Jazz Pharmaceuticals PLC (JAZZ) 2004 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Orphan Medical Second Quarter Conference Call. At this time, all participants are on a listen-only mode. Following today's presentation instructions will be given for the question–and-answer session. If anyone needs assistance at any time during the conference, please press the "*" followed by the "0" on your touchtone phone. And as a reminder, this conference is being recorded today, Wednesday, July 21st of 2004. I would now like to turn the conference over to Mr. David Folkens. Please go ahead sir.

Thank you Justin. Good morning everyone and thank you for joining us today for the Orphan Medical second quarter 2004 results conference call. As Justin mentioned, my name is David Folkens from Orphan Medical Corporate Communication.

On the line with me today we have John Bullion, our CEO and Chairman; Tim McGrath, Vice President and Chief Financial Officer; Mark Perrin, our Executive Vice President and Chief Commercial Officer; and Dr. Bill Houghton, our Chief Medical and Scientific Officer.

Question-and-answer session will follow today’s prepared remarks. But before we start, please be reminded that this conference call contains forward-looking statements regarding future events or the future financial performance of the Company, including without limitations, statements regarding operating results, earnings per share, growth opportunities, and other statements that refer to Orphan Medical's plans, prospects, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on information available to the Company today and Orphan Medical assumes no obligation to update these statements as circumstances change. For additional information, please see the cautionary statements included in our most recent Form 10-Q or Form 10-K filed with the Securities and Exchange Commission.

At this time, I will turn the call over to John Bullion who will begin with his remarks.

Thank you David. Good morning and thank you for attending the Orphan Medical second quarter conference call. We had a record second quarter and we achieved important clinical and commercial milestones during the quarter. Results for the SXB-15 trial assessing Xyrem with stimulants and treating excessive daytime sleepiness and narcolepsy were strongly positive and were very well received at the APSS or Associated Professional Sleep Societies meeting in early June. We initiated a proof of principal trial to evaluate Xyrem in treating the symptoms of fibromyalgia syndrome. Total product revenue grew very well led by Antizol and Xyrem.

Total revenue for the second quarter was a record $5.4 million .Revenue from Xyrem, Antizol and Cystadane increased 75% over the second quarter of last year. Revenue from Antizol and Cystadane was up 33% compared to the first quarter of 2004. Filled prescriptionsFilled prescriptions grew by 26% driving second quarter Xyrem revenue of 2.2 million, up 25% from the previous quarter.

Importantly, since it’s the leading indicator of revenue, Xyrem's new prescription growth was very strong. New Xyrem prescriptions grew by 40% in the first quarter -- second quarter over the first quarter, excuse me. The graph before you clearly demonstrates this increased rate of growth.

We announced very positive SXB-15 trial results in May. This trial assess Xyrem as a treatment for excessive daytime sleepiness and narcolepsy and its results support Xyrem's potential as a primary treatment for all debilitating symptoms of narcolepsy. We feel that the trial clearly demonstrated that Xyrem significantly improves excessive daytime sleepiness incrementally beyond stimulant use. Xyrem clearly reduces the [xylem] attacks, Xyrem has a profound effect on sleep architecture, Xyrem's known safety profile was confirmed and Xyrem provides a major improvement in functionality during the day.

The characteristics of patients entering the trial indicate the cataplexy is under-treated and that current stimulant therapy leaves considerable room for improvement. These results were discussed at a symposium on narcolepsy held at the APSS meeting attended by over 400 sleep specialists whose interests in the SXB-15 results were very strong. We hope to further encourage this interest soon with the results of SXB-22 or EXCEEDS trial which is finishing up next month.

The EXCEEDS trails designed to evaluate Xyrem's effect on excessive daytime sleepiness and narcolepsy when used with modafinil, which is Cephalon's Privigil. We expect to announce top line results of this trial by mid-September.

We began a proof of principal trial to evaluate Xyrem in treating symptoms of fibromyalgia syndrome. This is a chronic disease that affects over 400 million people in the United States and represents a market opportunity in excess of a $1 billion per year. The disease is characterized by widespread muscle pain and stiffness. Other symptoms include persistent fatigue, headaches, cognitive or memory impairment, morning stiffness, and non-restorative sleep.

Our trial will be conducted at 20 centers with the 150 patients using a placebo and two doses of active Xyrem. It will be a double-blind trial with an eight-week treatment period with its primary endpoints being patient improvement as assessed by the patient, standardized measures of pain and functionality as measured by the fibromyalgia impact questionnaire. The trial’s secondary measures will assess sleep, fatigue, and quality of life. Our plan is to complete the trail and announce top line results in mid-2005.

I said earlier that new script growth was an indicator of future pill prescription. Many other variables also affect pill prescription levels, but we are forecasting strong revenue growth in the second half. On the basis of recent prescription levels and our analysis of the variables, we are forecasting that Xyrem revenues for the year will be $11.7-12.7 million, which is the range of estimates provided by the analysts who covered the Company. We expect total revenues to be in the $19-20 million range.

Turning to our financial position, we have burned $2.8 million in the second quarter, but we expect that our quarterly burn rate will be closer to $3-3.5 million in the second half. We ended the quarter with over $15 million in cash. With anticipated cash inflows from milestone payments and growing revenue levels, we forecast sufficient capital to take us beyond the middle of 2005.

Xyrem is an important medicine with significant potential. We are still early in the process of realizing its commercial value and understanding its full clinical potential. By the middle of next year, we should achieve important milestones that will allow our partners Celltech to market Xyrem in Europe that will allow us to market Xyrem into the larger market of narcolepsy and that may show that Xyrem treats fibromyalgia, which is the market significantly larger than narcolepsy. We expect to report on the EXCEEDS trial this coming September, as I mentioned. The EXCEEDS and SXB-15 trial results will be included in a sNDA that we planned to file with the FDA by the end of the year. The [user key] deadline for an efficacy supplement for an approved drug is six months. Approval of Xyrem for the treatment of narcolepsy will allow us to promote on-label in a market that we estimate to be about 300 million in size.

The EU approval process is also moving along and we anticipate regulatory approval in Europe by the middle of next year. We are making good progress in our program to develop an extended release formulation of Xyrem and plan to have candidates for human testing in the first half of 2005. Phase IV programs, evaluating Xyrem and other indications, are also being initiated.

Finally, we should have results of the fibro trial in mid-2005 and will know whether Xyrem works in addressing this large inadequately treated disease. I now turn the teleconference back to the operator to take questions. Justin.

Thank you sir. Ladies and gentlemen, at this time we’ll begin the question-and- answer session. If you have a question, please press the “*” followed by “1” on your pushbutton phone. If you would like to decline from the polling process, press the “*” followed by “2”. You will hear three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you are using a speaker equipment, you will need to lift the handset before pressing the numbers. One moment please for the first question. Our first question comes from Donald Ellis with Thomas Weisel Partners. Please go ahead with your question.

Hi, Don, are you there?

Hello.

Hi, Don.

Can you hear me?

Yes, we can, go ahead.

Okay, I’ve have a couple of questions, I'll ask one at a time. First one is regarding the fibromyalgia program,program; did you say that there is going to 150 patients in each of the three arms or total of a 150 patients?

I am sorry,sorry; it is 150 total patients, 50 in each of the three arms.

15 each, okay. With respect to the EDS second Phase III trial, how are you going to release that result? Is it in the press release or is there some conference or something in September?

We would expect to put the top line results out in a press release.

Okay and lastly about the Celltech amortization, is that a stable amortization rate for each quarter or is it going to change quarter to quarter?

Don, this is Tim McGrath. It’s a straight line amortization over 18 months.

Okay, so that will be about 400,000 per quarter for --

That’s correct.

18 months. Great, thank you very much.

Thank you. Our next question comes from Dallas Webb (phonetic) with Sanford Financial,Financial; please go ahead with your question.

Hey guys, how are you doing?

Good, thanks.

Just had a couple of quick questions. First, is your sales force getting any feedback from docs on the SXB-15 data? I know you -- they can't market it, obviously, but are docs aware that the data is out there; is it being communicated within the physician community?

Well, let me turn that question over the Mark who just come back from some sales -- field sales force meetings. Mark.

Yeah, good morning. I would say yes to a degree. The ATSS featured symposium was attended by about 400 physicians. So I think certainly regarding the top-tier sleep medicine physicians, the data is known, certainly the general key aspects of the data, certainly the granularity in some of the really interesting data, you know, needs, obviously, continued to be discussed. As far as the broader [adult market group] probably not a high level of awareness; that is why the Company is -- we will be initiating after the EXCEEDS trial is announced, there will be a number of major medical education initiatives that will highlight both EDS trials.

Okay, and John, you had touched on some Phase IV programs in the plans, could you expand on that just a little bit?

Sure, Bill, are you there?

Yes, I am John.

Do you want to just give a top line review of the Phase IV programs?

Sure. We have got a series of studies initiated, and clinical interest expressed in other areas where protocols are being finalized. We have protocols started in post-traumatic pain syndrome, the insomnia of post-traumatic stress; we are finalizing a protocol in secondary insomnia or in Parkinson's disease to be conducted at four major centers. We have protocol interest from two ICUs looking at controlling patients on ventilators. We are finalizing a primary insomnia protocol from Stanford University; there is interest in fatigue in multiple sclerosis. I think that captures the main areas. Mark, are you aware of any that I have missed?

No, I think that covers most of the key ones, Bill, that's great.

Okay, great guys, thank you very much.

Thank you. Our next question comes from Ernest Andberg (phonetic) with [inaudible] & Company. Please go ahead with your question.

Good morning.

Hi, Ernie.

Hi, one thing on the list that Bill just went through, he mentioned in ICUs looking at patients on ventilators, what's -- is that pain or is that something else?

It's actually sleep. One of the contributors to post-ICU syndrome is the total disruption of sleep, and even if people are sedated with conventional drugs there is no slow-wave sleep or deep sleep as part of that, so ICU specialists are very interested in harnessing the slow-wave sleep component of Xyrem to see if the post-ICU syndrome is modulated asmodulated as a result of that consolidated sleep.

Thanks, Bill. I’ll go back onto Antizol and Cystadane, a very nice quarter in those products, the third quarter is normally down from the second quarter, and the fourth quarter, if I go back into my notes and try to do some adjustments for the products sold, it's normally a better quarter, which suggests that Antizol and Cystadane could have a very excellent year this year and may be above the numbers implied in your guidance -- am I out in the left field?

Yes, Mark why don't you take that question.

Yes, I -- we're very pleased with - -especially the Antizol performance in the first 6 months. We are seeing growth coming again from all three areas that we generally see from Antizol -- one, continued stocking at hospitals and I think again there is just a focus with greater stocking of antidotes at the hospital level. We are seeing a greater market share use of Antizol within that category and that's driving it. And then just so I get two major -- stocking and the continued market share growth and itsit’s very encouraging. There is some upside certainly in the back half of the year, but as always, with Antizol, we tend to be somewhat cautious just to see whether this trend can continue possibly than had been.

Thank you. Tim, overall spending was not a lot different than I expected, may be even a little bit lower but the categories -- if I got marked on getting the categories right I'd fail this quarter, can you give me some insight as to where that spending goes in the second half of the year -- R&D, sales and marketing and G&A?

I'll start with G&A, since that's probably the easiest. The range is going to be 1 to 1.25 million it's not going to change very much.

Okay

From a sales and marketing perspective, there was a concerted effort in the second quarter to begin to deal with the very favorable results that we received from that SXB-15. There is certainly some anticipation on our part that the EXCEEDS trial results will be as positive .I would anticipate spending in the second half maybe to moderate a little bit of from the sales and marketing perspective, and I think we've said in this release that the total spending will be may be about 5% higher than last year. From a development perspective, the development spending will maybe crescendo a little bit in the third quarter as we have the final wrap up of -- begin the final wrap-up of EXCEEDS and the SXB-15 trial and the Fibromyalgia trial will certainly begin and the patient accretion -- we'll see the impact of that, but I think that will be offset by the decline in the other trials over the second half, so the development spending will be in the -- I would say in the 3.5 million range, plus or minus a little bit.

Okay.

And the contributor to that spend will be preparation of the sNDA with the integration of the database and that will be a significant spend as well.

Okay. Thanks much.

Thank you. The next question comes from Annette Chu (phonetic) with FBR. Please go ahead with your question.

Hi, congratulations on a no loss during the quarter and looking forward to the data on September, I had a question about the sales and marketing which was mostly answered. I did want to ask about whether that ramp would continue into 2006, if you could provide that kind of forward insight, in terms of after you potentially launch for narcolepsy in mid '05, you expect continued increase there?

What the plan is on the sale side is that we are anticipating a sales force expansion to support the EDS launch, a rather significant expansion. We have done quite a bit of promotional response modeling and certainly realize with the addition of an approved EDS label, that there's quite a bit of additional opportunity to capture additional sales people. So it will be a fairly significant sales force expansion and that will drive the sales -- overall sales marking expense higher; the marketing expenses will be just modestly higher, will continue pretty heavily with the medical education spend and the promotional spend on top of that. But it's a sales force expansion that will certainly increase '05 and that is timed with the approval.

Okay. Right now your sales force is -- is it around 50?

It’s actually 33 sales reps and 4 managers.

Okay.

And we're probably looking to expand that by around 20 reps.

Okay. Also --

Ms. Chu, did you have any additional questions?

That’s all right.

All right thank you. Our next question comes from Chad Simmer with MJSK. Please go ahead with your question.

Just to look at the revenue expectations for the year again, based on my calculations if we back out the license revenue, back out the Xyrem, and then back out the first two quarters of other products, the expectations built into your guidance are for less than the a million dollars in sales; that being the case -- I mean that seems overly conservative unless you are expecting something different to occur.

Tim go ahead. We’ll come back to that.

Chad, what we indicated was that the total revenue range would be between $19-20 million for the year.

Yes.

And that Xyrem would be 11.7 to 12.7.

Yes.

And in the first half we had over $9 million of revenue, so the second half we're anticipating -- about 10-11 million in the second half.

Okay. And just about license -- so licensing we should see just -- we're just going to see an additional 400,000 in each quarter?

That’s correct that’s outside of -- the licensing revenue is on top of that. The $19-20 million is product revenue.

Product revenue, all right. And then just to look at the -- your guidance was for a 5% increase in sales and marketing expense, that would indicate that it's going to be roughly -- in the second half of '04 it's going to be roughly flat with the second half of '03 in terms of sales and marketing expenses. Is that really --

That’s right.

So at what point then are you going to start to look for and recruit these 20 reps, are you going to wait until the product is FDA approved or are you going to have to start before them?

Well certainly we will wait and see how the progress is going with the FDA and as the progress of the review. And as we begin to get strong indication of getting close to approval, we'll kick in all the things to get the reps on board. It's obviously something you always try to manage very carefully, you don't want to bring them on too soon, just got to bring them on soon enough to get the training in, etc., so you can impact the launch. But I think we will start the recruitment process in the second quarter and then have that in place for Q3.

Thanks.

Bye

Thank you Gentlemen and no questions at this point. Please continue.

Well, thank you very much for attending our conference call. We look forward to providing you additional information as well as quarterly updates. As I said in my comments, I think the next year is going to be very exciting. We've got lots of important milestones that are going to help us move the Company in [inaudible]. Thank you very much for attending.

Ladies and gentleman that’s concludes the Orphan Medical Second Quarter Results Conference Call. If you would like to listen to replay of today's conference call, please dial 303-590-3000 or 1-800-405-2236, followed by the pass code, 11003186. Once again if you would like to listen to a replay of today's conference call, please dial 303-590-3000 or 1-800-405-2236, followed by the pass code, 11003186. You may now disconnect and thanks for using AT&T Teleconferencing.