Jazz Pharmaceuticals PLC (JAZZ) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Q3 2012 Jazz Pharmaceuticals earnings conference call. My name is Kirstie and I will be your operator for today. (Operator Instructions).

As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Ami Knoefler, Executive Director of Investor Relations. Please proceed.

Thank you for joining the Jazz Pharmaceuticals plc third quarter 2012 conference call. Earlier today we reported our financial results and updated guidance in a press release. The release is available in the News and Events section of the Company's website. Our press release included quarterly and year-to-date net sales data for our key products on a pro forma basis for products acquired this year, as well as some detail on our discontinued women's health business. With me for today's call are Bruce Cozadd, Chairman and CEO, Kate Falberg, CFO; Russ Cox, Chief Commercial Officer and Jeff Tobias, Head of R&D and Chief Medical Officer.

Following some prepared comments we will open the call for your questions. Please note that certain remarks we make on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements related to future events, future financial results, growth potential, financial guidance, pipeline opportunities, intra-regulatory and intellectual property matters and other statements relating to our plans, expectations and intentions.

These forward-looking statements involve numerous risks and uncertainties that could cause our actual results to differ significantly from those projected including risks and uncertainties associated with our ability to maintain an increased sales of and revenue from Xyrem such as a potential generic competition and changed or increased regulatory restrictions on Xyrem, our ability to effectively commercialize our other products including Erwinase and Prialt, our need to obtain appropriate pricing and reimbursement for our products in an increasingly challenging environment, our ability to successfully integrate and grow our combined business operations following the Azora Pharma and EUSA Pharma transactions, our ability to protect intellectual property rights with respect to our products, and the difficulty and uncertainty of pharmaceutical product development, clinical success and regulatory approval.

These and other risks related to our business are detailed in the SEC filings including under the heading Risk Factors in our quarterly report on form 10-Q for the quarter ended June 30, 2012. Our SEC filings and reports are available on our website. We undertake no duty or obligation to update any forward-looking statements contained on this call as a result of new information, future events or changes in our expectations.

On this call we discuss certain non-GAAP financial measures including adjusted gross margin, combined SG&A and R&D expenses and earnings per share. We believe these non-GAAP financial measures are helpful in understanding our past financial performance and potential future results. They are not meant to be considered in isolation or as a substitute for comparable GAAP measures. A reconciliation of GAAP to adjusted financial measures is included in our press release issued earlier today which is available on our website.

We expect to file the form 10-Q for the third quarter shortly. I will now turn the call over to Bruce.

Thank you, Amy. Good afternoon, everyone and thank you for joining us. The third quarter was another great quarter of growth and execution at Jazz. We posted record revenues of $176 million from continuing operations which reflects our first full quarter of revenues after our acquisition of the EUSA Pharma. As noted in our press release, results from continuing operations exclude our women's health business which we divested in mid-October, raising nearly $100 million and enabling us to focus on our core business.

During the quarter we made important progress toward integrating the EUSA operations and strengthening our business for the long-term. I will center my comments today on the three products in our portfolio that we think will have the highest growth potential, Xyrem, Erwinase, and Prialt. Xyrem third quarter revenues were bolstered 9% year-over-year volume growth. During the quarter we averaged approximately 10,200 patients on active treatment. Up from just over 9,000 in the prior year's third quarter.

The growth in the average active patient pool supports our view that the underlying organic volume growth for the Xyrem business will be in the low double digits. While an historic volume growth has been aided by improvements in persistency and compliance, we are now seeing an uptick in new patient growth driven by new and previously infrequent prescribers. We attribute some of the increase in new prescribers to our efforts over the past year-and-a-half to identify and add approximately 1,000 physicians to our call universe. We can trace the number of the new Xyrem patients directly to this group.

We are continuing to work on appropriate physician targeting and refining the call universe with a particular focus on board certified fleet specialists. This broadening of prescriber base bodes well for continued patient growth and underscores the success of our single product focus sales force and the positive outcomes we are seeing from our physician education efforts. Our medical affairs team continues to engage with KOLs and we have supported independent research to seek to further characterize the burden of narcolepsy, and which is expected to result in publications with interest to the sleep community.

In early October at a well attended American Neurological Association conference session, Dr. Maurice Ohayonfrom Stanford presented the results of a Jazz-funded study character rising co-morbidities in approximately 320 patients with narcolepsy relative to a control group representing the general population. The patients with narcolepsy were found to have significantly higher levels of heart disease, hyper tension, hyper cholesterolemia, digestive system disease and upper respiratory tract disease.

Collectively these data highlights the burden of this debilitating disease is often significantly greater than widely recognized. Underscoring the need for building greater disease awareness. We are also continuing to work to enhance and defend our intellectual property around Xyrem. We introduced in September the issuance of our tenth patent related to Xyrem, the 650 patent, a formulation patent that was subsequently listed in the Orange Book.

In early October we received a notice of allowance for a method-of-use patent related to the method of administering sodium oxybate. We have several additional patent applications on file relating to our restrictive distribution system. As a result of the 650 patent issuance, we filed a new ANDA suit against Roxane. Our existing ANDA suit against Roxane has been temporarily stayed while the court determines whether to consolidate the cases.

That decision is expected at the end of the year at the earliest and discovery is expected to resume after the decision. As part of our continued commitment to patients with narcolepsy, we recently provided support and sponsorships at the annual narcolepsy network meeting in October. This meeting was attended by over 300 patients with narcolepsy and their supporters who gathered for information related to the disease. The meeting provided our Company representatives a better opportunity to understand patient needs.

Turning now to Erwinase. We were pleased that in the midst of integration, the worldwide commercial team continued to executeand sales for the quarter were on track with expectations. During the quarter we focused on building enhanced sales and medical affairs team to support Erwinase, and we've added dedicated reimbursement specialists for the product. Our efforts during the third quarter also included activity at several conferences.

We spoke with various thought leaders at the Children's Oncology Group annual meeting and have received input from various advisors to help align our future medical education plans with the interest of the pediatric oncology community. We also had a strong presence at the APON, the oncology nursing conference held in early October. Since nurses play a key role in observing the symptoms of hypersensitivity to e-coli-based asparaginase, they are critical to timely detection and response. During the conference a former oncology nurse presented to a standing room only audience about the importance of identifying hypersensitivity to asparaginase treatment.

This also points to a key component of our Erwinase strategy, the importance of investing in education about the identification and grading of symptoms of hypersensitivity which can often be overlooked or masked with steroids or antihistimines. Current guidelines and protocols emphasize the benefits of switching patients to Erwinase as soon as a Grade II hypersensitivity reaction is observed. Our job is to make sure the relevant medical professionals are well educated regarding grading system and the recommended course of treatment through a combined effort by our medical and sales teams.

Two more Erwinase updates. First a clinical trial evaluating the IV administration of our existing formulation of Erwinase is expected to begin enrolling patients in North America soon with the number of centers already open for enrollment. You recall that the IV route of delivery can be more comfortable and less painful for patients. We look forward to advancing this program in the coming year. Also we are pleased that an abstract offered by our medical team has been accepted for presentation at the American Society of Hematology conference which will take place in early December.

This will be the first conference presentation of data from the treatment IND program known as the Erwinase Master Treatment Protocol or EMTP. The abstract will characterise the safety of Erwinase in more than 900 patients treated in the EMTP protocol the largest group of patients studied to date. Looking forward we continue to believe that there is significant potential for increased sales of Erwinase across several growth areas. First we continue to see near-term opportunity for growth within the pediatric population.

For example, new hospital accounts continue to increase and a total of 45 new accounts have ordered Erwinase since its U.S. launch last year. And there will be an increased commercial focus on hospitals that participated in the treatment IND program, many of whom have not yet reordered the product. Erwinase reimbursement is excellent. Longer term we continue to see significant opportunity for this product.

We are planing to invest in medical education to increase awareness of asparaginase treatment. And we are considering additional research to expand knowledge of asparaginase in the adolescent and young adult population. On the oncology R&D front we are pleased with the progress in our European Phase I study for Asparec, our pegylated recombinant erwinia derived asparaginase product candidate.

And we anticipate submitting our U.S. IND for Asparec soon. We are excited about advancing this candidate as it can provide another important treatment option for patients with ALL.

I will now move to Prialt, the only non opioid intrathecally administered drug approved for severe refractory chronic pain. Prialt sales for the third quarter increased by 9% compared to the year ago third quarter on a pro forma basis. We continue to make progress in core areas of focus for Prialt including optimizing our sales efforts and increasing medical education and medical [affairs] support for the product. Prialt remains a long-term growth opportunity for our Company. In the past few months however the most significant development related to Prialt is a first phase of implementation of the new centralized distribution hub called the Navigator Reimbursement and Access Program. Our sales team of 30 representatives is calling on key accounts to facilitate transition of the business to the new system.

We expect several important benefits from the hub for patients and physicians. The first is reimbursement support. When a patient enrolls in the Navigator Program, an experienced reimbursement professional will conduct a complete review of that patient's insurance coverage which may include services in addition to drug cost reimbursement. So before the physician and patient access Prialt, both of them will know all of the reimbursement options available to them.

For patients with commercial insurance, the hub will accept an assignment of benefits relieving the physician of the central financial burden or risk. Another benefit of the hub model is the pharmacy's ability to provide information to the physician about the dosing and administration of Prialt at the time of filling each prescription. We also expect to obtain available information about how the product is being utilized, paving the way for future targeted programs to support Prialt.

Finally I want to mention an additional corporate initiative that demonstrates our support for patients and their communities as well as the values that are deeply ingrained in our growing organization. Earlier this week we announced our sponsorship of the Medicine Abuse Project, an important public awareness initiative to help fight prescription medicine abuse in teens. Our support for this project reflects a long-standing commitment to patients and to overall public safety. Kate, let me now turn the call over to you.

Thanks, Bruce. Good afternoon, everyone. Reported net sales for the third quarter were $174 million up over $100 million from the third quarter last year due to the addition of products from the two acquisitions we completed this year, and strong growth of Xyrem. Note that we achieved an additional $8 million in revenue from the now divested women's health business which is shown as discontinued operation.

Net sales of Xyrem were $103 million in the third quarter, up 64% year-over-year. I will point out that there was a price increase on August 3rd so the quarterly run rate is expected to be higher than $103 million going forward. Regarding volume growth in the quarter, the year-over-year comparison was negatively impacted by having one less shipping day during this year's third quarter, but the underlying momentum in the business remains strong.

Reimbursement overall remains strong for Xyrem. The trend toward increasing rates of prior authorizations continues however, the approval rates remain very high.

During the quarter we reduced the thresholds on our coupon program from $75 to $35 and monthly out of pocket expenses. This has been very well received by patients and providers. Despite the lower threshold of $35, less than a third of patients accessed the coupon assistance program during the quarter.

Today we are confirming our guidance for full-year Xyrem net sales in the range of $375 million to $380 million. Worldwide net sales for Erwinase were $32 million in the third quarter. You will recall this product was approved by the FDA in November of 2011. The pro forma year-on-year comparisons are less meaningful.

Last quarter we provided 2012 guidance for Erwinase and we remain comfortable with that guidance. We continue to be excited by this product and its growth prospect. Net sales of our psychiatry products were $21 million for the third quarter, up 7% year-over-year on a pro forma basis. In this group Luvox CR sales grew approximately 20% over the prior year's third quarter. On a pro forma basis FazaClo HD increased 32% and net sales of FazaClo LD decreased 17%.

As a reminder our psychiatry sales force continued to focus on maintaining Luvox CR sales by calling on high subscribers for OCD as well as maintaining FazaClo HD sales by maximizing its share of the higher dosage strength in the face of generic competition for the lower dosage strength. We also continue to pursue regulatory approval of an oral suspension form of clozapine for which the PDUFA date has been moved to February 2013 due to our submission of some additional CMC data. Adjusted gross margin for the quarter was 87% reflecting the addition of products from EUSA and the divestment of the women's health business. For the full year we expect adjusted gross margin to be 88% to 91%.

Note that our full year adjusted gross margin guidance reflects approximately $17 million to $18 million purchase accounting inventory step-up which would leave about $3 million on the balance sheet at year-end. Adjusted combined SG&A and R&D expenses were $58 million in the quarter or 33% of revenue. These expenses increased by $14 million compared to the second quarter primarily due to the addition of expenses related to the use of pharma organizations including R&D expenses related to development programs.

For the full year we expect adjusted combined SG&A and R&D expenses to be $200 million to $205 million. The effective tax rate on adjusted income from continuing operations was 11% in the quarter bringing the year to date rate to 9%. On the bottom line our earnings continue to be strong. As you can see from our results detailed in today's press release we are providing EPS for the third quarter for both our continuing and discontinued operations.

On a combined basis third quarter adjusted earnings were $1.34 per share which includes $1.29 per share adjusted income from continuing operations. GAAP EPS for the third outer of 2012 was $0.55 cents per share.

Turning to some noteworthy items on the balance sheet, as of September 30th, the assets of the women's health business including intangible assets, goodwill and inventory were consolidated into one line item classified as assets held for sale. Our cash balance is currently approximately $300 million which includes the proceeds from the sale of those assets. We will record a gain on the sale which is estimated to be approximately $34 million to $36 million in the fourth quarter in this continued operation. As noted in our press release today we have updated our guidance for the year to remove the previously expected full year's revenues and expenses of the women's health business.

We are also now providing gross margin and combined SG&A and R&D expense guidance on an adjusted basis. Important to note is that the difference between our prior total revenue guidance and current guidance was $30 million which is entirely due to the sale of our women's health business. The same holds true for our adjusted EPS guidance range which has decreased $0.05 to $0.10 cents which approximates the full year contribution from women's health.

In closing we are very pleased with our performance for the quarter and year-to-date. We have a strong financial position fueled by the success of our specialty product portfolio, and we are well positioned to pursue additional growth opportunities that align with our strategy. Thank you for joining us on the call today. I will now ask the operator to open the line for your questions.

(Operator Instructions)Please stand by for your first question which comes from the line of Louise Chen from GuggenheimPlease go ahead, Louise

Hi, Good afternoon. I had a few questions. First question is... Can you hear me? I'm sorry.

Yes, we can, Louise.

First question I had is what type of return on investment have you seen from the companies you have acquired? And the second question I had was what type of internal metrics do you use to analyze business development opportunities? And the last question I had is on your pricing for Xyrem. We obviously had a lot of questions on that. How sustainable do you feel that is going forward? Thank you.

So Louise, on your first question which is the rate of return we've seen on the investments we have made on our two recent acquisitions, I would say very much too early to tell. For each of these had a strong rationale for the acquisition both for strategic as well as financial reasons. I think we are performing well on both of those acquisitions in line with what we laid out at the time we did them. But of course these were intended to really play out over many years as we combine portfolios and companies and really take advantage of the growth opportunities in existing portfolio as well as particularly in the case of EUSA pursue some of the R&D programs that are underway. We will watch that over a number of years. So far so good.

Tough to judge an acquisition like these in a short period of time particularly with the growth we project. In terms of the metrics we use for business development opportunities, again we are looking for things that provide a good fit, growable products that are differentiated with good periods of exclusivity, something we believe we can do a good job with in terms of helping more patients, but on a financial basis something that will provide us a great return and our primary focus on that is really looking at cash. What we're paying up front, what we're getting back over time as opposed to a near-term earnings accretion or some other calculation like that. We are looking for true economic return over time. On the pricing question, why don't I have Russ address that?

Sure. so Xyrem remains the only FDA approved product for the two key symptoms of narcolepsy, both catalepsy and daytime sleepiness. And we do not see that there is any significant changes in the landscape in terms of the monitoring we do on a regular basis. Whether it is tiering, whether it's looking at changes in reimbursement. We do note and we mentioned earlier in the script that we have seen an increase in prior authorization. We can comment that payers are looking at us, but no major changes in terms of the environment and we continue to monitor what we want to do on price.

Thanks, Louise.

Thank you.

Thank you. Your next question comes from the line of David Amsellem from Piper Jaffray. Please go ahead, David.

Hi, it is Rebecca Forest for David. It has been a while since you talked about the line extension possibilities for Xyrem. In that context are you exploring a way to eliminate the middle-of-the-night dosing or develop a full solid formulation?

Rebecca you are right to point out that it's been a while since we have given an update on this. You may recall that particularly as we were heading into off -- our attempt to expand the label in fibromyalgia which was unsuccessful, we had talked about both moving to solid oral dosage forms and potentially exploring and eliminating the middle-of-the-night dosing. Those programs were deprioritized when we got the response from FDA, in large part because our market research had shown that narcolepsy preferred the liquid formulation and fibromyalgia preferred potentially a solid oral dosage form.

Also as we looked at the benefits of the Company of having new dosage forms over time, part of that benefit was relative to our existing franchise protection around the liquid formulation. And that was at a time when I believe we had two patents covering Xyrem, both of them formulation patents As you heard today we are up to 10 patents issued with additional patents working their way through the system. For all of those reasons those programs have not been a high priority for the company.

Thanks. And then can you give any progress or update regarding the outstanding warning letter?

Yes, maybe I will ask Jeff to comment on that.

As we have commented in the past we have been making progress toward resolving and moving toward close out of the warning letter. We believe we have done a substantial amount of those efforts and are moving toward that point. We're very confident we will be able to complete this process and we're looking forward as we work with the FDA in getting this done in the near future.

Great. Thank you.

Thanks, Rebecca.

Your next question comes from the line of Gene Mack from Breen Capital. Please go ahead.

Thanks for taking my question, I have a few. First on Xyrem -- by the way, can you guys hear me?

Yes, we can, Gene

Just a little more detail on the status of the litigation. Did you include both patents in your refiling or just the formulation patent since it was in the Orange Book? And do you expect [method] a used patent to get Orange Book listing? Perhaps a few details around that.

Gene, it was just the one patent. The other one is not actually issued yet.

Okay. Do you anticipate once it is issued it would get recognized and get in the Orange Book?

Can't comment at this point.

And then on Erwinase you mentioned you are considering additional research in adolescents, young adults. Can you give us an idea what kinds of things you may be considering? I assume it is a clinical trial design. What size do you think that would be or what kind of spend would that be?

Probably too early to comment on that, Gene, until we are ready to announce specific efforts. But clearly we see that in the AYA population there is use of asparaginase. There are a number of people who believe the use of asparaginase in protocols and that a population produces good outcomes for those patients.

We know that like in the pediatric population some percentage of those patients are going to have hypersensitivity, the e-coli-derived asparaginase. Making sure that over time there is good understanding of when to use the erwinia-derived asparaginase I think is important for those patients and we will be working with appropriate thought leaders and others to make sure we generated the right kind of data to support proper use of the product.

Great. Can you give us an idea what you think the incremental adoption might be with IV the formulation and how that might play out?

That is a tough one. I will turn it over to Russ after I make some intro comments for anything he wants to say quantitatively, but the primary motivation to move to the IV formulation is really for the benefit of the patients that are using the drug. We would like to think that the intra muscular injection is not a barrier to use. It is the recommended therapy under many protocols. It produces the right benefit in those patients.

We certainly do hear anecdotal stories of patients or given that they're pediatric parents, sometimes it's parents who make the decision that continuing to subject their kids to multiple injections per treatment with multiple treatments per week is a significant burden and in some cases maybe one they are not willing to tolerate over time. Russ, do you want to add anything to that?

Yes, Gene. I would remind you in Europe it is used IV already. What we have learned from that experience is that in some you would find that instead of giving a partial course you would be more willing to give a full course. So there is potentially some assistance we will get in a larger dose as a result of having the IV formulation. In general it is the same formulation and we don't see a lot of huge incrementals.

Okay. I will get back in the queue.

Your next question comes from the line of Ken Cacciatore from Cowen & Company. Please go ahead, Ken.

Thanks, guys. I had a question about -- have you had any communication with Roxane in terms of sharing settlement ideas, or is it all just legal discussions? And if not why wouldn't you have sat down? Is it just too premature to swap some thoughts?

Clearly nobody likes you guys all spending money on lawyers and there is clearly a reasonable pathway forward. So wondering if you can comment on that. And then from a business development standpoint wondering if you would ever consider buying or making a major acquisition with programs in development or is it always going to be on-marketed products. And then I might have a follow-up. Thank you.

Ken, I will take the first question and then hand it over to Kate on the business development side. We are in ongoing litigation and as has been true of past comments we are really not going to speculate on a potential settlement conversations with Roxane. In terms of your comment that nobody likes spending money on lawyers, we are confident we are making a good investment there.

Ken, this is Kate. In terms of business development we do absolutely look at things that are development stage, and as you know we've always said R&D is an important part of our strategy for long-term success. So our top priority continues to be products on the market or close to market. But we do from time-to-time look at things in Phase II or even a little earlier if they are a great strategic fit.

Thank you very much.

Your next question comes from the line of Dal AtattaPlease go ahead, Dal.

Hey, Bill.

Hello?

Hi, Bill.

Sorry, didn't recognize my name. (laughter)Thanks for taking the question, congrats on a great quarter. Kate, you answered it at the very end, but I was just wanted to see where I'm thinking about this incorrectly. It certainly seems like you guys maybe bumped up guidance a little bit for the business ex women's health. If we think of the contribution in the third quarter and see that over the course of the year obviously you took the guidance down by less than what that might imply. Wondering if you can help me understand where that is not the right thinking.

Well, I would call it more on the order of fine-tuning, Bill. We only have a quarter to go, so it is getting easier to forecast it. But I wouldn't disagree with your general observation.

And then, Bruce, or Russ, I had a question on the Prialt on the hub. When you guys have talked about the importance of it in the past, it has been from a reimbursement perspective. The question is, is it reasonable to assume with this hub in place that the value proposition of Prialt will be more actively managed. Do you understand?

I will start and then hand it over to Russ. I will just point out for the sake of being perfectly clear with you guys, that we tried to say we are in the process of rolling this out. We certainly have accounts already signed up. We are pleased with what we are seeing, but I hesitate to go all the way to now that you have done that. It is in process, and we will continue to work on that in the weeks to come. Russ?

And Bill, the market research is very clear on Prialt that the single biggest obstacle with the use of Prialt is fear of getting reimbursed. What the hub clearly does for us is it gives physicians a look at what is the potential options for patients. So with that I think we are in a much better position for them to make decisions about what is the right thing for patients as opposed to am I going to get reimbursed?

To ask the question more directly, it seems like this was an opportunity for the Company to potentially increase the price of the drug. Is that something that we should think about at some point in time is still in the cards.

I think we put the hub in place primarily to make sure that we were maximizing the opportunity to increase demand and overcome the obstacle that the physicians had in terms of fear of reimbursement. I think from there you have to look at what is the up take and what we're learning from the hub? We're obviously going to get a lot of dataand a better understanding of the kind of patient. No decision has been made beyond that.

Maybe one last question and just procedurally from a legal perspective, obviously with a 650 patent, I think if you read the core documents the discovery has been stayed and you did mention that you have a number of other patents winding their way through the PTO. So is this something that is going to be a routine speed bump to the progress of the ongoing litigation that are you going to have patents issued. There are going to be P4 challenges, they're going to be consolidated in discovery and the trial at large will be stayed?

Well again, we have patents on file and are certainly optimistic that one or more of those will issue. But until they issue it is tough to say what will happen. And even on the one that has issued where we've been in front of the judge on it, no decision has been made on whether that will be consolidated. So let's see where that turns out. But I wouldn't say it is a safe assumption to assume this is a repeating pattern. Not necessarily true that all patents would need to be combined into one litigation.

Okay. Thanks very much.

Thank you. Your next question comes from the line of Michael Schmidt from Leerink Swan. Go ahead, Michael.

Thanks for taking my question. I have one question on Xyrem. Is there any seasonality around volume throughout the year? Secondly could you comment on the dynamics following a price increase? I think at some point previously you mentioned there is a higher discounting following a price increase. I wonder if there is also an inventory effect maybe.

So Michael, historically we've said we don't particularly see seasonality. We see differences between quarters and number of shipping days. We see some patterns relating to people clicking over into the new deductibles on insurance , changes in payer plans that tend to happen more often in the first quarter than other quarters. We don't think of it as seasonality in the way you usually think of seasonality with drugs meaning incidence of the disease or the treatment pattern is changing over time. In terms of a particular pattern after a price increase we haven't seen that , and I'll remind everybody we actually are reporting sales on shipments from the central pharmacy directly to patients. So there is no pipeline effect as you may see with other drugs.

All right. And on the psychiatry business unit, I guess there are two main near term factors that may influence the business overall on the clozapineor a solution, a PDUFA date in January and then the fate of Luvox CR, it is not generic yet. We don't know when it may go generic. Just wondering how those two factors might influence your strategic decision around that business.

I would say for the psychiatry group right now we have very clear focus which is continuing to ensure we are calling on Luvox CR -- productive, Luvox CR writers, people who treat OCD and have shown that this is a product they use. And also focusing very much on FazaClo HD on where we don't currently have generic competition. You are right to say we have a couple things coming up in the next year that will obviously be important drivers of that business. One is the February PDUFA date for the clozapine oral solution, and we will see if we've got a launch coming up in the first half of next year which could be a nice thing for us.

And then we will also be looking for potential generic competition on Luvox CR Of course we have been saying for a number of years that we can have competition as early as February on that product, but to our knowledge, no one yet has approval which would be a necessary step before there is generic competition. Keep we'll keep our eye on that as well.

Great, thanks, a lot.

Thank you. Your next question comes from Michael Faerm from Credit Suisse. Go ahead, Michael.

Thanks for taking the question. I have a question on Erwinase. Can you provide any color on volumes or penetration in a similar vein to the way you do with Xyrem to help us understand where sort of overall penetration of the existing market stands?

Yes, Mike, it is a good question, and if we had one simple metric we could give you, we would include it in our disclosure like we do with Xyrem where we give a sense for that. Really sales is the measure. There are a certain number of vials used here and unfortunately that doesn't correlate perfectly with number of patients because patients are different sizes, patients start treatment at different points along their whole asparaginase treatment protocol.

At some point they perhaps switch from the e-coli-derived asparaginase to the Erwinase, sothere is just tremendous variation across those patients that makes any sort of volume denominator other than vial shift times price per vial, not a particularly helpful measure.

And just one other question on business development. Can you characterize in general what you are seeing in terms of quantity of available assets and attractiveness and attractiveness of pricing of available assets in the categories you look at.

I would say there continue to be a number of interesting opportunities. Our BD group remains active in screening things that could be of interest. It is hard to answer the question about economics. You never really know the economics until you get into a negotiation and those don't happen all that often.

I don't know how to give you a good answer on that. But in general we remain confident that business development is going to be an important driver of our growth in the coming years. As it has been in the past year. We continue to focus on it quite a bit.

Great, thank you.

Thank you. Your next question comes from the line of Douglas Tsao from Barclays. Please go ahead, Douglas.

Hi, good afternoon. Bruce, sticking to Erwinase, I was just wondering if you can provide any color of what you might have seen or heard or it might not have any affect in terms of Lundbeck's decision to stop manufacturing Oncaspar?

Yes, let me suggest I hand that over to Jeff andRuss.

Obviously that caused some degree of activity within the community because there are situations although many people -- many situations used Oncaspar in the long-acting pegylated version. The Elspar version, the short acting is going to be withdrawn from the marketplace or discontinued from the market place. So there are situations where that is the preferred asparaginase and many of the groups are looking at their protocols and are evaluating how to revise their protocol in order to meet the needs of those patients. And in some instances we anticipate it would be with Erwinase. Others it may be Oncaspar

And then just in terms of Prialt, Bruce, I'm just curious, how many centers have been added to the navigator system?

So we are really within the first 10 days of the launch here so it is small numbers. So I would say if you look at the overall landscape of where we want to be, we are about 10% to where we want to be right now.

And then finally I think you might have mentioned it or I missed it was the volume growth for Xyrem in the quarter, I know you mentioned there was one less selling day, but I'm just curious if you gave a specific number.

Yes, Doug, it was 9% year-over-year.

Great, thank you very much.

Thank you. Our next question comes from (Inaudible -- background noise) Capital. Please go ahead.

Hi, Good afternoon and thanks for taking my questions. Just a couple. The first one is related to Xyrem. I'm wondering if you can give us a little more color on prior authorization whether you are seeing the ratio for those -- for the prior authorization going up over the years or are they fairly stable?

As we said in the script and Russ commented earlier, we have seen some increase in rate of prior authorization. It is still less than half and less than we see for example with Provigil. So we are not signaling a big issue here, but with our drug I would say as is true of many specialty drugs, it is generally true that you are going to see more prior authorizations. Our focus of course is making sure that for patients who have been diagnosed with narcolepsy are getting appropriate treatment, that that prior authorization is ultimately going to result in reimbursed drug.

And then a follow-up to that is that for the portion where it has to go through the prior authorization process do you see the eventual approval or reimbursement comparable to the ones where you got approval the first part?

Yes, so we have not seen any changes to our overall reimbursement landscape. In fact those two are prior off tend to be reimbursed at a similar rate to the overall group that is not prior off. Typically it is just more of -- giving more documentation as opposed to whether we will ultimately get reimbursed or not.

Just more paperwork to do. So thank you very much. Next question is on Prialt. You have talked about the reimbursement process being a little difficult for physicians. Could you walk us through what does the physician have to do and is there any -- does the physician have to lay certain money up front before -- and then they will treat the patient before they actually get reimbursement? Could you walk us through that process a little bit?

Yes, sure. So this is a buy-and-bill environment. Physicians are expected to go out of pocket. In many cases if you look at the differences between whether it is morphine or hydromorphone versus Prialt, the differences in cost are significant.

There are many patients that they feel they are not absolutely sure whether they will be reimbursed. What the navigator does in advance for physicians now, it gives them a look at exactly what the reimbursement is and it allows the patients options in terms of -- before it was you will get reimbursed or you won't get reimbursed and at what rate. Now they are also giving some patient services potentially to help with potentially a co-pay and other things. It really offers the physician a look in advance to make good treatment decisions as opposed to flying blind.

Thank you.

Thank you. Your next question comes from Cory Davis of Jefferies.

Hi, guys. This is Oren Livnat for Cory. Nice quarter even though half hour is tough to tease out apples to apples between the release and the call sometimes. I wanted to dig into Erwinase a little bit. You highlighted how complicated it is to run metrics on this thing.

You have such a complicated set of variables and different patients in different places in their cycles. When we look at it and try to tease out growth or lumpiness in this, I can see it is probably going to be lumpy. For near term growth what do you see as the upside driver? You talk a lot about education. I am trying to understand is it raising awareness of hypersensitivity in general? Is it that awareness low on an absolute basis or is it really about the nuances within hypersensitivity like the silent inactivation and helping people understand there might be a bigger problem than they think it is?

Yes, Oren, good question. I don't think it is that people don't understand the importance of hypersensitivity. It's does everyone treat the same thing as indicating a sufficient grade of hypersensitivity to change treatment. There are in fact published guidelines for that.

I would say we don't find a tremendous consistency in practice right now around that across institutions. So there is an opportunity to at least level the playing field and make sure everyone has the same understanding of what has been recommended in terms of recognizing hypersensitivity in making a treatment change where appropriate. That's certainly the nearest term focus for growth.

And maybe a good recent example of that is -- we had a pediatric oncology nurse meeting where we presented different case studies around the concept of grading hypersensitivity reaction. Actually saw some increase and certain accounts observing hypersensitivity as a result of that. It is more what to look for, how to grade and then ultimately what to do about it. So that is a lot of the medical education taking place right now.

On Xyrem to go back to the -- I guess not really litigation side, but on the regulatory side, I think most of us know you have got one CP an important one coming in the next week or two for their deadline and maybe another a month behind. Just wondering if since we last talked you have had conversations with the FDA that give you any sort of color on where they may be leaning on the bioequivalence front?

Yes on both of the CPs we have on file we are waiting to hear like you are waiting to hear. Our working assumption is we will hear on the clock that has been set up which would be in the next week or two on the first one and the first half of December on the second one. But we are not expecting any particular dialogue other than getting a decision.

All right. And just one simple modeling question, any changes to long-term tax expectations?

So we haven't as you know Oren, we haven't given guidance yet. In the past we talked about long-term tax rate in the mid-20s. I don't have any update to that number today. We are working through as we speak our 2013 budget. So I would expect that we will have real guidance for 2013 probably on our fourth quarter call in February.

Thanks a lot. Nice quarter.

Thanks Oren

Thank you. Your next question comes from Gene Mack from Breen Capital. Please go ahead, Gene.

Thanks for letting me get a follow-up in there. Just on Xyrem, Russ I believe you mentioned that there is still less than one-third of the patients accessing the coupon program. I am just wondering is that also limiting the actual scripts that are being processed , or are these people just not using the coupon and what are your thoughts around that and maybe ways of increasing the adoption of that.

It is just an issue of them not needing it.

Okay. Thanks.

Thank you. Your next question comes from Chris Holterhoff of Oppenheimer and Company. Please go ahead, Chris.

All right, thanks for taking the question. Given some of the efforts you are making with Xyrem, are you seeing compliances continuing to improve from that 70% or so that you mentioned in the past? And then where would you expect compliance will ultimately settle out at for Xyrem?

So we have commented that we have come a long way with compliance. If you think about a product that is dosed twice nightly, we are approaching thresholds of maximizing compliance to a large degree. I do think there are areas for improvement still on persistency that we continue to see build over time. I don't think we are 100% done, but we are getting close on the compliance side.

Just to clarify you said you think it will ultimately settle out close to the theoretical 100% combined?

No, you never get to 100%. Especially pharmaceuticals if you are doing better than 80% you are doing great.

Okay. And then just real quick on Prialt, sorry if I missed it, but did you disclose the number of new patients starts that you saw in the quarter?

Chris, we did not specifically disclose that. We haven't in the past either.

Okay. All right, thanks a lot for taking the questions.

Thank you. Your next question comes from the line of Bill Tanner. Please go ahead, Bill.

Thanks for the follow-up. Russ, just as I'm looking at a patient model or the patient numbers that the Company has reported , it looks like for the last several quarters there has been a sequential increase in new patient starts and I'm not asking you to project out, but this is something that you would attribute to the initiatives and I would ask the similar trend could persist over the nearer term?

Yes, BillIt is a number of things that we have rolled out. I think the key initiative that we think allows us the same growth in terms of new patients is that some of the new patients are actually coming from a new group of physicians. If you remember we went back about a year ago and we found about another thousand positions based on claims data that were not previously being called on. We focused on the group heavily, and we went to a single product focus with Xyrem.

And the field has done a great job of cultivating those positions. Now a number of them are actually treating and contributing to the new patient growth. It is not just the hyper scribers that are ultimately driving our growth now. It is coming from the mid-depth aisles. Which is encouraging because we think we broadened our base of treaters.

And I think on the last call I think maybe I asked a question about if it was -- if your sales force was right size, maybe it was 85. Is that still the number of sales reps or thereabouts you have and any contemplation you may need to expand that?

Yes, we had -- we have 77 in the field right now and we continue to do the analysis on whether we think if we put more out it would have an impact. At this point we don't plan to make any changes.

All right. Thank you.

Thank you. We have no further questions queuing for you. I would like to turn the call over to Ami Knoefler for closing remarks.

Thanks, Kirstie. In closing a reminder that Jazz will be presenting at two financial conferences next week , Lazard on November 14th in New York City and Credit Suisse on the 15th in Phoenix. And then later in the month we return to New York on the 28th to present the Piper conference. We hope to see many of you at one of these conferences. Thanks again for joining us today.

Thank you for your participation in today's conference. That concludes the presentation. You may now disconnect. Thank you and good day.