Yahoo Finance Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Q1 2024 Earnings Call Transcript
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Q1 2024 Earnings Call Transcript May 1, 2024
Jazz Pharmaceuticals plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jazz Pharmaceuticals First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Andrea Flynn, Vice President, Head of Investor Relations. Andrea, you may begin your conference.
Andrea Flynn: Thank you, operator, and good afternoon, everyone Today, Jazz Pharmaceuticals reported its first quarter 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 Cozadd, Chairman and Chief Executive Officer; Renée Galá, President and Chief Operating Officer; Rob Iannone, Executive Vice President and Global Head of R&D; and Phil Johnson, Executive Vice President and Chief Financial Officer. 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. I’ll now turn the call over to Bruce.
Bruce Cozadd: Thanks, Andrea. Good afternoon, everyone, and thank you for joining us today to review our first quarter results. I want to begin by welcoming Phil Johnson, who joined Jazz in March as our Chief Financial Officer. We’re very excited to have Phil on our executive team and look forward to his contributions to delivering value for patients and shareholders. Beginning on Slide 5, we made important progress during the first quarter, including year-over-year combined double-digit revenue growth from our key growth drivers, Xywav, Epidiolex and Rylaze along with meaningful advances in our pipeline. I’m also pleased to report that we are affirming our 2024 financial guidance. On the commercial front, we generated more than $900 million in total revenues across our growing and diversified portfolio of medicines.
Xywav revenues increased 14% year-over-year reinforcing our confidence in its trajectory and durability. Epidiolex demand remains strong, and we continue to be confident in its blockbuster potential. Our oncology therapeutic area delivered another strong quarter with 13% year-over-year revenue growth. This continues the momentum we established last year when we surpassed $1 billion in annual oncology revenue for the first time. Moving to our R&D and pipeline efforts. 2024 is an important year for Jazz with multiple late-stage catalysts for therapies targeting substantial market opportunities. We achieved a significant milestone for zanidatamab in March with the completion of our rolling BLA submission for the treatment of HER2-positive biliary tract cancer, or BTC, and we expect commercial launch in 2025 or earlier.
If approved, zanidatamab would be the first HER2-targeted treatment, specifically for BTC in the U.S. We also expect important clinical data readouts in the near future for suvecaltamide in essential tremor, zanidatamab in gastroesophageal cancer, Epidiolex in Japan, and Zepzelca in first-line small cell lung cancer. On the operational front, we are maintaining our focus on disciplined capital allocation. Our financial strength, including healthy operating cash flow, enables us to invest in the continued growth of our commercial portfolio and pipeline while also positioning us to execute on corporate development opportunities. Turning to Slide 6. We remain focused on advancing the three core tenets of Vision 2025. This includes advancing leading therapies in sleep disorders and epilepsy along with a growing oncology portfolio, investing in R&D to expand our capabilities and pipeline and making disciplined capital allocation decisions to enhance value to shareholders as we realize our ambition to be a high-growth global biopharma leader.
I’ll now turn the call over to Renée to review our commercial performance, after which Rob will share an update on our R&D progress. Phil will provide a financial overview, and then we’ll open the call to Q&A. Renée?
Renée Galá: Thanks, Bruce. I’m excited to report on the continued progress across our commercial portfolio. We delivered strong first quarter revenue growing combined revenue from our key growth drivers, Xywav, Epidiolex and Rylaze by 12% compared to the same period in 2023. As is typical of the first quarter of the year, revenue was impacted by seasonal headwinds from payor reauthorizations and inventory drawdown. Let’s get into the details starting on Slide 8 with our sleep franchise. Total revenue from sleep, which includes Xywav and Xyrem net sales plus royalties from high sodium oxybate authorized generics, or AGs, as was $430 million in the first quarter of 2024, and we remain confident in the growth and durability of Xywav.
In the first quarter of 2024, Xywav revenue grew 14% year-over-year to $315 million. I’ll take a few minutes to discuss our view of the overall oxybate market as well as several items of note from the quarter. In 2023, we saw the first competitive entrance to the oxybate market with the commercial availability of both high sodium AG and branded fixed dose high sodium oxybate. We were pleased to deliver Xywav revenue growth through this period and continue to expect Xywav to remain the oxybate of choice, including the number one treatment for narcolepsy. As expected, at the start of 2024, Xyrem was excluded from certain commercial formularies based on the availability of multiple newer oxybate products, including Xywav. Many of these patients and their physicians recognize the benefits of low sodium and chose to initiate treatment with Xywav.
I want to call out several downstream dynamics of this transition. First, we saw a significant increase in the number of active narcolepsy patients benefiting from Xywav at the end of the first quarter of 2024 compared to the fourth quarter of 2023. Second, we saw an increase in utilization of our patient support programs in the first quarter as patients navigated the transition from Xyrem to Xywav with their insurance providers. These programs provide free product for a limited duration, helping to ensure patients have uninterrupted access to therapy as they obtain Xywav coverage. As a reminder, we have achieved benefit coverage in both narcolepsy and IH indications for approximately 90% of commercial lives. While we anticipate that other plans may exclude Xyrem from formulary going forward, we expect these changes will be less concentrated and spread out over time.
We view the large number of patient transitions that occurred from the fourth quarter of 2023 to the first quarter of 2024 as a one-time event. Finally, this transition resulted in a significant decrease in Xyrem branded revenues. I will note that all of these dynamics were accounted for in our 2024 neuroscience revenue guidance. Looking at our quarterly patient metrics, there were approximately 9,900 narcolepsy patients taking Xywav exiting the first quarter, an increase of 375 patients from the prior quarter. Given the increased use of patient support programs, revenues for the quarter do not fully reflect these patient additions. We believe patient numbers are the best indicator of the long-term value and durability of this product and expect that revenues will be more aligned with patient numbers going forward as newly transitioned patients revert to being fully covered by their insurance providers.
Turning to IH, the transition dynamics associated with coverage for narcolepsy patients did not impact the IH market. We continue to view IH as the strongest growth opportunity for, Xywav and exiting the quarter there were approximately 3050 active IH patients on Xywav, an increase of 275 from the prior quarter. We are prioritizing investments to further build the market and our expanded field force is now fully deployed. These additional field personnel are focused on increasing the depth and breadth of IH prescribers. Outside of the branded oxybate business we recognized approximately $50 million in AG royalty revenue, which was driven by both patient transitions and our increased royalty rate. Given our results for the quarter and increased visibility into oxybate market dynamics since the entry of high sodium oxybates, we remain confident in the durability of Xywav and believe that we are well positioned to achieve our vision 2025 goal of $2 billion in sleep revenue.
Moving to Slide 9, we are pleased with the continued growth of Epidiolex, with net product sales of approximately $200 million in the first quarter, representing a 5% increase compared to the same quarter in 2023. As a reminder, with Epidiolex, we typically see a build in inventory throughout the second half of the year, which then burns off in the first half of the following year, primarily in the first quarter. We expect future growth to be driven by underlying demand and geographic expansion, and remain confident in the blockbuster potential of Epidiolex. Key drivers of increased demand in the U.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 clobazam.
We are 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. 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 in 2024. Shifting to our oncology business on Slide 10, total oncology revenue for the quarter was approximately $258 million, led by Rylaze and Zepzelca. Rylaze delivered another strong quarter with net product sales of $103 million, representing a 20% increase from the first quarter of 2023.
Strong demand for Rylaze 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. We are also seeing usage of Rylaze in the first line setting based on the benefits of its short acting profile relative to current first-line asparaginase therapies. In addition, we remain focused on continued growth of Rylaze in the treatment of adolescents and young adults or the AYA market. Turning to Slide 11 and Zepzelca, net product sales for the first quarter increased 12% year-over-year to $75 million. We have established Zepzelca as the number one treatment for second-line small cell lung cancer patients, and we continue to hear positive feedback from healthcare providers on its clinical benefit as well as ease of use at administration for patients and their healthcare practices.
In addition to the second-line setting, there remains an unmet need for small cell lung cancer patients in earlier lines of therapy. We believe positive data from the ongoing Phase 3 trial in first line small cell lung cancer is the biggest opportunity to drive significant growth and most importantly, would provide a further opportunity to improve patient lives and outcomes. We expect data from that trial in late 2024 or early 2025. With that, I will turn it over to Rob for an update on our pipeline and upcoming milestones. Rob?
Rob Iannone: Thank you, Renée. 2024 represents an exciting time for our pipeline. And we anticipate multiple, meaningful catalysts across oncology and neuroscience. On Slide 13, we provided an overview of the key clinical programs in our diversified pipeline. And I will highlight several milestones we expect to reach in the near term. Starting with oncology and zanidatamab, we have completed our BLA submission for second-line biliary tract cancer or BTC, in the U.S., with potential for accelerated approval. Additionally, we are targeting late this year to report top line data from the ongoing Phase 3 first-line gastroesophageal adenocarcinoma, or GEA trial. If positive, we expect this trial would support registration. I will speak more to our zanidatamab development plan in just a moment.
We are also pleased with the progress of the Zepzelca first-line trial, which completed enrollment in January. Top-line progression-free survival data for Zepzelca in combination with Tecentriq in first-line, extensive-stage, small cell lung cancer is expected at the end of 2024 or early 2025. If approved, this new indication would enable more patients with small cell lung cancer to potentially benefit from longer duration of therapy with Zepzelca. Turning to neuroscience. We expect top line data from our Phase 3 trial of Epidiolex in Japan in the second half of 2024. We also have ongoing trials for suvecaltamide or JZP385 in both essential tremor or ET and Parkinson’s disease tremor. With top line data from the ET trial expected late in the first half of 2024.
If trial findings are positive, we believe this trial could serve as part of the pivotal regulatory package. I’d also like to provide an update on JZP441, our clinical stage orexin-2 receptor agonist. We paused the JZP441 Phase 1 trial last November after observing a signal for QTC interval prolongation on automated ECG recordings. Since that time, we engaged external experts to perform manual reads of ECGs. That work was recently completed with the initial report indicating there may be a therapeutic index to exposures predicted to be efficacious in narcolepsy type 1 patients. We are reviewing this information with our alliance partner, Sumitomo Pharma and Jazz will then make a decision on next steps, if any. I expect to be in a position to provide an update on our 2Q earnings call.
Returning to zanidatamab, Slide 14 provides more detail on our development plan. We have meaningfully progressed zanidatamab development across multiple indications since bringing it to Jazz. And based on emerging strong data across indications, we remain excited about the potential of zanidatamab to transform the current standard of care in multiple HER2-expressing cancers. As was noted earlier, we completed our BLA submission for second-line BTC at the end of March and anticipate a response from FDA within the usual 60-day window. Upon acceptance, FDA would also establish the priority of review and PDUFA timeline. I’ll also note, we are planning to present more mature data from the ongoing BTC trial at ASCO this year, including overall survive.
Our development plan represents a robust investigation of this molecule in multiple tumor types including an ongoing trial in GEA that we believe would support registration in that indication in several trials in breast cancer. We’ve recently announced plans to initiate the Phase 3 POWER trial in the second half of this year, which will evaluate zanidatamab in combination with chemotherapy after progression on HER2, where we have the opportunity to be the first HER2-targeted therapy to demonstrate efficacy and safety in breast cancer patients post-HER2. In summary, we’re executing a regulatory strategy that we believe will enable us to bring zanidatamab to the market in the near-term with an initial indication in second-line BTC and the opportunity to rapidly advance other indications.
In total, we believe our development program can deliver for patients in need and generate a significant commercial opportunity of more than $2 billion. I would encourage listeners to go to our IR website and access the R&D Day webcast we hosted on zanidatamab in March, which included a detailed overview of data demonstrating zanidatamab’s differentiation from other HER2-targeted agents, how it would fit in the HER2 treatment landscape and perspectives from external thought leaders on the potential of zanidatamab to improve the quality of care for patients with HER2-expressing tumors. Turning to Slide 15. With the top line data readout from the essential tremor trial anticipated in the second quarter of this year, I’d like to highlight suvecaltamide, which is a highly selective and state-dependent modulator of T-type calcium channels in clinical development for the treatment of ET and Parkinson’s disease tremor.
There is a high unmet need for ET treatment with no new medicines approved in more than 50 years. ET can be highly debilitating with significant negative effects on a patient’s quality of life and activities of daily living, such as eating, drinking, dressing, shaving and writing and can lead to substantial impairment in physical functioning. Some patients also experienced cognitive deficits anxiety, social phobia, depression and sleep disturbance. In the U.S. and key European markets, there are approximately 2 million diagnosed patients with the prevalence estimated at approximately 11 million patients. Moving to Slide 16. I want to touch on suvecaltamide’s differentiated mechanism of action. While the exact underlying pathophysiology of ET is not clear, there is strong evidence to support the role of T-type calcium channels.
T-type calcium channels regulate the balance of calcium ions, acting as a gatekeeper to help ions both enter and leave the cell membrane. In some pathological states such as ET, increased activation of these channels leads to excessive rhythmic signals that prompt tremor. The high selectivity of suvecaltamide for T-type calcium channels makes it a promising candidate for the treatment of ET, which was demonstrated in the Phase 2 TCOM trial. Importantly, suvecaltamide is differentiated from other T-type calcium channel blockers in development as it is state dependent, meaning that it targets channels under conditions of hyperexcitability, while sparing the form of the channel, important for normal neuronal signaling. Now I will turn the call over to Phil for a financial update.
Phil?
Phil Johnson: Thanks, Rob. First, I’d like to express how excited I am to join Jazz. I came to the company because of its history of success, innovating to transform the lives of patients and their families. And because of the quality, integrity and enthusiasm of its people, which Jazz has accomplished since its founding is impressive, and we have great opportunities ahead of us to enhance our impact on the lives of the patients we serve and to create significant shareholder value. Turning now to our first quarter 2024 financial performance, Slide 18 summarizes the highlights. As a reminder, more information on our financial results is available in our press release and 10-Q. We saw continued top line growth in the first quarter of 2024 with $902 million in total revenues, representing a 1% increase over the same period in 2023.
As Renée noted, our first quarter revenues have historically been affected by several factors, including reauthorizations, which drive the use of patient support programs and inventory build in the latter part of the prior year, which leads to inventory burn in Q1. Our Q1 results are in line with our expectations and we are affirming our full year revenue guidance of $4.0 billion to $4.2 billion, including our expectation for combined double-digit growth from our key growth drivers, Xywav, Epidiolex and Rylaze and double-digit growth in our oncology therapeutic area. Moving to Slide 19, non-GAAP adjusted SG&A reflected investments dedicated to our key growth drivers, including the Xywav IH commercial initiatives, commercial support for Epidiolex in the U.S. where the market is promotionally sensitive, geographic expansion of Epidiolex outside the U.S. and educational efforts for Rylaze and AYA.
Non-GAAP adjusted R&D expense for the quarter was driven by investment in multiple late-stage programs, which we view as critical to enhancing the future value of our pipeline. We are executing on a robust development plan for zanidatamab with trials across multiple tumor types as well as Phase 2 trials for suvecaltamide in two different disease areas and programs for Epidiolex and Zepzelca that have the potential to expand those products into new geographies and patient populations, respectively. On note that our operating margin and expenses are not linear and we incur spend at the time to best support strategic initiatives for our commercial business and pipeline. Investments in our commercial business to support our key growth drivers ramped up in the fourth quarter of 2023 and extended into the first quarter of 2024.
We expect these investments to positively impact revenue as the year progresses. SG&A expenses in 1Q 2024 also included a bad debt expense and higher litigation costs, primarily related to the Avadel Patent infringement trial. Our R&D expenses, along with clinical trial activity ramped up in 2023, and we expect these expenses to remain at relatively consistent levels throughout 2024. Therefore, we are affirming our full year 2024 SG&A and R&D guidance. I’d also point out that we recorded a discrete tax expense related to expired stock options. While this significantly increased our non-GAAP effective tax rate for the quarter, we expect our full year 2024 non-GAAP effective tax rate to remain in the range of 10% to 13%. We continue to generate significant cash from our business, driven by the strength and diversity of our portfolio.
We recorded approximately $267.2 million of cash from operations in the first quarter and ended the quarter with $1.8 billion in cash on hand. Our strong financial position and operating cash flow provide flexibility to invest in priority commercial and R&D programs as well as corporate development opportunities. Non-GAAP adjusted net income of $182 million and non-GAAP adjusted EPS of $2.68 were driven by our top line growth, along with significant investment in our key growth drivers and pipeline including multiple late-stage clinical programs, zanidatamab, Epidiolex, suvecaltamide and Zepzelca, all of which have the potential to generate significant long-term value. Based on our results from the quarter and continued focus on disciplined and strategic capital allocation, we are affirming our non-GAAP adjusted net income guidance of $1.275 billion to $1.35 billion.
Since joining Jazz, I’ve spent considerable time speaking with investors and analysts and greatly appreciate the perspective and input they shared. In these conversations, I heard a concern that Jazz will overpay for an acquisition to meet our goal of corporate development, contributing $500 million to 2025 revenue. Here’s how we’re thinking about this. First, acquiring or licensing innovation from outside our walls is central to how we’ll achieve our purpose of transforming the lives of patients and their families. Second, as we allocate capital to internal projects and the corporate development, we are focused on making investments that can deliver sustainable revenues and create value for shareholders. We will remain disciplined on price and will not make an acquisition just to meet our Vision 2025 goal.
I’ll close by noting that while I’m still getting up to speed, I’m incredibly excited about the future of this company and the opportunities we have to deliver value to both patients and investors. With that, I’ll turn the call back to Bruce for closing remarks.
Bruce Cozadd: Conclude our prepared remarks on Slide 21, we’ve made important progress towards delivering on our 2024 guidance and objectives and are pleased to be affirming our guidance today. On the commercial side, we expect continued growth of our key products in 2024. And on the R&D front, we continue to advance our pipeline and to invest in long-term growth. We see multiple catalysts in the near-term, including data readouts for suvecaltamide, zanidatamab, Epidiolex and Zepzelca. That concludes our prepared remarks. I would now like to turn the call over to the operator to open the line for Q&A.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Jessica Fye with JPMorgan. Please go ahead.
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