Jazz Pharmaceuticals PLC (JAZZ) 2015 Q1 法說會逐字稿

Welcome to the Jazz Pharmaceutical's First Quarter 2015 Earnings Conference Call. Following an introduction from the Company, we will open the call to questions. I'll now turn the call over to Kathee Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

Thanks, Ian, and thank you all for joining our investor call. Today we reported our first-quarter financial results and reaffirmed our 2015 financial guidance in a press release. The release and the slide presentation accompanying this call are available on the News and Events section of our website. With me for today's call are Bruce Cozadd, CEO; Matt Young, CFO; Russ Cox, COO; Jeff Tobias, our EVP of R&D Strategy; Karen Smith, our Global Head of R&D and Chief Medical Officer; and Mike Miller, Head of US Commercial. Following some remarks we'll open the call for your questions.

I'd like to remind you that some of the statements we will make on this call relate to future events and future performance rather than historical facts, and are forward-looking statements. Examples of forward-looking statements include statements related to our 2015 financial guidance, our 2015 goals, anticipated growth prospects for our products' planned commercial efforts and initiatives, anticipated regulatory matters, and events related to Xyrem and defibrotide. Our corporate development efforts, anticipated litigation-related events, and expected future activities and events related to planned clinical trials, including the timing of future events.

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 today's press release, the slide presentation accompanying this call, and under Risk Factors in our Form 10-K for the year ended December 31, 2014, and our Form 10-Q for the quarter ended March 31, 2015, that we expect to file 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 historical and expected 2015 adjusted net income attributable to Jazz Pharmaceuticals, and the related per-share measures, and historical and expected 2015 adjusted SG&A and R&D expenses. 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 today's press release and the slide presentation accompanying this call. Those are posted in the News and Events section of our website. I'll now turn the call over to Bruce.

Thanks, Kathee, and good afternoon, everyone. During the first quarter we achieved revenues of $309 million, an increase of 25% compared to the first quarter of 2014, driven by strong sales of our key products Xyrem, Erwinaze, and Defitelio. We realized adjusted net income of $125 million in the first quarter of 2015, reflecting the attractive margins in our business. GAAP net income for the quarter was $71 million.

During the first quarter we made progress toward our 2015 goals with submission to FDA of the CMC module of the defibrotide rolling NDA, and preparations for our planned initiation of three Phase III JZP-110 studies this month. We continue to invest in our key growth products and our R&D pipeline. In addition, we remain focused on our corporate development efforts, as we evaluate potential transactions to further enhance and diversify our portfolio, with the addition of differentiated products that provide value to patients, are meaningful in size to Jazz, and have the potential to create additional shareholder value.

I'll now update you on our sleep and hematology-oncology therapeutic areas, after which Matt will review our financial results for the quarter, and provide comments on our guidance. I'll start my comments with our sleep therapeutic area and our lead product, Xyrem.

In the first quarter, demand for Xyrem remained strong, and the average number of active Xyrem patients grew to approximately 12,375, from 11,400 in the same period of 2014. During the first quarter of 2015, we had bottle volume growth of 12% year over year. As you'll remember, during the first quarter of 2014 we had bottle volume growth of 5% compared to the same period in the prior year, due to delays in the timing of prescription fills and refills by SDS, our central pharmacy.

We worked closely with SDS during the first quarter of 2015, and are pleased that the improved processes and increased staffing resulted in more timely prescription fills and refills. Payor reimbursement coverage and approval rates for Xyrem continue to be strong, despite a changing landscape in which specialty pharmaceuticals face increased utilization control methods, such as prior authorizations and reauthorizations. We're working closely with SDS, and investing in services provided through our central pharmacy to help patients and providers navigate the increasingly complex and changing reimbursement environment.

Now I'll briefly discuss a few of our Xyrem growth initiatives. The Xyrem sales force is focused on the opportunity to increase Xyrem prescriptions written by new and current prescribers, with continued emphasis on increasing prescriptions by our low to mid-decile physicians. Another continuing growth initiative is aimed at increasing the diagnosed population of narcolepsy patients who may be candidates for Xyrem therapy.

As part of our non-branded disease awareness strategy, we've added a new tool known as the Swiss Narcolepsy Scale to the MoreThanTired.com narcolepsy website. The Swiss Narcolepsy Scale is highly specific and sensitive for the diagnosis of narcolepsy with cataplexy, and we believe that this tool may help patients in obtaining a more timely diagnosis of narcolepsy.

Finally, we are looking forward to a strong presence at the Sleep 2015 Annual Meeting in Seattle from June 6 to 10. We are hosting a satellite symposium for health care professionals on June 8 titled "Waking the Brain: An Update on the Neurobiology, Diagnosis, and Treatment of Narcolepsy." We also have 15 Jazz-sponsored abstracts that have been accepted for poster or oral presentation. I'll take a moment to highlight two of the abstracts that provide new information on Xyrem.

To date, data on the effect of Xyrem on quality of life and on narcolepsy patients without cataplexy have been limited. At APSS, previously unpublished Xyrem data from randomized placebo-controlled trials will be presented, including data on quality-of-life effects in patients with narcolepsy on Xyrem, and data on efficacy in patients with excessive daytime sleepiness due to narcolepsy without cataplexy.

Turning to a brief legal and intellectual property update on Xyrem, patent litigation continues in the district court in New Jersey. No trial dates have been set in any of the cases, although we anticipate the trial of a portion of the case against the first filer, Roxane, could occur as early as the fourth quarter of 2015. The cases against the four other ANDA filers have been consolidated by the court. In fact, discovery in those cases is scheduled to end late in the first quarter of 2016.

As mentioned in our last call, in January 2015, two of the Xyrem ANDA applicants filed petitions with the PTO's Patent Trial and Appeal Board, or PTAB, for inter partes review, or IPR, of six patents covering our restricted distribution system for Xyrem. We recently filed preliminary responses to these IPR petitions, asking the PTAB to deny institution of the IPR petitions.

An additional IPR petition on one of the six patents covering our restricted distribution for Xyrem was filed in early April by an entity affiliated with a hedge fund. We expect to file a preliminary response to this IPR petition in the third quarter. We expect PTAB to rule on whether to accept the ANDA filers' IPR petitions in the third quarter, and on whether to accept the IPR petition filed by the hedge-fund-affiliated entity in the fourth quarter. If review of one or more of the IPR petitions is instituted, a PTAB decision on validity would be expected approximately a year after institution of the applicable IPR proceeding.

We view the recent hedge fund IPR petition as an abuse of the PTO post-grant review system, and we understand that potential legislative changes to address such abuses, and broader issues related to IPR proceedings are being evaluated by members of Congress. We can't predict whether there will be legislative changes that are helpful to us and other innovator companies, or how the PTAB will ultimately respond to these types of petitions. However, because the hedge fund IPR petition challenges a patent that was already subject to an IPR petition by the ANDA filers, the later petition has not meaningfully changed our perspective on the IP protections for Xyrem.

With respect to the Xyrem REMS, in late February the FDA notified us of the approval of the REMS that we submitted in November, including provisions requiring distribution through a single pharmacy. We expect to implement the final approved Xyrem REMS by late August, and to submit ongoing assessments required under our REMS approval.

Turning to our development program for JZP-110, we are preparing to initiate three Phase III studies evaluating the safety and efficacy of JZP-110 this month: one in patients with excessive daytime sleepiness associated with narcolepsy, with a planned enrollment of approximately 240 patients; and the other two in patients with excessive daytime sleepiness associated with obstructive sleep apnea, with a planned combined enrollment of approximately 640 patients. We also plan to initiate an open-label extension study to evaluate long-term safety. The clinical trial materials for the Phase III studies have been manufactured, and we plan to make the materials available to sites shortly.

Finally, we announced today the clinical trial from the recently completed Phase I study demonstrated that JZP-386 provided favorable deuterium-related effects, including higher serum concentrations, and correspondingly increased PD effects, at clinically relevant time points compared with Xyrem, with a safety profile that was similar to that observed with Xyrem.

While the companies have determined that the deuterium-related effects observed in the Phase I studies do not support advancing into a later-stage clinical trial of JZP-386 at this time, the results indicate that further evaluation of JZP-386 is warranted. Therefore the companies intend to explore formulation options to enhance the positive effects observed in the studies to achieve an improved product profile for patients with narcolepsy.

We are committed to finding new therapeutic options for patients with narcolepsy, and JZP-386 is just one element of our R&D efforts that are focused on exploring and developing new options for narcolepsy patients that may provide clinically meaningful improvements compared to Xyrem. We are pursuing multiple potential approaches that include once-nightly dosing, as well as other areas where we have identified un-met need in narcolepsy patients. Our R&D activities include both mid- and longer-term projects that are under way or in the planning stages.

Now let me turn to the hematology oncology franchise. We're pleased with the continued growth of Erwinaze this quarter. We remain focused on our efforts to educate health care providers on the importance of identifying hypersensitivity reactions to E. coli-derived asparaginase in acute lymphoblastic leukemia, or ALL, in both pediatric and adult oncology centers using asparaginase therapy in their chemotherapy regimens, and of maintaining appropriate asparaginase levels. We also continue to educate health care providers on the administration of Erwinaze through intravenous infusion.

Now turning to an update on our study of Erwinaze in young adults or YA study. Our study was designed as a PK study to evaluate whether Erwinaze maintains adequate asparaginase activity levels in YA patients with ALL who develop hypersensitivity to E. coli-derived asparaginase. YA patients constitute approximately 20% of the ALL population in the US, representing an annual incidence of approximately 1,000 patients. In addition to the low incidence of ALL in YA patients, treatment centers are widely dispersed, with approximately 300 treatment centers across the US. As such, many sites may only see one patient with hypersensitivity to E. coli asparaginase over the course of the year.

With these factors in mind, we've made the difficult decision to close this study, and instead will focus our efforts on working with key oncology centers to support the treatment of the YA population. We will continue to build upon our investments in medical education and clinical investigations to better understand this patient population.

The Defitelio launch in Europe continues to progress well. Our key focus in Europe is to establish solid pricing and reimbursement in order to maximize access for patients in need, and we continue to engage in pricing and reimbursement submissions and discussions in the EU. We are continuing our efforts to provide disease awareness education on VOD, or veno-occlusive disease, for health care providers in Europe, and have a strong presence at the European Bone Marrow Transplantation Meeting held in Istanbul in March. We hosted two symposia, one for physicians and one for nurses, as well as other smaller events, with approximately 900 total attendees.

Now a brief US regulatory update on defibrotide. We are pleased that we've completed remediation activities related to the existing defibrotide clinical data, and are proceeding on schedule to complete the rolling NDA submission by mid-year. Defibrotide has fast-track designation in the US, and we look forward to working with FDA to gain regulatory approval as quickly as possible.

We've also begun pre-launch activities in the US, and are continuing our disease awareness program that includes a website, ProgressiveVOD.com, and other resources designed to educate health care professionals on the unpredictability, signs of progression, and potentially life-threatening consequences of VOD, as well as the need for timely diagnosis. We're also pleased that we have observed an increase in the number of US sites participating in the treatment IND for defibrotide.

Our defibrotide development team continues to work with FDA on clinical trial design for the evaluation of defibrotide in patients with earlier VOD, which is VOD before it has progressed to multi-organ failure, and in prevention of VOD in high-risk patients. We plan to provide an update on our development plans during the second half of 2015.

Finally, as mentioned in our earnings press release, we are excited that Dr. Karen Smith recently joined us as our Global Head of R&D and our CMO. Karen was most recently the Senior Vice President of Global Medical Affairs and Therapeutic Area Head of Dermatology for Allergan. Karen brings significant global R&D experience, and we look forward to her contributions as part of our executive leadership team. Matt, let me now turn the call over to you.

Thanks, Bruce, a good afternoon, everyone. We are pleased with our strong performance in the first quarter, as we saw adjusted EPS attributable to Jazz increase by 25% year over year. We expect continued strong top-line growth for 2015, driven by growth in sales of Xyrem, Erwinaze, and Defitelio. We are reaffirming our total revenue guidance at a range of $1.31 billion to $1.37 billion, and our adjusted EPS guidance at a range of $9.45 to $9.75 per diluted share.

Net sales of Xyrem for the quarter were $213 million, up 33% from $160 million in the first quarter of last year. I will remind you that our volume growth in the first quarter of 2014 was impacted by multiple factors that slowed the fill and refill timing from our central pharmacy. We are maintaining our guidance for Xyrem net product sales in a range of $950 million to $970 million, and continue to expect high-single-digit bottle volume growth in 2015.

Turning to Erwinaze, first-quarter worldwide net sales were $50 million, up 7% from the same period in 2014. We are maintaining our guidance for Erwinaze net product sales in the range of $200 million to $215 million for 2015. For Defitelio, first-quarter worldwide net sales were $17 million, up 15%, compared to pro forma net product sales of $15 million in the first quarter of 2014. We are maintaining our previous defibrotide net sales guidance in a range of $73 million to $83 million.

With respect to Erwinaze and Defitelio net sales, we've reiterated our guidance for 2015 despite continuing FX headwinds, as our overall volume growth for these products has exceeded our expectations across Europe in the first quarter. Negative foreign currency impact to our top line during the first quarter of 2015 was approximately $2 million, primarily due to the continued strengthening of the US dollar against the euro. Now I remind you that the bottom-line impact is minimal, as we incur European expenses and have otherwise largely mitigated our net exposure.

In the first quarter, Prialt net sales were $7 million, compared to $4 million for the same period in 2014. The first quarter of 2015 includes sales to our European distributor of approximately $0.6 million, while the first quarter of 2014 had lower sales, primarily due to the timing of shipments to the exclusive wholesale distributor and central pharmacy for Prialt in late 2013.

Turning to operating expenses, adjusted SG&A expenses for the first quarter of 2015 were $95 million, compared to $78 million in the first quarter of 2014, or roughly 31% of total revenues for both periods, consistent with our pattern of higher SG&A expenses during the first quarter. The dollar increase in adjusted SG&A expenses was primarily due to higher head count and expenses resulting from the expansion of our business, including the Gentium acquisition, and European Defitelio launch, and increase in marketing and promotional expenses, and an increase in professional services expenses, such as litigation costs.

Adjusted R&D expenses for the first quarter were $24 million, or 8% of total revenues, compared to $16 million, or 6% of total revenues for the first quarter of 2014. The increase was primarily related to increased costs for the development of the Company's product candidates and life cycle management activities for our existing products, as well as expenses relating to the rolling NDA submission for defibrotide in the US.

While the expenses in SG&A and R&D can vary quarter to quarter, we expect to be within our guidance range for the full year. I'll remind you that we do not provide quarterly guidance. Our 2015 guidance for adjusted SG&A remains a range of $355 million to $365 million, and adjusted R&D guidance remains a range of $95 million to $105 million.

As of March 31, 2015, cash and cash equivalents increased to $783 million, primarily due to cash generated from the business. We also have an un-drawn revolving credit facility, with capacity of $425 million. During the first quarter, the main uses of cash were to fund capital expenditures and repurchase our ordinary shares. As of March 31, 2015, the outstanding principal balance of the Company's long-term debt was approximately $1.5 billion. During the first quarter, we repurchased approximately 63,000 shares at an average cost of $165 per share, leaving us with $11 million remaining in our $200-million share repurchase program.

In closing, we are pleased with our strong start to 2015, and are re-affirming our guidance for 2015. We continue to focus on investing in the growth of our key commercial products, advancing our pipeline, working toward regulatory approval of defibrotide in the US, and pursuing acquisition opportunities to further grow and diversify our product portfolio and pipeline. Thank you for joining us on the call today, and I'll now ask Kathy to make a brief comment about our Q&A session.

Thank you, Matt. We request that you continue to limit your questions to a maximum of one at a time, and then feel free to re-enter the queue if you have further questions. With that said, I'll turn the call back to the operator to open the line for your questions.

Thank you. Ladies and gentlemen, your question-and-answer session will now begin.

(Operator Instructions)

Louise Chen, Guggenheim

Hi, thanks for taking my question. I'm curious what you think about the business outside the US? We've received some questions on this. How large is it today? Where do you expect it to be over the next three to five years? Is this an expansion opportunity for you? Thank you.

Yes, Louise, this is Bruce. Let me start, and I can ask Russ to add on. The European business has been growing. Clearly we added a new product to the mix last year with the acquisition of Gentium and the launch of defibrotide in EU. That's also been a terrific fit with our Erwinaze business. The combined revenues of those two products have already increased our European presence, and we obviously think those are both growth assets. Top-line growth is looking a little less impressive this year thanks to the FX head winds, but the underlying volume growth has been nice. From those two products, we see additional growth.

We've told you we're looking at expanding the use of defibrotide over time through clinical investigation and other areas, and of course we remain active on the CorpDev side, and that would include the potential for Europe-only products, as well as additional global products that we would add to that business.

Yes, and the only thing I would add to that, Bruce, is we have become very focused on the hematology-oncology side of the business from an international perspective and we're pleased with what we're seeing from that team so far. We continue to look at where else we can expand there.

Okay, thank you.

Marc Goodman, UBS

Yes, on that topic of Defitelio, can you give us a sense of just country by country where are we? I know the UK was relatively new. How are we doing there? You've been fighting in France for pricing. Can you give us an update there? I guess Germany's been a good market. Give us a sense of what's been going on and stuff. Remind us, how much was the FX impact, specifically on Defitelio? Thanks.

Mark, quickly, it's Matt. On the FX impact, what we said across Defitelio and Erwinaze in the EU for the first quarter was $2 million Recall on our previous call we said the general head winds this year could be $10 million to $20 million across our European portfolio. We did see higher pressure there than originally anticipated, so I'd say the upper end of that range.

Yes, just to take you to through the quick list, Australia, Germany, Norway, England, Netherlands, Scotland, Finland, Denmark, Sweden, Slovenia, Romania, Ireland, and Wales are all in that public and approved status. We have both France and Italy that are working through some issues as it relates to maximizing reimbursement. I think in general we're really pleased with a couple countries that we've invested in, and I would say in the early stages of the launch, like Germany, that continues to show really good growth

Douglas Tsao, Barclays

Hi, good afternoon. Thanks for taking the question. My first question is turning to Erwinaze, with the decision to close out the YA study, maybe you could provide a little more color in terms of how you're thinking or some of the tactics that you intend to deploy to improve penetration into that patient base, which I think obviously seems to represent a pretty good opportunity, perhaps not necessarily in patient numbers, but certainly in the volume of drug that you could potentially sell into?

Doug, let me start that, then I'll turn it over to Mike. I would say in general we have been seeing growth in use of the drug in that patient population over time. I gave you the incidents number earlier. It's obviously a smaller number of patients than pediatric, but since the dosing of the drug is unrelated to the size of the patient, if you look at the amount of drug consumed by a smaller number of patients, it does make a meaningful impact on our business. Mike, maybe you can comment a little more about what we're seeing?

Yes, thanks Bruce. YA has been and will continue to be an area of growth for us with Erwinaze. The medical literature and the guidelines certainly support its use. Our guidance with Erwinaze remains unchanged, and includes the YA opportunity.

Michael Faerm, Wells Fargo.

Hi, thanks for taking the question. My question's around JZP-386. Could you provide any color on some of the other options you alluded to? Specifically, where in development might any of them be? Is there anything that's near to being in the clinic? Is there still a chance that anything that you're developing now could get to market ahead of the expiration of the 2020 patents? Thank you.

Mike, we're not going to comment real specifically on where we are, but don't assume we haven't already done clinical work on some of the things we're looking at. In terms of time frame, we do think programs we're working on do have the potential to come to market. That's making a number of assumptions between here and there, but during a relevant period for us, which is a period when we have Xyrem on the market pre-competition.

Could you just clarify when you say a relevant time frame?

Well, I don't think a given patent is the only relevant piece of time frame here. It's really when we might see a competition, generic competition or otherwise, and that's how we're thinking about it.

Thank you.

Corey Davis, Canaccord

Thanks. I wanted to ask about JZP-110, and what you can do and what you are doing in the trial design to hopefully maximize the outcome in the Phase IIIs to be able to differentiate it in the clinical trials from generic Provigil, and I guess by the time you launch, what will be generic Nuvigil. At what point do you expect to conduct what the FDA and DEA will need to see in order to hopefully give you the best scheduling status possible? Lastly, still the same question, is how quickly can you enroll, and what's the soonest we would see data from these three different Phase IIIs on 110?

Okay Cory, that was a -- quite the one-part question, there. On enrollment, I would say we've talked about this program being largely a 2015 and 2016 program, with a target of submitting an NDA in 2017. We haven't specifically talked about when we release data yet.

On scheduling and the DEA, certainly we made some assumptions when we are bringing the product in about different possibilities for scheduling, and how that would impact the value of the asset we were buying. Let's just say the price we paid would offer us attractive returns, given the assumptions we made. That left us with some work to do on the abuse-liability side. Of course we won't know the final answer on that until we get ultimate scheduling from the DEA, which is still a couple years away. Not a lot more to say about that right now.

Maybe I'll turn it over to Russ to talk a little bit about what we think the market looks like when JZP-110 launches, and how were thinking about data we're collecting in our trial.

Yes, thanks Bruce. I would comment, based on investigator meetings and the feedback that we're getting. We do think this could recruit very quickly around OSA specifically. Historically, narcolepsy takes longer based on our experience; but we're really encouraged by the feedback we've had from investigators so far. We do believe when we launch JZP-110 it will be a fully genericized market.

The differentiation that we're focused on is primarily in efficacy and the treatment effect that we see from JZP-110 over Provigil and Nuvigil. We're also very encouraged by what we think we would see from a safety profile there. But having said that, we're looking at quality of life. We're looking at a number of different things that we will be able to build into a protocol that we think will be meaningful at launch

I would just say Cory although the trials that have been done have not been head-to-head, they've been done in a very similar fashion with very similar end points to those used in the Modafinil and armodafinil trials.

Great. Thanks for all that.

David Amsellem, Piper Jaffray.

Thanks. This is a Xyrem question, I may have missed this earlier. You cited the 12% bottle volume growth, but realize that there was an easier year-on-year comp because of the issues in the first quarter of 2014. If we hypothetically assume that first-quarter 2014 was normalized, can you say what that bottle volume growth for this quarter would've looked like? Thanks.

Yes, this is Mike. I think if we were to normalize that growth, I think we would look at probably 7% to 8% bottle volume growth year over year.

David, recall we've talked about a high-single-digit volume growth as our expectation for 2015.

Thank you.

Gary Nachman, Goldman Sachs.

Hi, good afternoon. Also on Xyrem, Bruce, any update on what's going on with the shared REMS discussions with the generic companies? Can a generic actually be approved before that's finalized, once you have the final REMS in place? I think you said by late August. Maybe run through those different scenarios that you think could happen? Thanks.

Yes Gary, so single-shared system conversations continue, although we've said we obviously can't provide specific updates on that. Those conversations started back in January of last year, January 2014. Obviously, at that time we had a deemed REMS, not a final REMS. As of the end of February this year we do have a final REMS, which I think at least provides a starting point.

The August date I gave is for us to finish implementing the Xyrem REMS, so the REMS that was approved for us to distribute our product. Can't comment specifically on timing of getting to resolution on a single-shared system, or a waiver, which are the two options available to FDA. Could FDA give an approval before a final REMS? I think an appropriate REMS that protects the safety of patients and the public is an important part of distributing sodium oxybate. I think certainly before launch you've got to have a system that accomplishes that.

Okay, thank you.

Annabel Samimy, Stifel.

Hi, thanks for taking my question. Again on 386, the way you released the data, it seemed that it was favorable deuterium-related effects corresponding to the effects in state. What is it that made you decide that it can't move forward at this time? I'm a little confused about that. What criteria do you need to feel comfortable beginning to disclose the other next-gen Xyrem product? Is it data-driven, or is it generic-competitor-driven? Thanks.

Yes. I'm not sure we're going to give much more information on JZP-386, specifically, other than to say we have a view of what we'd like to see in a candidate to take into late-stage clinical trial, and we didn't get there with JZP-386 in its current formulation, so we've got some more work to do there. Karen, do you want to add something on that?

Thanks, Bruce. Hi, it's Karen. To add to that, we did have predetermined criteria that we were seeking to meet before we actually felt comfortable moving immediately to later-stage trials. That predetermined criteria is really related to standard criteria that you would expect to see in a PK study, so area under the curve and those sorts of measurements that we were looking for.

On not being more disclosing on the other efforts, I would say we don't particularly view it as helpful to our Company or our shareholders for us to be giving people a lot of specificity on what we might be doing. At this point, we think the best thing for us is to be relatively quiet.

Okay, thanks.

Gregg Gilbert, Deutsche Bank.

Thank you. Bruce, is it fair to say that you're as confident as ever about the variability of the current Xyrem product, given what you know now about regulatory, legal, and other variables? Thanks.

Yes. Complicated question, Gregg. Obviously pulling together a lot of pieces, but we continue to feel that we've got a great and growing franchise, that we're continuing to invest in on the commercial side. We're continuing to invest in with clinical work, as you're seeing with our pediatric narcolepsy trial. We obviously have other development programs we're continuing to invest in.

Our goal, as with all our programs, is help more patients and provide a nice return to our shareholders in doing that. All of that, I think you should take to indicate that we're confident we've got a business not just for the short term, based on all the factors that you described, each of which we've obviously been very conscious of in all of our planning and execution over a number of years.

Thanks.

Jessica Fye, JPMorgan.

Hi, thanks for the question. Could you remind us of your priorities for business development? Specifically, should we think of Jazz as more focused on acquisitions that would add long-term durability but may be dilutive in the near term? If so, would you look at development stage assets outside of your current therapeutic verticals? What I'm trying to figure out is how important is near-term accretion and the certainty of more immediate cash flows versus potentially longer-term, more durable assets?

Jessica, let me break that question down into two parts. I'll take the accretion, non-accretion piece, and then maybe Matt can get back to the criteria we're using in those deals. Near-term accretion is not important to us. That said, we have done accretive deals. We like accretive deals. I hope we will do more accretive deals. But short-term cash flow is good for this Company. Where we find additional assets that would bring us even more near-term cash flow and accretion, all the way down to the per-share level; great, all for it.

But you've also seen us do deals that certainly are not near-term accretive. By definition anything we do on the R&D side, including the JZP-110 deal, is clearly an investment we're making that we believe has great long-term returns, but doesn't start out as accretive. Matt, do you want to talk a little bit about the criteria we use?

Sure. Jessica, I think they continue to be the same criteria, which really, again, start with great therapeutic benefit for patients, and then go to really attractive margins, which include targeted sales forces; again, reasonable R&D investment that we believe is appropriate from a risk-reward perspective; good cost of goods without high royalty burdens; and importantly good longevity, so not just near-term cash flow but growable long-term cash flow.

We would look, I think, at development assets outside of just our core therapeutic areas, to answer one of your other specific questions. Really it starts again with that medical importance for patients, and it isn't -- the accretion follows, as opposed to leads how we would think about those types of product opportunities.

Got it, thanks.

Irina Koffler, Cantor Fitzgerald.

Hi, thanks for taking the question. I wanted to push a little bit on the SG&A guidance. First quarter seemed pretty high, and you're looking at legal expense in the back half of the year, whether it's the IPR process or the trial. Are you sure that $355 million to $365 million is doable, is the first question? The second question is can you comment on any recent Xyrem price increases? Thanks.

I'll take the second part first, Irena, and say we took a Xyrem price increase, which we disclosed last quarter as 9% in February, and have not taken another price increase. Matt, do you want to handle SG&A?

Sure. Yes, again, we feel confident in our numbers for SG&A for the year. We're making a number of investments across the business, again, related to the regulatory submission with defibrotide, our continued launch of Defitelio in Europe, launch prep for defibrotide in the US, as well as a number of initiatives. Our first-quarter SG&A are typically higher as a percentage of sales, based on what we normally see from a revenue perspective in a Q4 to Q1 trend, and again, we're around 31% last year despite coming in at a much lower number annualized in terms of percentage of sales. I would feel very confident in our SG&A expenses as we've modeled them for the year at this point.

Okay, and one quick follow-up. Can you remind us about the divestiture of some of your assets, and when we should expect that to happen, and any other expectations around that? Thanks.

Sure, we completed the previously stated divestiture of our general medicines business unit in Europe on March 20. We indicated we thought it would happen by mid-year, and so it did happened shortly after our last call. The net proceeds from that, I think we have stated were $33 million, with the purchase-price adjustments that are balance-sheet related. That is complete but for the ongoing related support agreements, until we have fully transitioned the business to the buyer, in that case, which has allowed us to again take Management's time and focus on what we believe are longer-term value drivers of greater priority to the business.

Thank you.

Before we take the next question, while I've got Matt talking and we're talking about Europe, I just want to go back. Matt gave an answer on FX a little while ago, but I think wasn't necessarily going back to the comparison that we show in our press release of first quarter over first quarter, which obviously takes into account a longer period and move in euro-dollar ratios. Matt, maybe you could give a little more info on that?

Sure, just going back to that question on FX briefly, if you looked at year over year and the relative state of the dollar-euro in the first quarter of 2014 to today, the impact across Defitelio and Erwinaze together was on the order of magnitude of $6 million to $8 million in terms of the year-over-year impact, roughly $4 million to $5 million of that being with respect to defibrotide or Defitelio. Again, the bigger number of the $10 million to $20 million, which I stated, was the expected impact on a overall aggregate basis of relative to our guidance, relative to 2014 performance.

Jason Gerberry, Leerink Partners.

Hi, good evening. Thanks for taking my question. Bruce, just curious. We get asked the question a lot about why hasn't Jazz done a diversification deal yet? I'm curious to what extent pending Xyrem litigation has played a role at all, either in terms of lenders being open - lending to you in favorable terms, or perhaps other companies, how they view your equity if you were to use stock in a more transformative deal. I'm curious if you can comment on if the Xyrem litigation plays a role at all in that in terms of your discussions? Thanks.

Jason, the short answer is no. We think we've got great access to capital. Of course you've watched us do a number of deals historically, at least post the Azur deal, which required the use of equity, that in general have not used equity.

In terms of the comment that we haven't done the diversifying deal, of course we have done a number of deals that I think, are short-term or long-term diversifying. I think that was certainly true of the [Yusa] deal. I think that was true of JZP-110. I think that was true of the Gentium deal. I'm confident we'll do other deals. The pattern of the deals we've done is we've been able to do bigger deals over time, as well. We certainly feel like we have the opportunity to do a deal that's larger than the deals we've done historically. I don't think it's a question of not doing deals and now doing deals, and I certainly don't think a driving factor in anything you've seen has been Xyrem-litigation related.

Great, thank you.

Liav Abraham, Citi.

Good afternoon. Just wanted to follow up on a couple of previous questions on M&A. I'd be interested in your thoughts on asset pricing in the current environment, particularly the orphan drug space, which I know you guys have an interest in. I'm wondering if you're seeing interesting assets out there at reasonable prices in the current environment? Thank you.

Sure, thanks, Liav. There absolutely is an aggressive and ambitious M&A market today. We have seen, in some cases, assets that we would think are good and appropriate fit for Jazz, that we been watching for some time, trade at valuations that we couldn't support; but conversely, we do see a lot of attractive opportunities out there. Again, we're not just looking at the sub-set of opportunities in the public domain. We continue to be very active in evaluating and pursuing a number of opportunities we believe can be attractive and offer good returns for our shareholders. It is aggressive and competitive, but we do believe we can still do transactions in this environment.

Great, thanks.

David Maris, BMO.

Good afternoon. I'm curious, do you have any pending or issued Xyrem IP that's not been included in the orange book that you believe may be listable?

Yes.

Thank you.

Douglas Tsao, Barclays Capital

Hi, thanks for taking the follow-up. In terms of the SG&A spend we saw a pretty significant step-up. Was that purely related to litigation?

No, Doug, it's a number of factors. Obviously, the business is growing year over year, and we did not have Gentium, you recall, for the full quarter of 2014 in the first quarter. We've grown the business both there as we've extended the commercial launch over time as we've secured reimbursement in countries, so that's been a steadily climbing expense. It's really again probably best to look at it on a percentage of sales basis, which is the same in both of those quarters.

Okay, so should we think about that as sort of a current run rate?

You can look at our annual guidance, and $355 million to $365 million is the number.

Bruce, I have one quick follow-up for you. How many -- do you think how many games for the Warriors?

Well, they lost one, which was a little disappointing. But we still like them out here.

Operator, we'll take one more call after this.

Ken Cacciatore from Cowen and Company.

Thanks. Bruce you used, as you typically do, pretty interesting language when you said here a relevant time frame when you were talking about other life cycle management programs that you would want to have them introduced for Xyrem -- not necessarily patent-related. Do you know what that relevant time frame is? Is it something that you'd care to share with us? Are we moving or progressing to a point where that could be brought to the forefront, or we could be made aware of what that relevant time frame is? Thanks.

Yes, Ken. My point is that, obviously, we make a judgment based on everything we know at any point in time. If we had been on a call a year or two or three ago, and people had asked us what else we were working on and when it might launch, I think people would've asked us what do you think could launch by a year, but let's say it would've been sooner than the one that was asked about earlier in this call. My point is not to get anchored off one magic date in one piece of this whole puzzle, but to really be thinking about how everything fits together and what our best judgment is about the durability of the current asset, as we think about optimizing value with other assets, too.

It could be that optimizing value is getting something else on the market ASAP. It might be that optimizing value over the long term is getting something to market a little closer to when there might be some kind of a change. Our job is to use all the information we have on what we're doing, and make the best call to optimize value, and that's what we're trying to do. My answer wasn't intended to be too cryptic, other than to say I wouldn't always anchor off any one date in your thinking.

Thank you.

Thank you very much. Now I'll turn the call back over to Kathy for closing remarks.

Thank you, Ian. Thank you again for joining us today. We are planning to attend both the UBS and the Goldman Sachs conferences, and look forward to seeing many of you there. This will end our call. Thank you.

Thank you, ladies and gentlemen. That concludes your conference. You may now disconnect. Thank you for joining. Enjoy the rest of your day.