Jazz Pharmaceuticals PLC (JAZZ) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Jazz Pharmaceuticals Incorporated Earnings Conference Call. My name is Eric, I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We'll facilitate the question and answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn your presentation over to your host for today's call, Mr. Jim Karrels, Executive Director of Finance. Please proceed.

Thank you very much, Eric, and good afternoon, everyone. Welcome to Jazz Pharmaceutical's fourth quarter 2007 financial results conference call. On the call with me today are Dr. Sam Saks, CEO, who will discuss recent company achievements, Bob Myers, our President, will provide a commercial update, Matt Fust, our Chief Financial Officer, who will walk you through financial details of the quarter and Bruce Cozadd, our Executive Chairman. Following our prepared comments, we will open up the call to Q&A.

By now, you may have seen the earnings press release that we issued this afternoon. This release is also available at our website, www.jazzpharmaceuticals.com. By way of a Safe Harbor statement, let me add that the remarks that we may make about future expectations, plans and prospects for Jazz Pharmaceuticals do constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and our actual results may be different.

I'll now turn the call over to our CEO, Dr. Sam Saks.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. Before we dive into our financial results on this call, I'm happy to announce that Jazz Pharmaceuticals will be hosting our first Investor Day presentation in New York City on March 13.

During that presentation we will be providing an in depth review of our business, including the planned launch of Luvox CR, and our product development activities. We will also have Dr. Mark Pollack, a noted Psychiatrist at Massachusetts General Hospital and a Professor at Harvard Medical School, who will speak about OCD and SAD in a discussion that it you will find very interesting.

In 2007, Jazz Pharmaceuticals gained momentum on all fronts with the completion of our initial public offering, the expansion of our commercial organization and the advancement of several of our development programs. I'd like to review Jazz Pharmaceutical's key achievements in the fourth quarter, and then I'll turn the call over to Bob Myers, our company President, who will provide an update on our commercial efforts.

On January 31, 2008 we announced that the FDA had accepted for review the submission of the response by Solvay Pharmaceuticals to the FDA approvable letter for Luvox CR. The FDA notified Solvay Pharmaceuticals that he considers this a complete Class 1 response, and the PDUFA action date is February 29, 2008. You will recall that in an approvable letter received in late December, the FDA requested additional information concerning a chemistry manufacturing control issue.

The approvable letter did not raise any questions related to safety or efficacy of Luvox CR, and included the FDA's draft final labeling for both OCD and SAD. Jazz Pharmaceuticals and Solvay Pharmaceuticals believe that the response submitted to the FDA on December 28, 2007 fully addressed that CMC issue.

There is a great deal of enthusiasm inside Jazz Pharmaceuticals regarding our Luvox CR launch, which pending final approval by the FDA, we are targeting for the first quarter of 2008. We believe our talented commercial team will execute a very successful launch.

Looking back on 2007, we made significant progress in our four clinical stage development programs. On JZP-8 in early January 2008, we announced that we had received notice from the FDA that JZP-8, our product candidate for the treatment of recurrent acute repetitive seizures, would be eligible for orphan drug designation.

JZP-8 is a novel drug delivery formulation incorporating Clonazepam, a widely prescribed benzodizapene. The product candidate is designed to a fast acting intranasal spray for the treatment for recurrent acute repetitive seizures in patients with epilepsy. In December 2007, we dosed the first patient in a Phase II clinical trial of JZP-8.

We are particularly pleased with the progress on JZP-8, one of the first development product candidates from our internal product identification and development programs to enter Phase II. Dosing of the first patient in our Phase II clinical trial, and the eligibility for orphan drug designation are important milestones for this program.

During the fourth quarter we commenced Phase II activities for JZP-4, our product candidate for the treatment of epilepsy and bipolar disorder. You will recall that JZP-4 is a controlled-release formulation of an anticonvulsant that has a chemical structure similar to Lamictal or Lamotrigine, an antiepileptic drug marketed by GSK.

We expect to begin screening patients for the Phase II trial soon. At our Investor Day, we will share data from studies completed in 2007, including the single-dose pharmacokinetic study of our controlled-release formulation that was completed in the fourth quarter of 2007.

With respect to JZP-7, you will recall from our third quarter call that we initiated a second pharmacokinetic study of JZP-7, a novel formulation incorporating a dopamine agonist for the treatment of restless leg syndrome.

We expect final results from that study in the second quarter of 2008, and we will be able to share preliminary conclusions from this study with you at our Investor meeting in March. With respect to JZP-6, we continue to enroll subjects in both of the Phase III pivotal trials of JPZ-6, the product candidate to treat Fibromyalgia Syndrome. We anticipate sharing top-line data on the first of the two pivotal trials in the second half of 2008.

To summarize Jazz Pharmaceuticals pipeline at year-end 2007, we've made significant progress with each of our development candidates, and of course, we're awaiting FDA approval of Luvox CR. We're very proud that our product candidates have the potential to provide new treatment options for unserved and underserved patients with difficult to treat disorders.

As always, we continue to pursue and initiate new feasibility projects both internally and through collaborations to compliment our portfolio, and again we hope to give you more details on some of this shortly.

And now, I'll turn the call over to Bob Myers, our President.

Thank you, Sam. In the fourth quarter of 2007, Xyrem net sales were $11.1 million, which represents an increase of 38% compared to the fourth quarter of 2006. Xyrem net sales for full-year 2007 were $39 million, an increase of 34% over net sales of $29 million in 2006.

As I mentioned on our third quarter call, we launched new promotional campaigns on Xyrem, focusing on a diagnosis of narcolepsy, and highlighting Xyrem's unique efficacy in treating the two major symptoms of this disease, excessive daytime sleepiness and cataplexy.

Reflecting the success of these promotional campaigns, our recent market research indicates that awareness of Xyrem, both aided and unaided, has increased in the latter part of 2007. In 2008, we expect to transform this increased awareness into increased usage and increased prescriptions of Xyrem for narcolepsy patients.

Turning to Antizol, net sales during the fourth quarter of 2007 were $3.7 million, an increase of 8% compared to the fourth quarter of 2006. The full-year 2007 net sales of Antizol were $14.2 million, compared with $12.8 million in 2006. Following the expiration of orphan drug exclusivity for Antizol in December of last year, a generic competitor was approved by the FDA.

You will recall that our sales team does not actively promote Antizol, and this product is not in line with our therapeutic focus on the treatment of neurology and psychiatric disorders.

As you already heard from Sam, the PDUFA action date for Luvox CR has been set for February 29th. While we're waiting for final approval from the FDA, we continue to build relationships with key opinion leaders and experts in the areas of OCD and SAD.

In January, we convened and Advisory Board meeting in which physicians from across the country discussed the chronic and disabling nature of OCD and SAD, and the need for earlier diagnosis and treatment of these diseases. These advisors spoke to us about the importance of the development and dissemination of screening tools for these diseases, and stressed the importance of disease education.

As we prepare for the launch of Luvox CR, our efforts to raise disease awareness of OCD and SAD amongst psychiatrists are well underway. Jazz Pharmaceuticals has placed disease awareness editorials in targeted psychiatry journals, communicating the importance of appropriate treatment for chronic and debilitating anxiety disorders like OCD and SAD.

In addition, we have completed the expansion of our sales force. We now have a total of approximately 200 field sales personnel, which includes both our sales management and our sales representatives. These individuals are currently in their assigned sales territories promoting Xyrem for the treatment of cataplexy and excessive daytime sleepiness in patients with narcolepsy.

Last week, we held our National Sales Meeting in Pasadena, California, and I am confident that our commercial team is ready to drive uptake of Luvox CR upon final approval by the FDA.

In summary, during the fourth quarter of 2007, we continued our strong sales performance, and made significant progress in preparing for the launch of Luvox CR. I look forward to our next quarterly conference call, when we expect to tell you about the successful launch of Luvox CR.

I'll now turn the call over to Matt Fust, our CFO, to provide a financial review. Matt?

Thank you, Bob. We're pleased to be able to end our first year as a public company with strong growth in our revenues. Total revenues for the quarter ended December 31, 2007, were $15.5 million, compared to $12.4 million for the quarter ended December 31, 2006 led, as Bob mentioned, by growth in Xyrem sales.

Our total revenues for the year increased 46% to $65.3 million, compared to $44.9 million last year. Gross margin on product sales for the quarter ended December 31, 2007, was approximately 78%, lower than our typical gross margin, and below the full-year 2007 gross margin of approximately 83%.

During the fourth quarter, gross margin was adversely impacted by the write-down of approximately $0.5 million in Antizol inventory in connection with the launch of generic competition, as Bob mentioned.

Research and development expenses for the quarter ended December 31, 2007, were $20.5 million, which compares to $13 million for the fourth quarter of last year, and for the full-year 2007, R&D expenses were $69.8 million, up from $55 million last year. The higher research and development expenses during 2007 reflect the expanded Phase III clinical activities for JZP-6, increased R&D headcount, and some costs associated with Luvox CR's scale-up and manufacturing.

As we've discussed with you on previous calls, the costs associated with commercial manufacturing scale-up and production of Luvox CR commercial product is being accounted for as an R&D expense during this period leading up to FDA approval. These costs were approximately $2.7 million during the fourth quarter of 2007, and approximately $6.4 million for the full-year 2007.

That full-year amount is lower than the $8 million to $10 million estimate for 2007 that we had previously provided, because some costs, which we expected to occur in late 2007, were deferred into 2008. We anticipate that we will continue to record expenses associated with this Luvox CR manufacturing scale-up as R&D expense until Luvox CR is approved.

Selling, general and administrative expenses for the fourth quarter rose to $28 million, compared to $12.5 million for the quarter ended December 31, 2006. For the full-year 2007, SG&A expenses were $78.5 million, compared to $51.4 million for 2006. Higher SG&A expense in both periods was driven primarily by spending in preparation for the anticipated launch of Luvox CR, increased headcount and higher expenses for our larger sales force.

The fourth quarter of 2007 included one unusual item, which is a non-cash charge of approximately $20.2 million, reflecting a reduction in the estimated value of the intangible assets on our books related to Antizol.

We determined that the carrying value of that asset needed to be reduced, in light of the approval and introduction of a generic competitor to Antizol late in 2007. Recall that this intangible asset was initially recorded back in the second quarter of 2005 in connection with our acquisition of Orphan Medical.

Our net loss for the fourth quarter of 2007 including that asset write-down was $60 million, compared to a net loss of $20.5 million for the fourth quarter of 2006. For the full-year 2007, net loss was $138.8 million, compared to a net loss of $59.4 million for 2006.

In reviewing our results for the year, please note that in addition to the write-down related to Antizol, our net loss for 2007 included several items that were called out in our earnings release, including the $17.5 million charge related to our settlement with the government back in July, $9.5 million of contract revenues, which were triggered by two milestone events earlier in the year under our agreement with UCB, who was our partner for Xyrem development and commercialization, and a $5.1 million gain on the divestiture of Cystadane, which occurred back in the first quarter of 2007.

Finally, we ended the year with $102.9 million of unrestricted cash, cash equivalents and marketable securities. That concludes our management team updates on the fourth quarter. We look forward to providing you with a more in-depth review of our business, including the planned launch of Luvox CR and our product development activities during the March 13th Investor Day presentation.

I thank you all for your attention today, and we'll now turn the call back over to the Operator for the Q&A portion.

(OPERATOR INSTRUCTIONS)

Okay, Eric, I'll take it from here. This is Jim Karrels. We'd like to thank everyone for your participation in today's -- it looks like we actually do have a question now.

Yes. You're showing a question in queue now, from the like of Marc Goodman with Credit Suisse. Please proceed.

Yes, I was wondering if you could talk about the analyst meeting a little bit more. So, we're going to have a couple of the doctors there. What products are we going to get updated on?

We intend to update you on our entire commercial business. Obviously, we'll post a PDUFA date by then, and we intend to update you on our entire development pipeline. So, it'll be a complete review of the commercial development activities at Jazz Pharmaceuticals.

So, Sam, are there any new projects that we just don't know about yet that we're going to find out about?

Well, we won't steal any of that thunder, but -- I think I can say that you'll know more about our R&D portfolio afterwards than you know today. It will include additional information about projects that you're already aware of that will give you more details, as well as some things that maybe you haven't heard about before.

Matt, as we spread the quarters for '08, just to try to be as exact as we can, I know it's not as relevant. But for the SG&A, could you just help us with the lumpiness of the [launch spending] and the -- is R&D just straight up throughout the year, is there any planned bumpiness in that as well?

We're not going to be able to provide much in the way of detailed financial guidance today. In terms of the SG&A expense, I'd encourage you to look to the fourth quarter of 2007 as a reference point. Recall that most of the hiring of our expanded sales force took place during the fourth quarter. So, that'll give you a better sense of the SG&A run rate going forward.

In addition, we began making expenditures in anticipation of Luvox CR launch in Q4, so you're starting to see some impact of the Luvox CR marketing programs in the fourth quarter.

On the R&D front, recall that the key drivers for us are really clinical development programs, and in particular late-stage clinical programs. Both of the two trials for JZP 6 Phase III program are now actively enrolling, and in terms of the earlier stage JZP programs, probably we'll point you to the March 13th meeting for more details about time lines for those clinical programs.

Okay. Thanks.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of [Florence Sang] with Morgan Stanley. Please proceed.

Hi. I just wanted to get a sense of your confidence in a Luvox approval in February, and whether the sales force is ready to promote right away in March. Thank you.

We're highly confident of approval, and the sales force and all the other aspects of the launch are ready to go.

Your next question comes from the line of Rich Silver with Lehman Brothers. Please proceed.

Hi. You may have already answered this question during the prepared remarks, but I had to hop off. On Antizol, are you continuing to detail that, or you've ceased detailing it because of the generic competition?

So Rich, this is Matt, recall that our sales force does not and has not actually detailed Antizol. That product is sold into hospitals, so that's been handled separately with a very small commercial effort. We are continuing that effort as we understand over the course of the coming months, what the impact of the generic introduction was.

Our sales force, at this point, is only promoting Xyrem, and will be promoting Luvox CR after its approval.

But the commercial efforts that you described, are those unchanged from prior to the introduction of the generic competitor?

Yes, they're currently unchanged, although as you'll recall, they're quite small, and we'll monitor that on an ongoing basis as we see what the impact of the generic entry is on the sales.

Okay. Thanks.

(OPERATOR INSTRUCTIONS)

Okay, Eric, if there are no more questions, this is Jim Karrels, let me just wrap up. Thanks everyone for your participation in today's call, and we look forward to keeping you updated on our continued development and commercial progress.

In addition to our Investor Day on March 13, our upcoming first quarter conferences include the Credit Suisse Up and Comers Conference in New York, end of this month, February 28th, the Cowen Healthcare Conference in Boston on March 17, and the Lehman Brothers Healthcare Conference in Miami on March 19.

We hope to see many of you at our Investor Day and these upcoming conferences, and have a great evening, everyone. Thank you.

Thank you for your participation. This concludes our presentation. You may now disconnect, and have a good day.