Jazz Pharmaceuticals PLC (JAZZ) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Orphan Medical fourth-quarter results conference call. At this time, all participants' lines have been placed in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded, Wednesday, February 16, 2005.

At this time, I would like to turn the presentation over to Tim McGrath. Please go ahead, sir.

Thank you. Good morning and thank you for joining us today for the Orphan Medical fourth-quarter and year-end 2004 conference call. On the line today, we have John Bullion, CEO and Chairman of Orphan Medical; Mark Perrin, who is Executive Vice President and Chief Commercial Officer; and Dr. Bill Houghton, our Chief Medical and Scientific Officer. The question-and-answer session will follow today's prepared remarks.

But before starting, please be reminded that this conference call may contain forward-looking statements regarding future events or the future financial performance of the Company, including without limitation -- 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 Orphan Medical today. And the Company assumes no obligation to update these statements as circumstances change.

A number of factors could cause actual results to differ materially from the Company's assumptions and expectations. These are set forth in the cautionary statements included in Orphan Medical's most recent Form 10-Q or Form 10-K as amended, filed with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. At this time, I will turn the call over to John Bullion.

Thank you. Good morning. Thank you for being on our call. Orphan Medical grew at a strong pace in 2004. Total revenues were a record 23.8 million. Aggregate revenues from our three products -- Xyrem, Antizol, and Cystadane were 21.3 million, growing by 78 percent in 2004 over 2003. Xyrem revenue was 10.6 million in 2004, growing by 165 percent over 2003. Cystadane and Antizol generated 10.7 million on a combined basis.

In addition to building Xyrem sales, our specialty sales force and marketing team increased awareness and usage of Xyrem during the year. Over 2,100 physicians had prescribed Xyrem through the end of 2004, up 75 percent from 1,200 at the end of 2003. The average number of new prescriptions written per physician has risen to 5, whereas a year ago the number was 3.5. We invested in important programs to expand awareness of Xyrem and support medical education programs to share knowledge of narcolepsy in the medical community.

As to clinical development, we set the stage to significantly expand Xyrem's market potential. We completed two Phase III (b) trials whose results were strongly positive and demonstrate that Xyrem alone can treat the primary symptoms of narcolepsy. The first trial, SXB-15, showed that Xyrem decreases excessive daytime sleepiness or EDS and reduces nighttime awakenings and daytime sleep attacks, as well as improves sleep continuity. The trial also showed that slow-wave sleep, thought to be when the body and brain restore themselves, is significantly increased in narcolepsy patients with nightly use of Xyrem.

The second trial called EXCEEDS showed that Xyrem-controlled excessive daytime sleepiness in narcolepsy patients as well as the prior maintenance dosing of modafinil -- and at both medications, Xyrem and modafinil together, reduced excessive daytime sleepiness more than either used alone. We submitted these results in a Supplemental New Drug Application or sNDA whose approval will allow Xyrem to be considered as monotherapy to the over 50,000 patients who are diagnosed and treated for narcolepsy.

We also initiated a proof of principal trial that should demonstrate whether Xyrem can address the key symptoms of fibromyalgia syndrome, a disease that afflicts over 4 million Americans. We announced in December that new patient enrollment in this trial was being closed, since our protocol requirements had been exceeded. We expect to announce results from this trial sometime around midsummer this year.

Last year, we invested over 13 million in development spending. And we expect to invest roughly 15 percent more in 2005 with the objective of significantly increasing the scope of what is known about Xyrem and how it can be used. In addition to the sNDA and the fibromyalgia trial, we are also focusing our R&D to develop an extended release formulation of Xyrem and to evaluate Phase IV programs. In 2005, our marketing sales pending will increase about 10 percent over 2004, while general and administrative expenses will be fairly level.

Why are we investing at these levels to develop and market Xyrem? It is pretty simple. There is compelling evidence that Xyrem has properties that few products have. It modifies sleep architecture and causes changes that clearly improve the symptoms of narcolepsy but may also -- improve sleep and reduce the sensitivities of pain in fibromyalgia patients; treat secondary insomnia, such as that experienced by Parkinson's patients; and provide restorative slow-wave sleep in post-traumatic distress syndrome and ICU patients. These and other potential indications could significantly expand Xyrem. (technical difficulty) Taken together, these indications represent significant commercial markets.

We are very confident that the data of the sNDA will cause many in the sleep community to realize that treatment of narcolepsy patients can significantly be improved with Xyrem. And we fully expect Xyrem to become first-line treatment for narcolepsy.

We hope the data from our fibromyalgia and other studies we have underway will prove that our confidence in Xyrem's potential beyond narcolepsy is right on the mark. We certainly have anecdotal information that is encouraging, but the results of these will help define Xyrem's potential. The fibromyalgia trial results and the FDA's response to our sNDA are the two most prominent milestones we anticipate in 2005. But the EU regulatory process is also moving along, and we anticipate regulatory action in Europe later this year.

We are forecasting total revenue for 2005 to exceed 35 million with Xyrem revenue contributing 20 million and our other products generating nearly 11 million. The balance will come from milestone payments due from UCB, our European Xyrem marketing partner. Based on our expected spending and cash inflows from revenue and milestone payments, we expect our current cash balances will be sufficient to support the Company's programs into 2006. While the Company grew well by many measures in 2004, we will continue to grow in 2005 and build the foundation for even greater growth in the future.

I will now turn the teleconference back to Andrew to take questions.

(OPERATOR INSTRUCTIONS). Don Ellis.

Of the Thomas Weisel Partners -- I just have a couple questions about the fibromyalgia trial in Xyrem. Could you describe the fibromyalgia trial design and the timing for clinical and regulatory process?

Sure, let me turn that over to Bill to give you more detail.

The trial is somewhat of a conventional proof of efficacy trial in fibromyalgia. Protocol is being written for 150 patients to complete. We expect in excess of that -- we enrolled 320 patients. And that enrollment is closed, as John had said. The trial assesses the diagnostic criteria for fibromyalgia then removes patients from virtually the full range of current treatments, which include analgesic drugs, muscle relaxants, antidepressants, sleep medications, -- then establishes a baseline patient symptom recording -- is using electronic diaries. We are scoring pain three times a day -- fatigue. Then, they are randomized to one of three groups -- a Xyrem 4.5 gram per day group, a Xyrem 6 gram per day group, or placebo. They are treated for 8 weeks.

And the three primary efficacy measures in the trial are those that have been declared as essential by the FDA that includes pain. And we have a responder analysis agreed to. We have a Functional Outcome, and we are using the Fibromyalgia Impact Questionnaire, as the measure for functionality and patient impression of change rather than the clinical global impression of change. Although, we certainly have that as a secondary measure.

As other secondary measures, we have polysomnography on four occasions throughout the study. We are very interested to determine what the true incidence of alpha gargaren (ph) intrusion is in fibromyalgia. And whether as a result of subset analysis, we will see a signal layer for Xyrem efficacy. We are using sleep questionnaires like the Jenkins Style; we are using the Functional Outcome of Sleep Questionnaire, the SF36 for quality of life.

So it is a very comprehensive protocol. We certainly believe it will give us a definite answer as to whether Xyrem is effective across the symptom complex of fibromyalgia.

Okay. And the 4.5 and the 6 grams -- are those dosed QD?

At night, in divided dose -- exactly the same as in narcolepsy.

Okay. Two divided doses at night?

Yes.

Okay, great. And then just briefly -- the Xyrem EDS, PDUFA date? Do you have one?

Well, yes, we haven't got formal acceptance of the filing yet. The drop dead date for that is March the 19th. If it is a standard PDUFA deadline, it would be November. We have applied for a priority review; although, our grounds for grinding that are somewhat weak. But we have certainly tried.

Dallas Ware (ph).

Just real quick, Tim, walking through the revenue outlook for this year -- where does the 400,000 per quarter upfront amortization fit in?

It is in the milestone revenue.

That is in milestone, okay. And so then, we can back that out. And then, we can assign a certain milestone payment to -- approval in Europe. Would you receive a milestone for label expansion in the U.S.?

Yes.

Okay and then what about -- so then, you would receive a milestone for acceptance of the filing?

Acceptance of which filing?

The sNDA.

Yes.

Okay. And also for positive fiber results -- or is that separate?

No, the license agreement we have with now UCB is for narcolepsy only.

Okay. And could you just remind us of what additional trials are currently underway with Xyrem?

Yes, from a regulatory point of view, the fibromyalgia trial is the only ongoing trial. We of course had some interesting phase IV activities, but they won't change lately more indication.

Okay. Do they include the Parkinson's and the other ones you mentioned?

Yes, we've got a three centnerve (ph) study underway looking at secondary insomnia in Parkinson's. That is an extremely difficult morbidity that does not respond well to the standard set of hypnotics. We do have a trial almost finished in sleep disturbance in post-traumatic stress syndrome. We have an approved protocol for primary insomnia, particularly looking at -- or assessing absence of tackypolaccess (ph).

We have very significant interest in the use of Xyrem in pain patients at the moment; although, protocol has not been finalized. There is interest in use in ICU, as mentioned by John. We have a protocol established to look at the progression of Alzheimer's disease, as based on the possibility of modifying central biochemistry. We have expression of interest in the protocol to be developed in Louie Body Dementia. So the clinical interest is expanding and certainly relevant to the potentials of Xyrem.

Okay, great. And just on the extended release formulation then -- we still stand in the same ballpark? You are going to take that into the clinic sometime this year?

No, I'm not sure that we will get there. It is proving to be very challenging. But we've got some ongoing potentials that we are investigating very aggressively.

Ernest Andberg.

Feltl & Co. -- back on the amortization of existing payments -- when does that conclude?

We would expect it to conclude at the end of the third quarter.

Will it be roughly the 400 to $450,000 per quarter through the third quarter?

Yes.

Okay. Now, so that's 1.2 million or 1.3 million. What quarters can -- or can you give us guidance on which quarters to expect the rest of the 4 million to roughly flow through the income statement?

First and fourth.

In equal amounts, Tim, -- or is there a bigger flow through in the first quarter versus the fourth or vice versa?

Well, it is going to be higher in the fourth quarter than the first.

Okay. Fair enough -- can you give us a -- relative to the average scripts per physician -- what the active docs are doing, as opposed to the five per physician on average -- just to give us an idea of what active docs look like?

Are you asking, Ernie, kind of what the range is? (multiple speakers)

Fair enough. What the range is -- it's probably -- it is not a bell shape. I am presuming it is skewed in some way.

Mark, do you want to take that?

Yes, there are clearly some physicians who are extremely supportive of the product, probably having over 100 patients on Xyrem. But of those 2,000 plus physicians, Ernie, there is probably 40 some odd percent maybe who have only written it once or twice. But it's a typical 80/20-type situation where there are clearly a lot of champions out there with quite a few patients on product.

Thank you. Tim, back to you -- in your press release, you suggested increased spending on your R&D line in the first and second quarters, as the fibromyalgia trial is going. John said that you thought overall expenses would be up about 15 percent in that area. It has been one of the more difficult things to pinpoint R&D spending on a quarter basis. How do you think -- what do you think the increase looks like in the first and second quarter -- and then the change in the next 2 quarters looks like?

I would suggest that probably it is going to be in the -- 60 to 65 percent of the spending will be in the first half of the year, and 35 to 40 will be in the second half of the year.

David Moskowitz.

It's David Moskowitz, Friedman, Billings, Ramsey. Just back on the new formulation technology -- could you give us a little more clarity on what type of formulations you would be pursuing -- whether they would be capsule form or patch or something of the nature? And could you give us a little more clarity on the timing?

And then also, could you just talk about SG&A? It looks like it came in a little bit below what you were expecting. Can you talk about what that looks like throughout the year -- and again what the impact of an approval in EDS may do to the SG&A line?

Hi David, it is Dr. Bill Houghton. To address your question on the extended release formulation -- unfortunately, the size of doses exclude any capsular tablet technology. If we look at the extended release of a 4.5 gram second dose, and we obviously have to address our maximum dose of 9 grams, that makes tableting or capsule presentation extraordinarily challenging. As soon as you start to apply coatings to delay absorption or delay release; then, drug loading is compromised. So 4.5 grams get even larger. And in our first attempts, which were very aggressive attempts, we achieved a profile that was ideal. But drug loading was compromised to the level that commercial presentation was unrealistic.

We're looking to improve on that very significantly at the moment. There are technologies, such as microtablets or granulars that can be sprayed. And our whole attentions at the moment are increasing drug loadings as well as just drug profile. And we do have some potential tricks that are just a little early to talk about yet.

We do have another string to the bow, which is a very early research level that's been tested in rodents. And we have taken that to the level of characterizing sleep with EG implants, which certainly allows us to modify the formulation of GHB to manipulate sleeptime very favorably. But that is too early, and I'd rather not go into any further detail about that yet, except to say that the early research is extremely encouraging. And we're looking at kinetic profiling those technologies at the moment.

On your question about sales and marketing expenses specifically, I will let Mark address that.

Okay, thanks, John. Yes, David, as far as the marketing and selling expenses throughout '05, we have certainly funds in there supporting the appropriate pre-launch activities in anticipation of the approval of the sNDA. Certainly, Medifudgecage (ph) issues and other symposium and publications regarding the robust data that was announced last year. As far as the actual sales force expansion that is contemplated upon the approval, that will be gated obviously with the review process with the FDA. And right now, we're planning on Q1 of next year for the sales force expansion.

Thanks. And just extrapolating that -- you guys mentioned -- you talked about fast track review before. And you said that that is unlikely, or it doesn't look likely at this point. Can you just elaborate on why that is the case?

Priority review rather than fast track, David -- we were granted priority review for our initial application, which was for the indication -- or for the concept of narcolepsy. Cataplexy was certainly an easy one because there were no approved treatments.

Of course, there are approved treatments for daytime sleepiness. So the FDA could forgo priority review on that basis alone. We have requested that they consider priority review as an extension of the original priority review granted, since EDS is part of that narcolepsy assignment. So I certainly don't want to imply that the chances are nil, but I certainly do not want you to consider they are 100 percent either.

Chad Simmer.

MJSK. My question was -- in the fibromyalgia trial, you enrolled 320; you were targeting 150 patients. Ultimately, what kind of application in terms of number of patients did you actually get in terms of people trying to get into that trial?

We did in actual fact close enrollment early. We had looked to other sites that were eager to be involved. And it was necessary to limit that. So it was very unlike the narcolepsy studies where we battled to get patients for the rare disease. And fibromyalgia enrollment was far more aggressive.

I guess in my -- if you have the information, my curiosity stems to how many patients overall looked to get into the trials?

Oh, I can't give you an accurate answer to that. We did not get that information from our investigational sites. We certainly had another 40 or 50 patients who had been screened -- who would have been applicable to the study at the time that we forecast the closure of the protocol. But since I am not in direct contact with patients at the site, it is impossible for me to give you a numerical impression of patients in the queue. We did enroll 320 to complete 150 like in our narcolepsy studies. The greatest attrition rate occurs in that early phase, where they have to come off their existing medications. That is very daunting for patients.

So at this point, by the time it's done, how many patients do you think will complete the entire protocol?

Approximately 180 -- our attrition rate is running at about 45 percent.

(OPERATOR INSTRUCTIONS). Gentlemen, at this time, we have no additional audio questions. Please continue with any further statements you wish to raise.

Well, thank you very much then for being on the call. We certainly look forward to updating you as we go forward. And to those who are on the call -- certainly if you have follow-up questions or need clarification, feel free to give us a call and we will address those. Thank you very much.

Thank you, management. Ladies and gentlemen, at this time, we will conclude today's teleconference presentation. We thank you for your participation on the conference. If you'd like to listen to a replay, please dial 1-800-405-2236. You may also dial 303-590-3000. You will be asked to enter an access code of 11 02 37 01. (Repeat.) Ladies and gentlemen, we thank you for your participation. At this time, we will conclude. And please have a pleasant day.