Jazz Pharmaceuticals PLC (JAZZ) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Jazz Pharmaceuticals earnings conference call. My name is Fab, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Matt Fust, Chief Financial Officer. Please proceed.

Thank you, Fab. Good afternoon, everyone, and welcome to our financial results conference call. With me today are Dr. Sam Saks, our CEO, and Bob Myers, our President. Following our prepared remarks, we'll be opening the call up for Q and A. Our first quarter financial results press release was issued earlier this afternoon and is also available at our website.

I'll remind you that remarks we may make on this call about future expectations, plans, or prospects for Jazz Pharmaceuticals constitute forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 and that our actual results may differ. I'll ask Bob to begin today's call with an update on our commercial activities and the recent launch of Luvox CR.

Thanks, Matt. Good afternoon, everyone, and thank you for joining us today. I'll begin with a topic I know is top of mind for all of you just as it is for us here at the Company -- the progress of the commercial launch of Luvox CR. During the next few minutes, I'll provide you some updates on our ongoing Luvox CR activities.

We are very pleased with our successful preparations to bring this product to the market. These efforts have been underway at our company for more than a year now. As you recall, we received final FDA approval for Luvox CR on February 28th for the treatment of both social anxiety disorder, or SAD, and obsessive-compulsive disorder, or OCD. Following approval by the FDA, our supply chain team worked closely with our manufacturing partners to ensure rapid commercial availability of Luvox CR.

We completed initial shipments to wholesalers in late March, achieving our corporate objective to launch Luvox CR in the first quarter of this year. Our field force of nearly 200 sales professionals completed their Luvox CR training based on the final FDA-approved product label and began active sales promotion to physicians in mid-April.

In parallel, numerous commercial preparations were underway, including producing promotional materials and educational literature on Luvox CR. We began running now-available ads for Luvox CR in more than 20 psychiatry, pharmacy and managed care journals in April.

We also initiated a new Luvox CR launch campaign in medical journals in May. This launch journal ad highlights the key features of Luvox CR -- proven efficacy in OCD and SAD, a weight-neutral profile, a low incidence of sexual adverse events, controlled release technology designed to minimize peak-to-trough plasma level fluctuations over a 24-hour period, and once daily dosing at bedtime with or without food.

Last week, we launched Luvox CR's medical meeting presence at the American Psychiatric Association, or APA, meeting. This meeting providing an important and timely opportunity for us to showcase Luvox CR as well as Xyrem. Our health systems team have been actively working with commercial insurers and managed care organizations, state Medicaid and Medicare Part D payers to ensure that coverage will be available when patients fill their Luvox CR prescriptions.

Initial data tell us that Luvox CR is being covered at launch by the vast majority of commercial managed care payers without requiring a prior authorization. This status puts Luvox CR on a similar playing field with other brand name products in this therapeutic category.

Overall, we're very pleased with the launch of Luvox CR. It is clearly still too early in the launch of Luvox CR for weekly IMS data to be meaningful. Having said that, looking at the limited amount of weekly IMS prescription data which is currently available for Luvox CR, shows us that we are tracking ahead of our internal prescription forecast. We're also hearing very positive feedback from our sales professionals on the reception from physicians to the launch of Luvox CR.

We are maintaining our guidance for Luvox CR ex-factory sales for 2008 between $40 million and $60 million. Turning to Xyrem, despite the potential distraction of the launch of Luvox CR, our sales team generated record sales of Xyrem in the first quarter of 2008. Xyrem net sales were $11.3 million, an increase of 32% compared to the first quarter of 2007. We're also confirming our previous sales guidance for Xyrem net sales in 2008 in the range of $45 million to $55 million.

During the first quarter, we saw both an increase in the number of first-time physician prescribers of Xyrem and stronger-than-anticipated numbers of new Xyrem patients. The number of new physicians registering with the Xyrem success program more than doubled in the first quarter of 2008 compared to the first quarter of 2007, an indication that our expanded sales force is having a considerable impact.

We're also beginning to see the impact of the updated narcolepsy treatment guidelines published by the American Academy of Sleep Medicine in December of last year. The academy now recommends Xyrem as standard of care for the treatment of both excessive daytime sleepiness and cataplexy, the two most common and debilitating symptoms of narcolepsy.

As an extension of our award-winning campaign focusing on the diagnosis of narcolepsy, we recently launched a new promotional program series. The objective of this program is to strengthen physician's awareness of the symptoms of narcolepsy and a differential diagnosis of narcolepsy through a series of case studies. This series has been extremely well received by physicians and highlights our longstanding commitment to the narcolepsy community.

Finally, sales of Antizol, which faced generic competition for the first time in the first quarter of 2008, were strong with net sales of $2.6 million, roughly equal to sales in the first quarter of 2007. We expect sales of Antizol will decline during the rest of this year due to the entry of generic competitors. You may recall that our sales team does not actively promote Antizol as this product is not aligned with a therapeutic focus on the treatment of neurology and psychiatry conditions.

In summary, the past few months have market a key inflection point for our company with the launch of Luvox CR by our expanded sales team and continued strong growth of Xyrem. I look forward to our next quarterly conference call. We'll have much more to share with you about the successful launch of Luvox CR. I'll now turn the call over to Sam to provide you with updates on progress in our development portfolio.

Thanks, Bob. In addition to the energy and commitment demonstrated throughout our company in preparing for a successful launch of Luvox CR, I'm happy to report progress in the advancement of our development programs. On today's call, we are pleased to announce the attainment of a key milestone in our JZP-6 clinical development program for fibromyalgia syndrome.

As you will recall, we are running two pivotal Phase III clinical programs together with an open label safety and efficacy continuation study for those patients who have completed one of the Phase III trials. On April 25th, we closed screening of new subjects for the first Phase III trial. The enrollment goal of 525 patients in the trial has been achieved. And final enrollment is expected to be complete in the next several weeks. We anticipate providing top line results from this first Phase III trial in the fourth quarter of 2008, as we've previously discussed.

Meanwhile, we are continuing to screen patients in the second Phase III trial at sites in the U.S. and Europe. Since we recently provided a comprehensive review of our development programs during the investor meeting on March 13th, I'll be providing only brief updates today.

Patient enrollment continues in our Phase II clinical trial for JZP-8, our intranasal formulation of clonazepam for the treatment of recurrent acute repetitive seizures in patients with epilepsy. This is an open label study intended to evaluate the safety and efficacy and pharmacokinetics of JZP-8. And we anticipate completion by the end of 2008.

In JZP-7, our novel gel formulation of ropinirole to treat restless legs syndrome. We have completed analysis of both pharmacokinetic studies we conducted and confirm the doses were well tolerated locally and systemically with only mild adverse events. With these results in hand, we are currently designing the JZP-7 Phase III program in collaboration with leading experts in the field.

We shared extensive data on March 13th during our investor presentation on JZP-4, our product candidate for the treatment of epilepsy and bipolar disorder. Recall that JZP-4 is the controlled-release, once-a-day formulation of an anticonvulsant that has a chemical structure similar to Lamictal or lamotrigine, an antiepileptic drug marketed by GlaxoSmithKline. We are preparing to initiate Phase II trials with this program in epilepsy.

Our commercial development program is in active discussions with potential ex-U.S. partners for JZP-4 along with JZP-7 and JZP-8. As we mentioned during our investor day presentation, we intend to limit our net R&D expenses during 2008 to the range of $60 million to $70 million.

In order to stay within that net expense range, we will seek to obtain development partner financing and if need be delay advancing one or more programs until the necessary financial resources have been obtained. We will look forward to updating you about partnering progress in the coming months. And now I'll turn the call over to Matt for a financial review of the quarter.

Thank you, Sam. We're pleased to be able to report another quarter of strong sales growth. Total revenues for the quarter ended March 31, 2008, were $14.6 million, led, as Bob mentioned, by grown in Xyrem sales to $11.3 million. Please note that for purposes of comparing with last year, revenue in the first quarter of 2007 also included a $2 million payment from UCB in connection with a Xyrem commercialization milestone.

Because the first quarter of 2008 included the initial shipments of Luvox CR to our wholesale customers, let me discuss briefly our approach to recognizing sales revenue for the Luvox CR product launch. As is typical for new product launches in our industry, we are initially applying a sell-through accounting approach to Luvox CR, which means that we will recognize sales revenue based upon prescription data.

We shipped approximately $3 million of Luvox CR to wholesalers in March. However, in our financial statements, the entire $3 million in Luvox CR sales has been deferred, which means that it does not appear as first quarter sales revenue on the P&L. And it is not included in accounts receivable on the balance sheet.

On the P&L, we've also deferred the Luvox CR cost of product sales, which relates to the product that we shipped during the first quarter. The first quarter 2008 cost of products shipped amount on the P&L does include, however, approximately $350,000, which relates to Luvox CR and which represents costs incurred after Luvox CR received marketing approval, but which did not relate directly to the product quantities shipped to wholesalers in March.

With that context, let's turn next to looking at gross margin on net product sales. For the first quarter of 2008, our reported gross margin on net product sales was approximately 84%. Cost of product sales includes the approximately $350,000 in expense related to Luvox CR for which there are no corresponding net sales revenues, which resulted in a reduced reported gross margin for the first quarter. Gross margin on Xyrem and Antizol alone would've been approximately 86% for the first quarter of 2008.

Research and development expenses for the first quarter were $21.2 million compared to $14.9 million for first quarter last year. Higher research and development expenses during 2008's first quarter respected the expanded Phase III clinical activities for JZP-6, increased R&D headcount and approximately $1.2 million in costs associated with Luvox CR's scale up and manufacturing prior to its approval at the end of February.

Selling, general and administrative expenses for first quarter of 2008 were $32.8 million compared to $14.3 million for the first quarter of 2007. The higher SG&A expenses in 2008 resulted primarily from spending in preparation for the Luvox CR launch, from expenses which support our larger sales force, and from increased headcount.

Let me note a few items on the quarter end balance sheet. First, we ended the quarter with just over $105 million of unrestricted cash, cash equivalents and marketable securities. As of the end of the first quarter, our intangible assets balance reflects the addition of $41 million in milestones to Solvay Pharmaceuticals in connection with the approval and launch of Luvox CR in the first quarter.

The first of those milestone payments, $10 million, was made in late March. And a second milestone payment, also $10 million, was made in April. There are two remaining milestone payments, each $10.5 million, which are not due until the end of the third and fourth quarters of this year.

Also in March, we announced the expansion of our senior term debt. That transaction closed with $40 million of gross proceeds, which expands our senior debt outstanding from $80 million to $120 million. We also have an option under that debt agreement through January 31, 2009, to borrow an additional $30 million if product sales reach certain levels by the end of 2008.

Finally, last week, we entered into a committed equity financing facility with Kingsbridge Capital Limited, in which Kingsbridge committed to provide up to $75 million of capital through purchasing newly-issued shares of our common stock. Under the three-year agreement, we can determine the timing and amount of any financings under the facility subject to certain conditions.

With these recent financing transactions completed, we have expanded our resources and provided for access to additional funds to complete our corporate objectives. We're all very proud of our company's accomplishments during the first few months of 2008 across all aspects of our business.

This has been a very exciting time of growth and momentum for Jazz Pharmaceuticals. That concludes our management team update on the quarter. I appreciate your attention. And I'll now turn the call back to Fab to begin the question and answer portion of the call.

Thank you.

(OPERATOR INSTRUCTIONS)

And your first question will come from the line of Rich Silver with Lehman Brothers.

Good afternoon.

Hi, Rich.

Hi. Could you provide a little bit more detail on the managed care discussion? You did mention that there's no need for prior authorization with any of the customers. But perhaps discussion of tier III status and how far along you are in the process of the managed care discussion?

Hi, Rich. It's Bob. It is still very early in the launch. So I'd rather not get too detailed in managed care discussions. I will say that what we're seeing is almost exactly what we expected, which is tier III. And our coverage is very good in terms of not requiring a prior authorization, which is what we expected, and puts us on a similar playing field with other branded products, other SSRIs or SNRIs. So from a managed care perspective, it's very early, but exactly what we had planned for.

And as far as the $40 million to $60 million unchanged guidance, can you now give us a better sense of how heavily year-end loaded that number is? I mean, we know that it obviously is second half and loaded. But at this point, with one quarter under your belt and out there and you're getting obviously a little bit more feedback, any additional clarity on the progression and what you might even be expecting in the current quarter?

Hi, Rich. It's Matt. As Bob mentioned, we're still so early in the launch with just a few weeks of IMS prescription data in hand. We're not yet at a place to provide more granularity on what we think the growth progression will be over the course of the year. We would agree with your assessment that we expect growth throughout the year and certainly expect the second half to be considerably larger than the first. But beyond that, it's just too early to have a sense for what the trajectory will look like.

Okay. Thanks.

Your next question will come from the line of Marc Goodman with Credit Suisse.

Yes, first question is on the stocking for Luvox -- you had mentioned $3 million. Will there be further stocking in this quarter?

The initial stocking of $3 million, which went to the wholesalers at the end of the first quarter was intended to ensure that we had product available at the wholesalers that could then be moved down to the retail pharmacies in order to ensure that patients had access to the product rapidly after a Luvox CR script was written.

We don't intend to do more what I characterize as initial channel fill. And in fact, we're already beginning to see reorders coming in from wholesalers to fill beyond the initial channel stocking.

Okay. And then can you help us just with the share count and how we should think about that and how this new deal with Kingsbridge -- how does that -- that's kind of part two to the question. But how should we think about the share count and how that factors in over time?

Sure. So the share count as summarized briefly in the press release and will be available in detail with our 10-Q that'll be filed in the next day or so is actually pretty straightforward and reflects the shares that are outstanding. The transaction with Kingsbridge Capital is an option, a Jazz Pharmaceuticals option, to sells shares in the future to Kingsbridge Capital. So unless or until we sell those shares to Kingsbridge, those won't show up in our share count.

But you have to hit certain Luvox CR revenue numbers? Is that what you have to hit?

The reference to hitting certain sales numbers actually is in connection with the further expansion of our senior term debt facility. We received $40 million in the expansion of that facility in March. And we at the Company's option can take up to another $30 million of additional senior term debt if we hit certain sales targets as we move through 2008. The relationship with Kingsbridge doesn't have any sales target requirements.

Thanks.

Your next question will come from the line of Corey Davis with Natixis.

Thanks very much. We all know that sampling always dilutes the actual script numbers. But would you say that your sampling on Luvox CR has been more aggressive, less aggressive, or right on par with industry standards?

Corey, it's Bob Myers. Corey, I'd say that when we modeled our sampling plan, we looked at other products in this therapeutic category. And essentially, our sampling is on track for what we were expecting. So yes, I think that we're doing heavy sampling at the beginning so that physicians can start patients on 100 mg and titrate to 150 mg after a week and then go onto a commercial prescription. But we certainly want to get trial usage early in the trajectory of our launch.

And as you could imagine -- Corey, this is Sam -- we're sampling more heavily with our highest-value targets. So as is typical, we're trying to direct the sampling towards the people who can use them productively.

I think that's all I had. Thanks very much.

Thanks, Corey.

(OPERATOR INSTRUCTIONS)

There are no further questions at this time. I would now like to turn the call back over to Mr. Matt Fust for closing remarks.

Great. Thank you, all, for your participation in the call today. And we look forward to keeping you updated on our development and commercial progress. I also want to let you know that we'll be participating in several conferences during the next few weeks, including the Credit Suisse Small and Mid-Cap Healthcare Forum in New York on May 16th, the Citigroup Healthcare Conference in New York on May 21st, the UBS Global Specialty Pharmaceuticals Conference in London on May 28th, and the FBR Capital Markets Spring Investor Conference in New York on May 29th. And we certainly hope to see many of you at those upcoming conferences. Thanks very much, and have a great afternoon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.