Jazz Pharmaceuticals PLC (JAZZ) 2013 Q3 法說會逐字稿

Welcome to the Jazz Pharmaceuticals third-quarter 2013 earnings conference call. Following an introduction from the Company, we will open the call to questions.

I will now turn the call over to Kathee Litrell, Vice President of Investor Relations at Jazz Pharmaceuticals. Please proceed.

Thank you and thank you for joining the Jazz Pharmaceuticals plc investor conference call. Today, we reported our third-quarter 2013 financial results and provided an update to 2013 financial guidance in a press release. The release and the earnings slide presentation accompanying this call are available in the news and event section of the Company's website.

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 introductory remarks we will open the call for your questions.

Before we begin I would like to remind you that some of the statements we will make on this call relate to the future events and our future performance instead of historical facts and are forward-looking statements. These statements include future financial, commercial, development and regulatory plans; expectations and projections such as our 2013 financial guidance; anticipated growth prospects for our products; planned commercial efforts including Versacloz' launch timing and the timing of planned and ongoing clinical trials.

These forward-looking statements involve numerous risks and uncertainties that could cause actual events, performance and results to differ materially. These risks and uncertainties are identified and described in our press release; the earning slide presentation accompanying this call; and under Risk Factors in our Form 10-Q for the quarter ended June 30, 2013.

We expect to file our 10-Q for the third quarter shortly. We undertake no duty or obligation to update any forward-looking statements we make today.

On this call we will discuss several non-GAAP financial measures including adjusted net income; adjusted combined SG&A and R&D expenses; adjusted net income per share; and adjusted effective tax rate. We believe that 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 reported GAAP measures.

Reconciliations of GAAP to non-GAAP financial measures discussed on this call are included in our press release issued earlier today and the earning slide presentation accompanying this call that is posted in the news and events section of our website.

I will now turn the call over to Bruce.

Thank you, Kathee. Good afternoon, everyone and thank you for joining us. We are pleased with the significant growth of the top and bottom line year to date.

In the third quarter we saw continued strong sales of Xyrem and Erwinaze. Our total revenues increased 32% to $232 million, compared to the third quarter of 2012. We realized adjusted net income of $109 million in the third quarter of 2013, reflecting the attractive margins in our business. GAAP net income for the quarter was $75 million.

I will now update you on the three products in our current portfolio that we believe have the highest growth potential -- Xyrem, Erwinaze and Prialt -- and provide an update on key commercial and clinical development progress during the quarter. Kate will then review our results for the quarter and provide updates to our financial guidance.

Xyrem remains a key driver of our growth. In the third quarter we were pleased to achieve 13% volume growth compared to the same period of 2012. The average number of active Xyrem patients grew to approximately 11,000 this quarter, compared to 10,200 in the same period of 2012.

Our efforts last year to expand our prescriber universe have contributed to continued growth during 2013. We are increasing the size of our sales force from 82 to approximately 100 sales representatives to maximize what we believe is an opportunity to increase prescriptions from physicians in the mid to lower deciles. This is a physician group where we have seen significant recent growth.

Further we believe the expansion of our call universe to recently identified physicians who are treating narcolepsy patients, but who are not currently Xyrem prescribers provides an important opportunity to broaden the use of Xyrem. We are training our new sales representatives and they will be ready to engage with physicians at the beginning of 2014.

We are continuing to educate physicians through our narcolepsy link programs and website, and have developed consumer awareness programs such as checkmysleep.com, which launched in late 2012. Consumer interest in the checkmysleep.com website is quite strong and over 8,000 visitors to the website exhibited high scores on a standard sleep scale that is used in determining excessive daytime sleepiness.

Following the strong consumer interest and response to our early efforts, we have also developed a disease awareness campaign including TV commercials that will launch this quarter in two pilot cities. We will evaluate the impact of this general disease awareness campaign on expanding the diagnosed patient population.

Turning to a brief regulatory update, we continue to be engaged in ongoing communications with the FDA with respect to our [REMs] for Xyrem and we have not yet reached an agreement with FDA on key points including whether our REMs should permit distribution of Xyrem through more than one pharmacy. We continue to believe that the existing system based on a single central pharmacy is the safest and most appropriate way to distribute Xyrem. It is not clear to us whether or on what terms or when we will reach agreement with FDA on a final REMs for Xyrem.

Separately, as you know, in cases like Xyrem where the branded product has a REMs, the FDA has stated that it expects the negotiation of a single shared REMs between an NDA holder and ANDA applicants to proceed concurrently with the FDA's review of the ANDA applications. As we anticipated we have been notified recently that the FDA is seeking to schedule an initial meeting with us and the ANDA filers to facilitate the development of a single shared REM system for Xyrem. We can't predict how long this will take, the ultimate outcome or how the ongoing litigation will impact this process.

Finally, regarding JZP-386, our deuterium modified sodium oxybate license from Concert, we are planning to submit the investigational medicinal product dossier by the end of 2013 to support a European first in human trial in 2014.

Now let's turn to Erwinaze, which continues to perform well. We are pleased that we are still adding new accounts as we approach the two-year mark post-US launch. During the third quarter, we continued our efforts to educate healthcare providers on identifying hypersensitivity reactions to E. coli derived asparaginase in acute lymphoblastic leukemia. We rolled out an educational program focused on the immunological cascade. This will be useful in driving and understanding the hypersensitivity to asparaginases, including E. coli asparaginases is not only a safety issue, but may impact efficacy of treatment if it is not addressed diligently.

This disease awareness program was presented at the Association for Pediatric Hematology Oncology Nurses Annual Meeting and will be available to healthcare providers via webinars throughout the rest of this year and first-quarter 2014.

We met the primary endpoint in our Erwinaze intravenous study. Data from this IV study has been submitted to FDA as an amendment to the BLA and will also be presented as a poster at the American Society of Hematology meeting on December 9. We also made progress on our plan to adolescent and young adult trial. We have identified a principal investigator for the study while working with the PI to finalize the study protocol and will begin the process of identifying and recruiting global study sites this quarter.

With respect to Asparec, we are working with investigators and will be reviewing our plans with the FDA later this year as we move toward our first study in children.

Next I will comment on Prialt, our non opioid intrathecally administered drug for adults with severe chronic pain. We implemented three major initiatives over the last year to respond to the issues that we heard from physicians about Prialt. The three initiatives were our Navigator program, collaborations with Medtronic, and initiation of our Prialt registry known as PRIZM.

The Navigator program provides integrated pharmacy and reimbursement services including patient-specific reimbursement assessment and enhanced pharmacy services through access to our exclusive specialty pharmacy. The transition of accounts into the Navigator program is essentially complete, and we were pleased to see sales recover to pre-transition levels.

In our Medtronic collaboration, we are on track to complete over 40 joint speaker programs by the end of 2013, and our sales teams have been working closely to identify new account opportunities. We will be monitoring the impact of these initiatives on Prialt growth trends.

And finally, we have begun enrollment of patients in the PRIZM registry, which is designed to enroll approximately 140 patients. We are planning a series of PRIZM-related abstracts and posters beginning the second half of 2014.

Kate, let me now turn the call over to you.

Thanks, Bruce, and good afternoon, everyone. We are very pleased with our performance in the third quarter as we saw total revenues increase by 32% and adjusted EPS increase by 38% year over year. We expect strong top and bottom line growth to continue, driven by growth in sales of Xyrem and Erwinaze.

Due to the solid performance year to date, we are narrowing total revenue guidance to a range of $867 million to $877 million, up 48% to 50% on a reported basis and 30% to 31% on a pro forma basis from 2012.

We are also increasing the lower end of our adjusted EPS guidance by $0.10 to a new range of $6.30 to $6.40 which represents growth of 31% to 33% in 2013. Net sales of Xyrem for the quarter were $154 million, up from $103 million in the third quarter last year. Year over year revenue bottle volume growth at 13% benefited from a number of factors in addition to more patients on therapy such as an extra shipping day, some patients shifting from our patient assistance program to commercial insurance plans, and improved compliance.

As a reminder, third-quarter net sales reflect a 14% price increase on July 15.

Today we are raising our Xyrem net sales guidance on the lower end to $565 million to $570 million. This range represents year-over-year growth of 49% to 50% in 2013.

Turning to Erwinaze, third-quarter worldwide net sales were $44 million, up 39% from last year's third quarter. Our performance in the US remains strong while in the EU we experienced a slight decline in net sales for the third quarter compared to the second quarter. This was partially related to our efforts to manage inventories to avoid a stock out situation due to the batch issue mentioned previously.

Today, we are narrowing the range of guidance for worldwide Erwinaze net sales to a range of $173 million to $178 million. This range represents pro forma year-over-year growth of 31% to 35% in 2013.

Net sales of Prialt were $11 million in the quarter which included a $5.7 million shipment of Prialt to Eisai for the European market. Net sales were $5.4 million for the same period in 2012.

Net sales of our Psychiatry Products were $11 million in the third quarter, down from net sales of $21 million for the same period last year. Third-quarter net sales were impacted by continued generic competition for [Luvox CR] and FazaClo LD. We have reduced our psychiatry sales force from 39 to approximately 25 representatives to focus on physicians who treat patients with treatment-resistant schizophrenia.

As a reminder, we expect to launch Versacloz, our new product for treatment of patients with treatment-resistant schizophrenia and for reducing the risk of recurrent suicidal behavior in patients with schizophrenia or schizo-affective disorder in the first quarter of 2014.

Turning to operating expenses, adjusted combined SG&A and R&D expenses for the third quarter were $70 million or 30% of revenue compared to $71 million or 34% of revenue for the second quarter of 2013. For the full year we are lowering our guidance for adjusted combined SG&A and R&D expenses to a total of $275 million to $280 million or 31% to 32% of revenues as we now expect some previously planned expenses to occur next year.

During the quarter we spent $49 million on share repurchases, and our cash and investments grew to $588 million. We continue to believe that we have significant financial capacity to pursue corporate development initiatives and we are continuing our efforts to identify and evaluate potentially attractive opportunities to expand our business.

In closing, we are very pleased with the strong results for the first nine months of 2013 and we expect to carry significant positive momentum from the fourth quarter into 2014 as our revenue run rate is rapidly approaching $1 billion.

Thank you for joining us on the call today. I will now ask Kathee to make a brief comment about our Q&A session today.

Thanks, Kate. As you are aware the analyst coverage of Jazz has doubled over the last year and our goal is to have time to address questions from each of you. So to be able to allow everyone to ask questions, we request that you limit your questions to a maximum of two at a time and then feel free to re-enter the queue if you have further questions.

With that said, I will turn the call back over to the operator to open the line for your questions.

(Operator Instructions). Louise Chen, Guggenheim.

My two questions are -- first one is what are your thoughts on your low tax rate being a key competitive advantage for the Company? Is this a benefit that has long-term value and is likely to be appreciated well beyond 2013 even though we are seeing a lot of acquisitions being done today for the companies low tax rates? And the second one is on the final REMs discussion for Xyrem. Just curious what are the key points of debate that are being discussed. Thank you.

Yes, Louise, on tax rate, we think having a competitive tax rate is important in a business where we see an ability for our management team to leverage our existing business and our strong financial position to continue to add new products to our portfolio and, over time, to layer in R&D that can fuel longer-term growth.

So we do think that is an important part of how we continue to bring value to our shareholders.

On the final REMs, I can't really go into other points of debate. We flagged the thing that we think is of most interest and should be of most interest to our shareholders, which is the possibility of having more than one pharmacy distribute the product.

Thank you.

Mark Goodman, UBS.

Can you talk about the push and pulls on spending as we think about moving into next year? How are you thinking about reps? How are you thinking about programs and stuff like that versus the spend this year? Thanks.

Yes, Mark, before I turn that over to Russ for any additional color he wants to add on the commercial side, I will just remind you that we have worked hard to be in a position to have a good data on return on the investments we make by having a good sense of where our business is coming from. And so, for example, our decision to add 20 reps to the narcolepsy sales force -- at the same time I will point out we reduced the size of our psychiatry sales force so there was sort of a netting there -- was driven by some early efforts we had made to expand our call universe and measuring the returns on that investment.

So, in general, I will tell you we are very focused on the returns we get out of our investments whether that is investments in our current brands, investments in R&D or investments in corporate development; and wherever we can have good data on what we should expect in terms of returns on our investments I will use that to make the right choices.

Russ, you want to talk about reps programs or other?

Sure. Mark, I would agree with that completely. We have been very disciplined about doing pilot programs in advance of actually putting spends towards what we believe are upside potential for the [arm] that initially started with all of the improvements we've made in compliance and persistency which have paid off over time.

I think the additional investment that we made in looking at were there physicians out there that potentially could treat narcolepsy that were not being treated today. And really doing the right prospecting to understand whether they could become productive has paid off. We have now confirmed that it is worthy of adding another 20 reps.

And I think we will continue to have that same level of discipline whether it is to disease awareness or future programs that we plan to spend money on in 2014.

So DTC that the two programs that you are -- I guess the two cities that you are running, so if that works, basically we should be thinking about something broader?

I think that is the right way to look at it. Again, we would be very diligent about determining whether that really works or not before we go forward, but yes.

David Amsellem, Piper Jaffray.

Here's my two questions. So just on the FDA meeting, bringing you and the ANDA filers together to work out the REMs. Is it reasonable to assert that the Agency's hands are essentially tied because of your IP on the REMs? In other words why would you consider it and why would you need to consider sharing your REMs if it is indeed IT-protected?

And then secondly on Prialt, is that product on a short leash? In other words, how long do you give it to get things going in the right direction before you consider potential alternatives for the product? Thanks.

Yes, David, on the first one, I am not sure how much I can comment on, to use your words, whether the Agency's hands are tied. I will say it is a complex situation when you have intellectual property surrounding your REMs.

We certainly have patents that we believe cover our existing REMs. How exactly those patents would line up or would not line up with modified REMs is a little more difficult to speak on with authority today. But we know if there is going to be generic petition for a product with a REMs you have got to figure out what that REMs is going to look like, either a shared REMs or a waiver in a separate REMs and along the way to figuring that out, it is important to figure out whether a shared REMs is possible.

I will point out there is a regulatory track here and there is a litigation track. And we continue to feel that it is important not to lose sight of the importance of the litigation track, given the number of patents that cover our product and its distribution as we sit here today.

On Prialt, we certainly do want to see how the initiatives play out in terms of use of that product going forward, but I will remind you we just reached the critical point on implementation on all of these. We went exclusive on our Navigator hub system in May. We launched a training associated with our Medtronic collaboration in June, and it was just mid-year that we opened up sites and started enrolling patients for the PRIZM Registry trial.

So we really haven't had time to evaluate the impact of these programs whether that is education of physicians, or a commercial potential, and we will get a chance to do that in the quarters to come.

Okay, thanks.

Annabel Samimy, Stifel.

I wanted to focus on your price increase for a minute. You said you did 14% in July. Is there any tipping point with these kinds of price increases? And have there been any changes to the prior authorization, the percentage of patients who require prior authorizations? At what point does this price increase become untenable?

We continue to monitor prioritizations. We have seen about a 1% increase per month historically so that has been fairly consistent now for about a year and a half. And we haven't seen any changes really in the overall rate of prior authorization. We have seen some delays in terms of time to reimbursement, but we have not seen anything that I would say is meaningfully different in the landscape. Everything is pretty much the same. And prior authorizations are just a little bit over 50% now. So we are still actually at a pretty low level.

I agree. On the second question, you mentioned last call that you had a new family of patents that you are prosecuting. Is there any development there and is there any detail you can give us on what type of patents these might be? (multiple speakers)

I think we just made the comment that we did have additional patents working their way through the PTO, and we said it wouldn't necessarily be a safe assumption that all of them would have expiration dates that lined up with prior patents. But we didn't specifically comment on what those patents would cover. So until they issue I don't think we'll probably have more to say on that.

Sorry, to clarify you wouldn't say that the expiration would line up. That means that they would potentially extend it or extend your current expirations?

We did say they could have expiration dates that would be later than currently issued patents.

Okay. Thank you.

Douglas Tsao, Barclays.

Good evening. First on JZP-386, Bruce, I am just curious about the decision to advance that into first in man studies ex US. If you could provide some perspective, what led to that decision? And also since you first announced that partnership earlier in the year, have you gain some additional insight into the clinical profile that has increased your confidence or led to that decision?

Yes. On the first question, Doug, there was different scheduling of sodium oxybate, and by extension perhaps analogues in the US and Europe and that has some implications on how easy it is to get things done. And we think, ultimately, the ability to do trials in multiple markets is always an advantage and we will do what we think advances the program most expeditiously. In this case, we think moving into Europe gets us where we want to go in the best possible way.

No additional insights into the clinical profile of the product because we haven't been in man, but preclinical work has continued and we follow obviously what is going on with our JZP-386 program, but Concert has other programs, too, that sometimes give us insight into clinical and regulatory matters. And so, we are watching what goes on with our program, but with other programs too.

Then if I can jump in with one question because I think that I am counting that first one as one. On Erwinaze into the AYA population, you are obviously starting that clinical trial. How much progress do you think you can make in the interim penetrating that patient population ahead of getting the results from the clinical study?

Yes, I would just comment that we are already starting to see some penetration and we are seeing physicians who are comfortable with the use of asparaginase in young adolescents and adults. And so we are starting to see some movement.

Clearly, there is a long way to go there and, obviously, in oncology doing the paperwork is an important development in moving it forward. So we think that is a necessary step although we are encouraged so far.

Great. Thank you very much.

Ken Cacciatore, Cowen and Company.

Just wondering if, Bruce, you or your team have looked at any precedents as you go into these negotiations for the time of completion, how these usually play themselves out so we can get a sense of maybe what the process is at the FDA?

And then, second question would be you have prepared the Street fairly well about a transaction, just wondering if there is -- if we have maybe missed the transaction, if there was -- if we were close on something and it went by the boards. Or --?

And also if you can maybe just give us a sense, should we be creative in terms of size? Would you consider a merger of equals or something as large as that? Or should -- is there any limitation that you would want to set our thinking in terms of size of transaction? Thank you.

On the first question, I think we are as well aware of precedents to the extent there are any as anyone else. But I will say there aren't a lot of precedents. This whole field of REMs and shared REMs is a fairly recent one I think is still evolving. And there are some differences between our situation and others'. So I am not sure there is a lot we can take away from precedents.

On transactions, you didn't miss anything. What I will say that's -- we are pretty happy with the opportunities we are seeing that we think would be a good fit for our strategy. Very specialist targeted differentiated assets that we could earn a good return on.

So predicting the exact timing of that is never an exact science, but we are encouraged by what we are seeing.

Maybe I will let Kate comment a little bit on potential size of transaction and how we think about that.

Yes, thanks, Bruce. So we have continued to say that we think and look pretty broadly at opportunities and we haven't ruled out looking at acquisitions that would be similar in size to us, but we also haven't said that that is a top priority. We are looking for deals that would make strategic sense and we have commented that we have got financial capacity to do deals in the $1 billion plus range without using equity. Obviously if we were to use equity, deals could get larger, but we are looking for quality rather than size, I would say.

Thank you.

Gary Nachman, Goldman Sachs.

Good afternoon. First on Xyrem. With the expanded sales force, how long will it take to see the incremental benefits from that into the lower and mid-decile physicians based on your experience? You are expanding the sales force by 25% so it is meaningful.

And then, Bruce, how would you prioritize the key parts of the businesses that you are looking to reinvest in if you have extra money? And could 60% margins for this business actually be sustainable going forward? Or even higher than that potentially?

Yes. Let me hand the first question over to Russ.

Sure, historically it is about a four- to six-month period of time to actually see that impact. However, we have been very aggressive in our hiring. We believe we will have most of those folks on board this month and trained by beginning of next year. So we think we are on a path to see something that could be, I would say, end of first quarter beginning of second.

And on the prioritizing, where to invest. We are in the fortunate position right now, I think, of having multiple areas we can invest, all of which we believe have nice return potential for our shareholders. I won't say we are driving toward a particular operating margin. That is not how we are running our business. When it comes to assets, we could acquire, higher margin is better whether we are looking at cost of goods and royalties. I have already mentioned that strategically we are looking for assets that are targeted at specialist physician groups. I think in general that means lower sales and marketing expenses as a percentage of revenues.

If you have got a really focused sales force, which is something I think we are good at.

So I think in general, we are looking at opportunities we believe will be high-margin. But I don't think we can say with certainty exactly how the operating margin as a percentage of revenues plays out over time.

Okay, but just specifically with the existing business if you could funnel more money into things like DTC or adding sales reps or R&D, that is what I was looking for in terms of prioritization with the existing parts of the business today.

Yes, we are looking for the biggest return and in general we have been make -- we have been upping our level of investment on dollar terms over recent quarters while, at the same time, our margins have been going up. So we've been able to increase our investments but get good efficiency out of those investments at the same time.

All right. Thank you.

Irina Rivkind, Cantor Fitzgerald.

I wanted to delve back into the REMs negotiation again and essentially the question is, in your view has the FDA already done a little assessment of whether or not they would be willing to issue a waiver and then they started the process? Or is this something, the waiver, something that they would arrive to after a series of discussions in your mind?

That is question one. And then the second question I just wanted to talk about Xyrem reimbursement during this period of transition for a lot of patients. I know on the patient panel and FDA, patients were very concerned about losing coverage and I wanted to see how you are handling that, especially with the expected influx of new patients. Thanks.

Yes. On your first question, I am not sure we necessarily can say what is going on at FDA. So I can't really comment on the existing process other than to say it is what we have expected, and I think we have been saying for a while it would be a logical step along the way. So I wouldn't read more into it than that.

On Xyrem reimbursement, I will open it up to Russ if he wants to add anything. But in general, I would say we have had great reimbursement historically. We continue to have good reimbursement today. We have actually seen in some cases a trend toward more patients having insurance coverage that covers Xyrem.

We think the move of new people into coverage as part of the new Affordable Care Act ought to also be a positive for us in general. Russ, anything else you want to say on that?

No, I would just reiterate that having more patients have insurance is a good thing for us. And we have been very comfortable saying that any patient who needs Xyrem will get it regardless of whether they can pay for. And reimbursement has been excellent.

In fact, we have a suite of services that we believe is really first in class. So, getting reimbursement for patients has really been a priority, I don't think, that will change at all.

Thank you.

Gene Mack, Brean Capital.

Actually, I guess three real quick ones. First, can you -- Kate, maybe I think in the past we have heard you talk about acquisitions that may help you acquire -- feed your presence in Europe (technical difficulty) and is that still ranked relatively high on the priority list?

And then I had a question about -- (technical difficulty) Xyrem (technical difficulty) clarity from FDA and (technical difficulty)? Is that formulation also allowed for another stab at fibromyalgia? I don't know if we have ever dealt with it before, but I was just wondering what your thoughts might be on that.

And then the third question a bit more complex and probably won't really comment on it, but just going through most of what we know about the REMs program for Xyrem is that the act that created the REMs program established a legal standard for the distribution of the drug. But if you read through the act, it also discusses a lot of data on materials that manufacture it and use of manufacturing in dosage forms as having to be registered and on hand for the Attorney General's review.

And if that is the case, doesn't that establish its legal standard for the therapeutic dose of Xyrem and wouldn't that also create another barrier to challenging what would normally be an obvious formulation patent, but now is not obvious because it is a legal standard for the sale of a drug?

I just wonder if you could comment on that, on those assumptions. Thanks.

So I don't get in trouble with Kathee here, I am only going to answer your first two questions. You may not have been on the call when she said we were going to limit questions to two. So, but you did a nice job of framing the issue for everyone else. So I will just leave it at that.

On Europe, as a priority in our deal evaluations, we do have commercial capability in Europe. We believe we can do more with that so than we are currently doing where we have distribution of Erwinaze in many territories, some directly and some through distributors, but also a host of other products.

We certainly would love to add another product to that business. Whether that comes through a Europe-only transaction or through a transaction where we acquire broad geographic rights, you know, either would be fine with us.

So I wouldn't say we have prioritized Europe at the top of our list as the only thing we are looking at. It is one of many things we are looking at. But we are seeing opportunities that would certainly fall into that bucket.

On your second question linking JZP-386 to fibromyalgia, I think fibromyalgia in general our takeaway from our prior attempted foray into fibromyalgia is that FDA didn't feel comfortable that we had identified a narrow enough patient population where the benefit treatment that we saw, demonstrated in our clinical trials, would offset the risk side of the equation with sodium oxybate.

Could that be different with JZP-386? It certainly could be, but I wouldn't say that is where we are focusing our brainpower right now. We think looking at it as a narcolepsy drug is where we ought to be focusing our efforts.

Jonathan Eckard, Citi.

My first question is on the additional Xyrem sales force. It is kind of a follow-up to the prior one.

I guess could you help give us some kind of a metric of how we should or should not be thinking about when you would see a positive return from this investment of the 20% of sales?

For example, you said today that you are at 11,000 patients versus 10,200. Should we be expecting an increase of 25% of total patients until we see a positive return on this investment? Or maybe help us navigate how we should be thinking about this and when they will pay off.

Yes. I would think about this in the context of the way we approached it initially which is, we piloted a couple of territories where we actually went into the deeper deciles and profiles to see if there was potential movement in some of these lower deciles. That deemed to be successful. We then said, okay, let's look at the territories in the country where that actually does, in fact, make sense to do on a broader scale. We have now made that investment.

In terms of evaluating exactly what the upside that exists there, is really determined on the number of lower decile positions that we can actually turn into Xyrem prescribers. Probably way too early to put a number in terms of potential there because we have done it in a couple of territories. We have not done it in 20 or nationwide yet. So way too early to call.

All I can tell you at this point is that the pilot would suggest that there is upside.

That's great. Then, for the second question I was going to ask about the shared REMs program. You indicated you have a lot of familiarity with whatever existing precedents there has been.

From those existing precedents, when in the process did the FDA initiate discussions regarding starting this with the NDA holder? For example, was that typically before or after that ANDA product had a tentative approval? If there is any color on that, that would be helpful.

Yes, I am not sure you can always get precisely to that information based on public information. But I will say FDA has been clear in their statements that they would like that process to start and I am talking about their statements broadly. This is not specific to Jazz or Xyrem. They would like that process to start while the ANDAs are still under review.

Thank you very much.

Bill Tanner, FBR Capital Markets.

Bruce, a couple for you. Just on the REMs discussion, I hate to keep beating a dead horse, I guess you spent -- people have said it is in negotiations. My question is the number -- well, I don't want to say number one because then that would be more than one question. But is it really in negotiation? Is this the process? Help us understand a little bit better the process. Is this something that the Company is going to be providing a briefing document or is this really fact-finding on the part of the FDA at the outset?

Then, secondly, you had made a comment that was interesting that you said it was unclear how your patents would line up with the modified REMs. And I am curious if you could clarify that a bit. Because as you look at the claims and the patents, it is central pharmacy. So I am assuming that doesn't necessarily mean that if there was more than one met -- one distribution center that wouldn't be still considered a central pharmacy. Thanks.

Yes. On your first question on the process, I am not sure there is much more we can say, and I am not sure we have complete visibility. What we mentioned in today's remarks and you'll see reflected in our Q is the potential for an initial meeting, which hasn't even happened yet. So I can't tell you what is going to happen in that meeting because it hasn't happened.

Second, on the patents, I was really making a point that we have been making for several quarters. So I didn't intend it to be new, which is just we have patents that have already issued and they cover certain things. I won't say it is limited, Bill, just to the central pharmacy that you mentioned, and we have made the point before that to the extent in our negotiations with FDA we end up with a different final REMs, different shared REMs, anything that is different from what we do today, the degree to which already issued patents cover that will depend on where we end up. And we don't have complete visibility into that. But I don't think it is quite as simple as just bringing it all down to central pharmacy.

Okay. Thank you.

Greg Fraser, Bank of America.

It is Craig Fraser for Gregg Gilbert. Couple more questions on the REMs and I apologize for that, but the first one that the REMs have to be finalized before you engage in negotiations on the shared program? And then the second question is once negotiations do begin, do you have a sense for how long that process could take, perhaps based on other examples?

On the first question, we believe the answer is no, that a meeting would not require that a finalized REMs existed before then. I will remind you all we have a [deem] REMs today, so there is a REMs in place.

How long it can take, we really don't know. I can tell you that historically these things have taken many months to many, many years. And we will know how long this one takes when it is over, but I don't know how to ascribe a likely outcome to that at this point.

Patti Bank, DISCERN Securities.

Good afternoon. Two quick ones. One on the call universe expansion for Xyrem, for Russ, just wondering how aggressive you were in finding these narcolepsy doctors and whether you think that there is another layer of doctors under this first round?

And then the second one is on the new family of Xyrem patents that Bruce mentioned. Just wondering what the potential is that when they do issue for those to be consolidated with the current patents and push back the litigation trial past the latest mid-2014 time frame?

We have been pretty aggressive, as you know, over the last couple of years at looking at refreshes to our existing call universe and so we have done a number of different data calls around what are the physicians who previously [knew to] to physicians who treat narcolepsy that we are calling on, that we are not calling on. We have sent reps in there. We have prospected, we have determined what the rate of return on that is. And so we have been doing that for a couple of years.

What is a little bit different here is we have expanded that search somewhat to looking at other sleep disorders that are sometimes misdiagnosed, whether it is idiopathic hypersomnia and so we looked at a little broader base.

So to be able to say exactly what the return on that group will be compared to the previous groups is really hard to say at this point. Suffice it to say there is really no stone left unturned in terms of looking at potential narcolepsy prescribers and we are going to continue to do that.

And on your second question, cultural -- lot of speculation to talk about patents that have it issued yet and whether they would be consolidated. But I will point out that not even all of our already issued patents have been consolidated into this case.

So I think we had said at the time the two patents that issued in September and December of 2012 were consolidated, that it wasn't necessarily true that patents issued after that would likewise be consolidated. So that is probably the safer assumption, but it is litigation and I don't know.

All right, operator, I am going to have you turn the call back over to me.

No further questions in the queue. Please proceed.

Thank you. Thanks again for joining us today. Thanks for following the two-rule question. We appreciate that.

We are planning to attend the Credit Suisse and the Piper Jaffray healthcare conference in 4Q and we look forward to seeing many of you at those conferences. Talk to you soon. Bye-bye.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect and have a great day.