PAs. There are times when either the opportunity simply are better in one play not only play not only in oncology, but also in neuroscience areas that we're looking at. And we'll be opportunistic looking at other opportunities that could build on the kinds of expertise and infrastructure that we've built looking at more rare and orphan kinds of disease populations.

Speaker 5

Our next question comes from the line of Gregory Renza with RBC Capital Markets. Please go ahead.

Speaker 9

Great. Thanks, Bruce and team. I appreciate the time. Thanks for taking the question. Just in keeping with the Vision 2025 theme, Bruce, if you just had time to reflect a bit on certainly the rationale, which you spelled out, which is certainly helpful.

Speaker 9

But how do you think about where investors and we should be judging Jazz when it comes to time horizon? Certainly, it sounds like you've mentioned the aspect of trade offs in the business in order to make investments. But what is the right time horizon do you believe that the investors should be looking at? Thanks so much.

Speaker 6

Well, I think we're in a fortunate position right now as a company where our current performance is strong, right? We just reported record revenues. We're seeing double digit growth in our key growth drivers, certainly led by Zywave and Epidiolex and Rylase. And we've got some near term data readouts coming that would make us excited about places we can add to growth from commercial or near commercial products. I mean, we're looking at a potential launch of Zanidatumab later this year.

Speaker 6

But the investments we're making, whether those are in our pipeline or through corporate development also have the potential to power us through the end of the decade and beyond. And so it's that balance of wanting to ensure that we're continuing to have a healthy business, throwing off nearly $600,000,000 in operating cash flow over the 1st 6 months of the year, but that we make the right capital allocation decisions and allocate capital to those things that are going to produce a return for our shareholders. So we're in that fortunate position of having a strong business now, but also able to invest for the future. So I can't give you a particular number of years, Greg, to your question. Exactly the right time horizon, but it's not about having a short term success, right?

Speaker 6

It's positioning the company for continued success over a longer time horizon.

Speaker 5

Our next question comes from the line of Joseph Thorne with TD Cowen. Please go ahead.

Speaker 10

Hi there. Good afternoon and thank you for taking my question. Maybe one on civelteimide. Now you have the ET data in hand, I guess, is there anything specific about the Parkinson's disease tremor population that you would notice particularly different or any differences in the trial design? I know that the PD study is looking a little bit later.

Speaker 10

That maybe gives you confidence that you might be successful in the PD study? And then maybe secondarily related to that, did you see any signs of activity in some of the secondary endpoints in the ET trial? Thank you.

Speaker 6

Rob, you want to jump in on this?

Speaker 3

Yes, happy to. So just addressing Parkinson's disease tremor. So for one thing, it is a different disease setting. And while we are measuring some of the same tremor attributes, it's a different disease setting. So we just have to wait for those results.

Speaker 3

The trial design is a little bit different. It's straight up proof of concept trial. There are only 2 arms versus the essential tremor trial, which has 3 different dose levels. Hard to know if that will make a difference ultimately. And with regard to additional secondary endpoints, we haven't gone into that or disclosed that level of detail yet.

Speaker 3

I would say we are digging in a little bit to understand why we might have seen the placebo effect that we saw, but we haven't gone into detail on some of the additional endpoints.

Speaker 5

Our next question comes from the line of Akash Tewari with Jefferies. Please go ahead.

Speaker 11

Hey, thanks so much. So Bruce, if zimzitimab ends up being even a $1,000,000,000 product, you'll have an oncology portfolio with a financial profile that would be kind of comparable to Exelixis, which is currently trading where Jazz is right now. With that in mind, would you ever consider spinning off the oncology business to unlock shareholder value given the stock is close to a 10 year low? And are there any parts of your product portfolio that you would consider core versus non core? Thank you.

Speaker 6

Yes, good question, Akash. First of all, over Jazz's couple of decade history, we've been a buyer of assets, we've been a seller of assets, we've licensed, We've bought individual assets. We've bought whole companies. We spun out businesses. So we will always look at what makes sense.

Speaker 6

The strength of our oncology business now, dollars 1,100,000,000 in revenue, I believe, over the past 4 quarters and growing double digits with zaniabdatumab still on the horizon certainly is an attractive business for us and one we look forward to continuing and investing in. In terms of what parts of our business are core, we've got a growing sleep business that we believe has good durability of revenue. We've got still a lot of growth in front of us in the epilepsy business as well as what I just mentioned about oncology. There are individual products, of course, that are smaller a different place in their product lifecycle and we vary our investments in those assets accordingly, right? We're certainly putting most of our capital behind those things that we believe have the most growth potential.

Speaker 6

So depending on what you mean by core, those may be less core assets where we're investing less. So there's still great products for patients. They're producing great cash flow for us, which we then can reinvest in higher profile opportunities.

Speaker 5

Our next question comes from the line of Amy Faudreau with Needham. Please go ahead.

Speaker 12

Hi, good evening. Thanks for taking my question. Perhaps on JZP-four forty one, can you shed some light on what drove the decision to continue evaluating it forward? And if you could give some details on what type of data we can expect to see in the second half of the year? And whether what type of future development that could inform going from there?

Speaker 12

Thank you.

Speaker 1

Rob?

Speaker 3

Yes. Happy to take that one, Ami. So as you know, we've only studied JZP-four forty one in healthy volunteers. And we've been able to assess the dose response characteristics in the healthy volunteer sleep deprivation model. We know from the field, from the biology of orexin 2 and from the field of other agents being developed that the dose and exposure that could result in meaningful effects in NT1 patients might be quite a bit lower.

Speaker 3

And so we wanted to evaluate in patients, in NT1 patients to understand that relationship and better characterize the potential therapeutic index. We think that can be characterized in a very discrete about 10 patient trial based on what we know for the field and felt that that would be a valuable endeavor even if ultimately 441 doesn't move forward. We obviously have a backup program that we've mentioned before, and we think we can learn to support that backup program as well.

Speaker 5

Our next question comes from the line of Andrea Tan with Goldman Sachs. Please go ahead.

Speaker 13

Good afternoon. Thanks for taking our question. Rob, maybe one for you here. How should we interpret the push out of the PFS data for the frontline GEA trial? Maybe if you could speak to how you're thinking about the evolution of the profile relative to your prior expectations and help us understand your level confidence that you will be able to see a meaningful separation between the arms?

Speaker 13

Thanks so much.

Speaker 3

Sure. So just as a little bit more context, the guidance that we have been giving previously are really based entirely on protocol assumptions. It is an events driven trial. So we as we accumulate PFS events, that will ultimately inform when the top line results would come out. And so now we've seen some blinded data and we're making a reprojection into 2Q.

Speaker 3

I would highlight that this is expected for clinical trials and not necessarily a bad thing that events are coming in more slowly than you might have initially predicted. We, of course, are blinded to the data overall. And I would just point you to some of the data that have been published outside of this trial, the ZANI plus chemo data that were first presented at ASCO GI in 2023 and you've probably seen the titles from ESMO, those data will be updated in a few months, as well as the zanituzolizumab chemo data that were published last ESMO 2023 and data across the other indications where we think that tanadetimab is performing very, very well and gives us a reason to believe that the upcoming trials will read out positively.

Speaker 5

Our next question comes from the line of Jeff Hung with Morgan Stanley. Please go ahead.

Speaker 1

Thanks for taking my question. For Riley, you indicated that it will take time to build the AYA market. Are there specific reasons for the slower uptake that differ from your expectations? And what kinds of initiatives can you implement or leverage can you pull?

Speaker 6

Renee?

Speaker 2

Yes. Thanks for the question. So we do believe this is a market that is addressable. We do believe there's a growth opportunity within the AYA market. This is largely about the time that it takes to drive education and driving education with adult treaters that may not be as familiar with protocols that contain asparaginase and familiarity with Rylase.

Speaker 2

I would also say that with respect to our pediatric business that underlying base business remains quite strong with Rylase being the only therapy available and a reliable therapy. What we're seeing in that part of the business is switching at the first sign of a hypersensitivity reaction. So really getting back to best practice, and that has been helpful for us. We're also getting a lot of positive feedback on the Monday, Wednesday, Friday regimen. So this is something that we have confidence in, in terms of a continued growth driver for us.

Speaker 2

And it really is more of a time and education element with respect to the AYA population.

Speaker 5

Our next question comes from the line of David Amblin with Piper Sandler. Please go ahead.

Speaker 14

Thanks. A question on IH, your competitor started dosing in their Phase 3 for idiopathic hypersomnia. So with that in mind and with a potential another OXIVATE product getting labeled for IH, How do you see the landscape evolving for Zywave in terms of patient growth and even the payer landscape? Thank you.

Speaker 6

Renee, you want to take that?

Speaker 2

Sure. I'm happy to. Well, first of all, we don't know what's going to play out with respect to an confidence in the market that we're building for idiopathic hypersomnia with Cywave. There are some differentiators that are important to keep in mind with Cywave. Even beyond low sodium, we have once nightly dosing in the label.

Speaker 2

There's flexibility for either twice or once nightly dosing. We also have a suite of patient support services that go beyond what we talked about on the call in terms of some of the financial benefits, but full wraparound support from initial cares nurse that helps the patient from the time they get a prescription until the time they actually receive that prescription in the mail. And then the field nurse educator program, which helps to educate patients through this process of titrating up to the right dose and then also in a position to help facilitate communication between patients and physicians. I think the investments that we're making in increasing disease awareness to help HCPs better identify IH patients, focusing specifically on sleep inertia. All of these things help to both build the market in idiopathic hypersomnia in general, because we think it's well beyond the number of patients that are currently on therapy, but also build a stronger brand as Zywave as a treatment of choice within idiopathic hypersomnia and Jazz with respect to the patient services that it provides.

Speaker 5

Our next question comes from the line of Gary Nachman with Raymond James. Please go ahead.

Speaker 15

Great. Thanks. So on corp dev, given some of your commentary there, I'm curious how much your philosophy may have changed, if at all, on the types of assets you're now looking for, maybe more earlier stage versus closer to commercial stage. And I know you're looking at both oncology and neuro, but is there more urgency to beef up the CNS pipeline, given some recent misses there? Thank you.

Speaker 6

Phil, you want to jump in on this?

Speaker 16

Yes. Happy to. Thanks for

Speaker 4

the question, Gary. So in terms of corp dev and interest by stage, we still look across the spectrum for market assets all the way to early preclinical collaborations. In terms of just number of assets that are available and opportunities to transact, I think you tend to have more of those earlier you move in that development paradigm. But we do look at opportunities across that full spectrum. It's just that we aren't trying to focus specifically on trying to find revenue for next year as a priority in and of itself.

Speaker 4

And in terms of the CNS urgency, it really does depend on the opportunities that come up. It will depend if we find something that could really materially improve upon standard of care for patients. That's where the first lens that we look at. And then it has those characteristics that I mentioned earlier that fit with Jazz and our capabilities. But I would say, while it's disappointing we had some of the readouts that we had, that doesn't change the opportunity set that's in front of us and it really will be dictated by the science and what we can access.

Speaker 4

Bruce, anything you want to add?

Speaker 6

No, I think that's a good answer, Phil. And again, Gary, to your question, it's not that we need one side of the business or the other to be added to at a particular rate. We really want to find the best opportunities create value across the business. And as Phil said, there are advantages to looking across both neuroscience and oncology.

Speaker 5

Our next question comes from the line of Mohit Bansal with Wells Fargo. Please go ahead.

Speaker 16

Great. Thank you very much for taking our question and thanks for the transparency here. I just want to probe a little bit more on longer term dynamics for oxybate franchise. So if you think about 2026 and beyond, how should we think about oxybate franchise, 1 from the authorized generic point of view because your agreements only go to 2025? And then also the once nightly competitor also announced today the 1st patient dosing of in the IH trial as well.

Speaker 16

So do you think this could be a growing franchise in longer term with the IH help or how should you think about that?

Speaker 6

Yes, thanks for the question. There's a little bit of complexity to this, so I'll take a second to answer it. The AG doesn't technically end at the end of 2025 or the beginning of 2026. Although, if Hikma elects to launch their own generic, they can also sell the authorized generic, but that's their option to continue the authorized generic for longer. The important thing to remember is that we have the only low sodium product on the market and we believe that patients and physicians are understanding the benefit of that lower sodium for a chronic therapy in this high risk population.

Speaker 6

That high sodium part of our business, as we mentioned in the call, is down to 11% of revenues in the latest quarter if you combine Xyrem sales and AG royalties together. So it's becoming a smaller part of our business, a part we continue to invest in is obviously growing Zywave, both in narcolepsy and in idiopathic hypersomnia. More competition on the high sodium side, whether it's branded or generics is not where our focus is. Our focus is squarely on that better safety product in these patients who are known to be at high cardiovascular risk where we've whittled that sodium down by 92%.

Speaker 5

Our next question comes from the line of Balaji Prasad with Barclays. Please go ahead.

Speaker 17

Good evening and thanks for the question. Kind of an extension of the previous one, while I can understand why Vision 20 5 to go, But from a signaling perspective, Bruce, did management team debate installing a longer term vision maybe on 2,030, Asking this especially as longer term investors are focused on a couple of key inflection points in the years after, one including a possible wave of additional generic Zariman trends in 2026 and what it means over and for Zywave and also the end of IP exclusivity the year after for Epidiolex? Thank you.

Speaker 6

Yes. Thanks for the question. We've always had long term strategic goals at Jazz, and I could go back many years into the past and talk about how we've described our business and what we're trying to accomplish both on the commercial side and the R and D side and how we've approached ongoing corporate development. So I don't think where we are now is a change from that. That's a little different from putting out specific financial targets that are multi year.

Speaker 6

We've only done that once and we did it in a particular time where there was uncertainty about that looming new oxybate competition. Since you referred to that as well. I understand there are certain exclusivities that are going away, but we've got a strong IP protection on Epidiolex with multiple patent families going out to 2,035 or in some cases 2,039. And so we continue to believe that is an asset with a lot of growth in front of it, but also great durability. And I'm going to note here, I think we've got time for one more question.

Speaker 5

Our next question comes from the line of June. June Lee with Truist Securities. Please go ahead.

Speaker 11

All right. Thanks for squeezing me in. Going back to the Orestin program, you alluded to the narcolepsy patients possibly requiring a lower dose than healthy volunteers. In other words, narcoleptic's having maybe a better therapeutic window compared to patients. Did I hear that correctly?

Speaker 11

And if so, is that something that others also developing oryxin agonists have shown? Or is that something that you observed in preclinical models? Thank you so much.

Speaker 3

Yes. Thanks, Bruce. There is a biological rationale for that. With loss of orexin neurons, you may see up regulation of receptors. And so there may be sensitivity when you essentially replace attempt to replace the peptide with an agonist.

Speaker 3

And so theoretically, it's possible. You do see in other development programs a selection of a dose that's lower than was the dose that was required to kind of have a maximal effect in healthy volunteers by several fold. And so that's why we think it's worth testing.

Speaker 11

Great. Thank you.

Speaker 6

All right. I think that concludes our questions. And as always, I'd like to close today's call by recognizing our Jazz colleagues for their efforts on behalf of patients and their families and thank our partners and shareholders for their continued confidence and support. We do look forward to seeing many of you in person at the Wells Fargo Healthcare Conference in Boston and the Bank of America Global Healthcare Conference in London in September. Thank you all for joining us today.

Speaker 5

This concludes today's call. You may now disconnect.

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Earnings Conference Call
Jazz Pharmaceuticals Q2 2024
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