Jazz Pharmaceuticals plc (JAZZ) Q3 2017 Earnings Report, Transcript and Summary

Welcome to the Jazz Pharmaceuticals Third Quarter 2017 Earnings Conference Call. Following an introduction from the company, we will open the call to questions. I will now turn the call over to Kathy Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

Thank you, Ashley. And good afternoon and thank you for joining our investor call. Today, we reported our third quarter 2017 financial results and updated financial guidance in a press release. The release and the slide presentation accompanying this call are available in the Investors section of our website. With me for today's call are Bruce Cozadd, Chairman and CEO; Matt Young, Chief Financial Officer; Russ Cox, Chief Operating Officer; Mike Miller, Executive Vice President of U.S. Commercial; and Karen Smith, Executive Vice President R&D and Chief Medical Officer. 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 performance rather than historical facts and are forward-looking. Examples of forward-looking statements include those related to our 2017 financial guidance and goals; corporate development efforts; future growth or strategy, future product sales, and volumes; litigation and intellectual property-related events; inventory and supply challenges; product launches, ongoing and future clinical trials; and other product development and regulatory activities and the timing of these events and activities. These forward-looking statements involve numerous risks and uncertainties that could cause actual events, performance and results to differ materially and are identified and described in today's press release, in the slide presentation accompanying this call, and under Risk Factors in our Form 10-Q for the quarter ended June 30, 2017, and our Form 10-Q for the quarter ended September 30, 2017, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On this call, we will discuss several non-GAAP financial measures, included adjusted net income and related per share measures, adjusted SG&A and R&D expenses, and measures derived there from, adjusted net interest expense and adjusted effective tax rate. We believe these historical and expected 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 slide presentation, both of which are posted in the Investors section of our website. I'll now turn the call over to Bruce.

Thank you, Kathy. Good afternoon, everyone, and thank you for joining us. During the past few months, we've made significant progress on multiple fronts. We received approval and launched both Vyxeos in the U.S. and Defitelio in Canada, submitted the Marketing Authorization Application or MAA for Vyxeos in the EU, submitted the New Technology Add-on Payment application for Vyxeos for CMS's fiscal year 2019, announced a collaboration and option agreement with ImmunoGen, and issued $575 million of senior exchangeable notes due in 2024, allowing us to fully repay our outstanding revolver balance. After providing more detailed updates on key commercial, legal, regulatory and clinical activities and highlighting some key events expected before year-end, I'll turn the call over to Matt to review financial results for the quarter and update our financial guidance. In our sleep therapeutic area, Xyrem delivered 6% sales growth in the third quarter and 7% year-to-date compared to the same periods in 2016. This quarter, Xyrem revenue bottle volume declined 1% compared with third quarter of last year. This was due in part – this quarter had one fewer shipping day than the third quarter last year. And it was a Friday, which is typically our highest volume day. We estimate that this negatively impacted volume growth by approximately 2%. Year-to-date revenue volume growth was 1% compared to the same period last year, largely due to the continued effect of the losses in government pay patients as disclosed earlier this year. The average number of active Xyrem patients increased to 13,350 in the third quarter, up 4% compared to the same period last year. This number includes patients who receive both revenue and non-revenue bottles of Xyrem. This quarter, we experienced consistent high payer reimbursement approval rates, and patient enrollments continued to grow steadily during the quarter and year-to-date. However, we have recently seen modest delays in a portion of existing patient refills, and new patient fills, due to operational changes in fulfillment process at the pharmacy. The pharmacy is taking steps to rectify the situation. We have not seen an increase in new or existing patient prescription abandonment. The volume impact of these delays was approximately 1% to 2% in the third quarter. Based on the fill and refill delays and the ongoing 3% to 4% reduction in bottle volume from the loss of some government pay patients reported earlier this year, we now anticipate low-single digit volume growth for the full year 2017. We have observed consecutive quarterly improvements in new narcolepsy patient diagnosis rates based on our review of insurance claims data through the second quarter of 2017. This is the first positive growth we have seen in recent years. We believe that the investments we've made in narcolepsy awareness are making a difference, helping patients obtain an earlier accurate narcolepsy diagnosis. The improvements in narcolepsy diagnosis, new patient enrollments and first time fills give us confidence that over time we can continue to generate volume growth from new patients. Next, I'll highlight our R&D plans for Xyrem and other oxybate related programs, starting with our planned supplemental New Drug Application or sNDA for Xyrem in pediatric narcolepsy patients with cataplexy and excessive daytime sleepiness. In order to provide data to support the use of a new dosing dispenser with the sNDA submission, we now plan to submit the sNDA which includes the response to the pediatric written request in mid-2018. The new dosing dispenser will help ensure accurate dosing of smaller amounts of drug for pediatric patients. Now, we'll turn to a brief progress report on our low sodium oxybate development programs. The goal of our low sodium oxybate development programs is to identify the best therapeutic option for patients in terms of safety and efficacy. We have two late stage product candidates, JZP-507 which represents a 50% reduction in sodium compared to Xyrem, has demonstrated bioequivalence to Xyrem in a pilot study. And we are currently enrolling patients in a Phase 3 study in the U.S. and EU for JZP-258 which has a 90% reduction in sodium content compared to Xyrem. As we consider our options in advancing these oxybate development programs, we are focused on delivering the best product to patients while considering any patient disruptions that could occur during a transition to a new product, as well as a number of other factors. As we continue to assess these variables and seek to maximize the value of our programs, we plan to be ready to submit an NDA for JZP-507 in mid 2018. We continue to expect an NDA submission for JZP-258 in 2019 assuming positive safety and efficacy data from our ongoing Phase 3 study. Turning to a brief legal and intellectual property update on Xyrem, patent litigation continues against four of the companies that have filed ANDAs for a generic version of Xyrem, Amneal, Par, Watson and Lupin. Although no trial date has been set, trial could be scheduled in this consolidated litigation as early as mid-2018. In August, we settled litigation with Ascent Pharmaceuticals, another ANDA filer, granting Ascent a license to manufacture, market, and sell its generic version of Xyrem on or after December 31, 2025. Turning to JZP-110, we had our pre-NDA meeting with FDA in September and are on track for a planned year-end NDA submission for the treatment of excessive sleepiness in OSA and narcolepsy. We are excited about the long-term opportunities for JZP-110 and look forward to working with the FDA to bring this novel wake-promoting agent to patients where there is a real unmet need. We expect that the FDA review process will take approximately one year followed by DEA scheduling. We expect to be ready for a JZP-110 launch in early 2019. Now onto the hematology/oncology franchise, in the third quarter, we continued to experience Erwinaze supply challenges on a global basis including in the U.S. from mid-August through mid-September. Once the product was in inventory at our distributor, we observed strong ordering that we believe included some stocking of inventory at various institutions. We anticipate that we may continue to experience further disruptions in our ability to supply the product in 2017 and into 2018. We remain focused on delivering Erwinaze to patients with acute lymphoblastic leukemia who need this critically important therapy. And we're pleased that the batch released in September included special handling instructions to again allow for intravenous administration of Erwinaze. This was well received by healthcare providers. We're also pleased that we continue to experience growth in new accounts order in Erwinaze with a majority of these accounts treating adolescent and young adult patients. Continued progress by Porton Biopharma Limited, the manufacturer of Erwinaze, to improve processes and quality controls is essential to making headway toward ultimately increasing capacity and ensuring consistent supply and we continue to work with PBL toward these objectives. Now we'll turn to Defitelio. We continue to make progress in our U.S. commercialization efforts. Since launch, 150 accounts have ordered product with re-orders from 88% of these accounts representing approximately 87% of the total transplant volume in the U.S. We continue to observe additional accounts order in Defitelio with eight new accounts in the third quarter. In the U.S. our sales initiatives remain focused on increasing healthcare providers' knowledge and recognition of the seriousness of veno-occlusive disease with multi-organ dysfunction and the clinical benefits of initiating Defitelio treatment in those VOD patients including the urgency to treat patients in a timely manner once VOD is diagnosed. With the introduction of new leukemia therapies known to increase the frequency and severity of VOD, we expect awareness of the signs and symptoms of VOD in transplant patients to expand and the value of Defitelio treatment to become better recognized. In the EU and rest of world markets, our team remains focused on ensuring that physicians, key hospital administrators, and pharmacists are aware of the clinical and health-economic benefits associated with Defitelio. We believe that Defitelio remains an important growth opportunity for us globally and we continue to focus on gaining Marketing Authorization in additional countries. Our Defitelio Phase 3 study for the prevention of VOD in high risk patients post-transplant is enrolling well. And we are planning to initiate a Phase 2 proof of concept study for the prevention of acute graft versus host disease post-transplant in 150 adult and pediatric patients before year-end. Now to Vyxeos, the launch is progressing well in the U.S., with strong demand in the third quarter in both the top targeted academic institutions and the number of community accounts. As a reminder, we launched Vyxeos commercial activities upon approval and began shipping product in the U.S. on August 11. Our U.S. launch efforts are focused on 75 targeted institutional accounts, representing deciles 7 to 10 by volume of chemotherapy treated AML patients. 44% of these key targeted accounts ordered during the seven weeks of initial launch in the third quarter. In total, 86 accounts ordered during the quarter. Of these accounts, 52% were academic institutions. We continue to drive our U.S. launch initiatives which are designed to achieve three key objectives. First, we are rapidly building awareness and establishing Vyxeos for the treatment of adults with newly diagnosed therapy related AML or tAML or AML with myelodysplasia-related changes or AML-MRC, primarily through our sales force as well as promotional speaker programs that began in mid September. Second, we're working closely with customers to ensure that patients who were started on Vyxeos induction therapy are able to receive Vyxeos for their entire course of therapy, whether subsequent consolidation cycles are given inpatient or outpatient. And finally, we're communicating the health economic benefits of Vyxeos to payers and institutions through our market access team and providing patient assistance programs to ensure that patients are able to receive Vyxeos when appropriate. Pharmacy and Therapeutics Committee discussions and decisions are progressing well, with several key institutions already including Vyxeos on their formularies. As you may know, the process for a new product to get on formulary and be fully incorporated into electronic medical records systems can take some time at certain institutions. However, even if Vyxeos is not on formulary, it can be possible for physicians to obtain it if needed on an exception basis and we've already seen this happen at some institutions. We are expecting NCCN to include Vyxeos in the AML guidelines and submitted data to them shortly after approval. NCCN's regularly scheduled AML panel meeting was in July before Vyxeos was approved. We are hopeful that NCCN will make recommendations in the near term. We are looking forward to working with the EU regulators throughout the Vyxeos MAA review process to bring this important potential treatment option to patients in the EU with high risk AML as defined by tAML or AML-MRC. Vyxeos was granted an accelerated assessment from the European Medicines Authority, which has the potential to reduce MAA review timing by up to six months or to mid 2018. In order to maintain accelerated assessment, we will need to adequately address all questions that we receive within the specified timelines. Additionally, we were pleased that Vyxeos received recognition as a promising innovative medicine by the MHRA. The American Society of Hematology or ASH 2017 abstracts were posted this past week and we're excited to have 19 abstracts accepted for presentation, posters or online publication. The ASH annual meeting in Atlanta takes place from December 9 through December 12. The data being presented on Defitelio, Vyxeos and Erwinaze underscore our commitment to continue to advance our scientific understanding of our hem/onc products and provide further evidence to support their use in appropriate patients. Our partner at ImmunoGen expects to present updated data from the Phase 1 study of IMGN779 in AML patients and preclinical data on IMGN779 and cytarabine in combination. ImmunoGen also submitted an IND in the third quarter for IMGN632 and expects to open a Phase 1 study before the end of the year. To-date, 2017 has been an exciting year for Jazz as we continue to diversify our portfolio with new products, execute on product launches, submit multiple global regulatory packages, advance our R&D pipeline and prepare for multiple new product launches over the next couple of years. We look forward to the rest of 2017 as we prepare to submit the JZP-110 NDA for excessive sleepiness in patients with narcolepsy and obstructive sleep apnea. We remain focused on growing Xyrem and execution of our sales initiatives for the hem/onc products. Planning for successful product launches for Vyxeos in the EU and JZP-110 in the U.S., advancing our R&D pipeline projects and further extending our product portfolio through new areas of research and corporate development transactions. As we move into 2018, we are gratified by the significant achievements and transformation of our company over the past several years. We now have multiple new products, product candidates and indications advancing toward the market in our sleep therapeutic area with JZP-110, our low sodium oxybate programs and Xyrem for pediatric patients. We've continued to expand our business in the hem/onc therapeutic area beginning with Erwinaze in 2012, expanding with the worldwide rights to Defitelio, and more recently with the addition of Vyxeos and the CombiPlex platform along with multiple opt-in rights on other potential hem/onc assets. This growing portfolio is the result of our corporate development transactions involving products that meet our criteria for clinical differentiation, as well as our research efforts to improve on our current products. We believe that our transformation from a strong primarily commercial organization to an integrated biopharmaceutical company with strong R&D, regulatory and commercial operations along with our growing global infrastructure will support sustainable growth over the mid to long-term. Matt, let me now turn the call over to you.

Thanks, Bruce, and good afternoon, everyone. Our third quarter 2017 total revenues increased 10% compared to the third quarter of 2016, driven primarily by higher sales of Xyrem and sales from our U.S. launch of Vyxeos. Net sales of Xyrem were $304 million, up 6% from $286 million in the third quarter of last year. In the third quarter of 2017, Xyrem net sales and volume growth were impacted by three factors: payer mix, one fewer shipping day, and operational changes at the pharmacy compared to the same period in 2016. As mentioned we had a 1% volume decline that was a result of approximately 5% volume growth offset by an aggregate impact of approximately 6% resulting from these factors. For 2017 we are lowering our guidance for Xyrem net product sales to a range of $1.18 billion to $1.2 billion from our prior guidance of $1.2 billion to $1.23 billion, primarily driven by the third and fourth quarter impact of operational changes that have lengthened the time to fill and refill prescriptions. The central pharmacy has taken action to address the operational issues and is working to resolve them in the fourth quarter. Turning to Erwinaze, third quarter net sales were $49 million, an increase of 14% over the third quarter of 2016. In the U.S., while we experienced supply interruptions during both periods, inventory was replenished in mid-September 2017, and our distributor had normal levels of inventory at the end of the third quarter 2017, compared to the end of the third quarter of 2016 when we were out of stock. Sales through the first nine months were $150 million, an increase of 4% over the same period in 2016. For 2017, we are lowering our guidance for Erwinaze net sales to a range of $200 million to $215 million from our prior guidance of $205 million to $225 million based on the potential timing of available supply. Worldwide Defitelio net sales increased to $31 million in the third quarter of 2017, compared to $28 million in the third quarter of 2016. U.S. net sales in the quarter were $10 million compared to $7 million in the third quarter of 2016. We continue to expect inter-quarter variability in Defitelio net sales as VOD is an ultra-rare disease and utilization is impacted by a number of factors. We are maintaining our guidance for total Defitelio/defibrotide net sales in the range of $130 million to $150 million for 2017. We are now estimating U.S. sales in the range of $35 million to $45 million from our previous estimate of $45 million to $55 million. Vyxeos net sales for the third quarter of 2017 were $10 million following the U.S. launch on August 11. We are increasing our guidance for Vyxeos U.S. net sales to a range of $20 million to $30 million from our prior guidance of $10 million to $20 million. Prialt net sales for the third quarter of 2017 were $8 million compared to $9 million in the same period of 2016. For 2017, we are updating the range of our total revenue guidance to $1.60 billion to $1.65 billion compared to our prior guidance of $1.63 billion to $1.7 billion. Turning to operating expenses, adjusted SG&A expenses for the third quarter of 2017 were $104 million compared to $95 million in the same period of 2016, or 25% of revenue in both periods. The increase in adjusted SG&A was primarily due to the expansion of our business, including higher head count and the launch of Vyxeos in the U.S. Our 2017 guidance for adjusted SG&A expenses remains in the range of $440 million to $460 million, or 27% to 28% of 2017 revenue guidance. Adjusted R&D expenses were $43 million, or 10% of total revenues in the third quarter of 2017, and 12% of total revenues in the third quarter of 2016. Adjusted R&D expenses in the third quarter include costs related to the defibrotide prevention of VOD study, sleep related R&D programs, and Vyxeos regulatory activities as well as an increase in head count required to support these activities. The completion of the JZP-110 Phase 3 studies contributed to lower spending on this program in the third quarter of 2017, as compared to the same period in 2016. Our 2017 guidance for adjusted R&D expenses remain in the range of $165 million to $180 million or approximately 10% to 11% of 2017 revenue guidance. The tax provision and the effective tax rate for the third quarter of 2017 on both a GAAP and non-GAAP basis were favorably impacted by one-time benefits relating to the release of the valuation allowance held against certain foreign net operating losses and a release of reserves upon the expiration of the statute of limitation. We expect our adjusted effective tax rate for 2017 will be in the high-teen to low 20% range. Third quarter 2017 adjusted net income was $198 million or $3.22 per diluted share compared to $161 million or $2.61 per diluted share for the third quarter of 2016. We are narrowing our 2017 adjusted net income guidance to a range of $655 million to $685 million, compared to prior guidance of $650 million to $690 million. We are narrowing our 2017 non-GAAP adjusted EPS guidance to a range of $10.70 to $11.20 per diluted share from our prior guidance of $10.70 to $11.30 per diluted share. During the quarter we sold $575 million aggregate principal amount of 1.5% exchangeable senior notes due 2024, and used part of the net proceeds to repay $500 million of outstanding borrowings under our revolving credit facility at approximately 3%. As a result, we expect adjusted net interest expense to be approximately $48 million for the full year of 2017. In the third quarter, the main uses of cash included the debt repayment, a $75 million upfront payment to ImmunoGen and $26 million for the repurchase of shares at an average cost of approximately $152 per ordinary share. Year-to-date we spent $56 million for share purchases at an average cost of approximately $142 per ordinary share. As of September 30, the outstanding principal balance of our long-term debt was $1.8 billion and we had approximately $450 million in cash, cash equivalents and investments, and $1.25 billion undrawn under our revolver. In 2017, we remain committed to our corporate strategy of identifying and developing highly differentiated product candidates that are meaningful to physicians, patients and payers. Our strong cash generation combined with our balanced capital structure, and expanded financial capacity provide us with greater flexibility to further diversify our commercial and R&D portfolio with an emphasis on reinvesting in our R&D pipeline and transacting on future corporate development opportunities. Thank you for joining us on the call today and I'll now turn the call over to Kathy.

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

Thank you. Our first question comes from Umer Raffat of Evercore. Your line is open.

Hi, guys. Thank you so much for taking my question. I wanted to focus on Xyrem a little bit and I had two parts to this question; A, just wanted to understand the trends a little better. I was a little confused by the commentary on what exactly the disruption was in your central pharmacy as well as what caused that longer time to refill, just wanted to understand that. And then also on Xyrem, how do you think about the impact to Xyrem trajectory with the possible launch of pitolisant? I mean, this is a question that's coming up more and more with pending additional filing on pitolisant in U.S. So, I just wanted to understand your thoughts on that.

Okay. Let me have Mike address the first part of the question which goes to the current disruption.

Sure, Bruce. So the issue that Matt mentioned in the central pharmacy is due from the implementation of an automated outbound phone system as a refill reminder to patients and as we began this in the summer, we began to see some delays in refill. And so what we have implemented, we have identified the issues. We believe we have identified all of the issues and we already have begun work streams to remedy this. Keep in mind that this is a – we do not see any change in abandonment. We do not see any change in payer approval rates. These are delays in refills of new and existing patients, often in measurement of days.

Yeah. And I'll just point out the implementation of the system was in part in response to patient request that they have an option of an automated system. Certainly, the early adopters of that system, I think, find it very beneficial. But some of the late adopters, I think, are a little confused by it and we've got a little work to do there. Karen, maybe on the second part of the question, which is about pitolisant, let's start with a little bit of an understanding of Xyrem, which is standard-of-care for narcolepsy patients with cataplexy and EDS and then pitolisant, which is approved in Europe, but not yet filed in the U.S., and maybe you can shed a little light on what's known based on public information about the drug.

Sure, thanks Bruce. I think that there are a couple of things that are important to note with regard to pitolisant as you're looking to review that in light of Xyrem, and it's really important to understand the magnitude of benefit that has been observed in the clinical trial for pitolisant. And it's also important to understand a Xyrem patient and a patient that has cataplexy because of severity and number of the cataplexy attacks is a key factor that the physician takes into account when they're considering how to treat that patient and the type of drug and the magnitude of effect that drug is going to have. So what we know is that the clinical studies that were conducted were in a more mild patient for pitolisant versus the Xyrem patients which are of a more severe nature. So if you think about a patient with say mild cataplexy then you can consider that they could be adequately treated with a 60% reduction. But we're talking then about a patient who may have say five attacks a week going down to two attacks a week. But what we see particularly in a Xyrem patient is that these are more severe patients. And so if you're looking at a patient who has say 50 attacks a week and you're taking that down to 20 attacks a week with a pitolisant treatment, then that is still a patient who is still severely impacted by this disease. And if you look at a Xyrem patient and the clinical data that we have from Xyrem, then you're seeing patients who are coming down to a 90% reduction or better in terms of the number of cataplexy attacks and this played out both in the patient populations that we saw that were recruited into the various clinical trials, whether pitolisant or Xyrem, but also what we see in clinical practice. So I think it's about understanding the magnitude of effect and the Xyrem patient being a more severe patient.

Thanks Karen.

Thank you very much.

Our next question comes from the line of Gary Nachman of BMO Capital Markets. Your line is now open.

Hi, good afternoon. On Vyxeos how has overall reimbursement been? Is there any real pushback in different types of patients, maybe if it's off-label use. And just review what other studies you're running as a combination treatment with targeted therapies? When could we potentially see data on that? Thanks.

Okay. Let me have Mike take the first part of that, which goes to reimbursement and then maybe Kathy or Karen can comment on studies ongoing.

Sure, Bruce. As we mentioned the P&T Committees for Vyxeos have gone well. And we believe that our cost effectiveness message is quite effective. We have our budget impact model that is being well-received by the institutions. We have the field access team that is there to help these accounts work through the system and through the P&T process and get patients access to the drug. We have not received much pushback to-date for Vyxeos on label. And so we're very pleased with where we are right now in the launch.

So just to respond to the second half of your question, we certainly in R&D have a very comprehensive plan in terms of how we're addressing next trials and next studies and possibly a next indication for Vyxeos. And we've obviously looked at a variety of things that we can do and prioritize these. The strategy really focuses around primarily and first looking at success on AML and then expanding into other hematological areas. So as it stands at the moment, we're looking on both a combination of cooperative group studies. We do have a number of ISPs (33:01) ongoing, and we also are looking at doing company-sponsored trials to address this. So at present, there is 84 ISPs (33:09) being done around the world of which 11 of those focus on Vyxeos. And we also have two cooperative group studies that are looking at different elements of AML, for example AML and high-risk MDS. So these are the type of things we're thinking about, evaluating multiple projects. We're also looking at combination therapy with Vyxeos using that as the backbone to chemotherapy. And we're also looking at a label expansion, different populations beyond AML to dosing strategy, and of course working on strategies that are also supporting our partnership with Nippon Shinyaku in Japan.

Okay. How long would it take to see some data, or when would you be able to actually file for some of these expanded indications?

We haven't disclosed that level of detail as yet.

Okay. Great. Thank you.

Our next question comes from David Risinger of Morgan Stanley. Your line is open. David R. Risinger - Morgan Stanley & Co. LLC: Great. Thanks very much. My question relates to JZP-258 timing. Could you just update us on your expectations for the timing for enrollment to complete? Also for the trial to conclude and when we should expect a top line press release? Thank you.

Yeah, David, we haven't announced those specifics on completion of enrollment or data availability. We've just said we're enrolling consistent with our objective of being in a position to submit an NDA in 2019. David R. Risinger - Morgan Stanley & Co. LLC: Okay. Thank you.

yes.

Our next question comes from David Buck of B. Riley. Your line is open.

Yes. Thanks for taking the question. Just a couple of quick ones for Defitelio, I know you took down the U.S. revenue estimates. Can you talk a little bit about what you see as the timing in terms of being able to increase, so the awareness in the U.S. market in particular of VOD and do you see any change in the environment I guess over the next six months or do you think it may take longer than that to maybe get the product back on track? And just as a reminder for Xyrem, can you talk about any expected changes as we look into 2018 in terms of formulary changes? And then what impact do you expect if any additional impact from government payers as we move into 2018? Thanks.

Yeah, maybe I'll take the second part of the question first, and then hand it over to Mike Defitelio U.S. So Xyrem 2018, always dangerous to predict exactly what will go on with payers in the future. We're not expecting any changes as we sit here today. And in terms of changes in government pay, I think as we've said through this year, to the extent we had lost our revenue generating patients out of government pay during 2017, we'll have a little bit of an easier comparison apples-to-apples 2018 to 2017 if those patients are in neither year, as opposed to this year when we're comparing back to a year where we had those patients, that should certainly help our reported growth rates. And whether there's potential to get some of those patients back, which would actually improve, our growth rates remains to be same. But other than that we're not expecting any particular changes. Mike, you want to talk about timing on awareness of VOD in the U.S. market?

Yeah, so on Defitelio in the U.S., it is different, when you look at the pediatric transplant and the adult transplant. So, for instance 97% of pediatric accounts have ordered Defitelio since launch, while about two-thirds of the adult centers have. So, you have a very different adoption rate. We continue to focus on right now on very adult-specific specific messaging around the seriousness of VOD, and the clinical benefits of Defitelio an important initiating therapy and really looking out for signs and symptoms. I think one of the interesting developments is some of the new leukemia drugs that were recently approved, they actually carry a risk of severe VOD. I do believe that that will heighten the awareness of VOD and become – I think the transplant teams will become more aware and cognizant of any early symptoms that would indicate that VOD is developing.

Yeah. And we do think that increased vigilance has been really critical to good use of the drug in pediatric environments. And we think there's the opportunity for that increased vigilance on the adult side as well. Operator, I think we're ready for the next question.

Our next question comes from Annabel Samimy of Stifel. Your line is now open. Annabel Eva Samimy - Stifel, Nicolaus & Co., Inc.: Hi, thanks for taking my question. Just following on Defitelio again, as you mentioned that you're more in the pediatric population right now. Do you have an opportunity now that you have Vyxeos to be able to leverage that platform into the adult population a little bit better? And has the education that you've been providing to these physicians been translating into actual usage and identification of the patients? Do you have a tangible idea of the effect of that education? And then separately on Vyxeos, can you just give us an idea of the first experiences that you have with it in terms of how they're prioritizing patients, in terms of treatments, are they giving it across the board, given that you've gotten a broad label? Or are they still prioritizing patients very specific to the high risk, elderly population? Thanks.

Sure, so...

Yeah. So, Annabel, just to frame this, let me have Mike talk a little bit about how we oriented our sales force and expanded our sales force, and aimed our sales force early in the year to deal with both pediatric and adult opportunities. And then on Vyxeos, I'll let Mike take a shot at it, although I'll let you know we don't have patient level data on the drug. So we hear some things, but I can't say we've got good reliable quantitative information to answer that question. Mike?

So, yes. On the Defitelio, what we actually did, we actually increased our sales force and split it, and we did that earlier this year, and we split it by actually pediatric focus and adult focus. So the pediatric focus takes Erwinaze and Defitelio to the pediatric transplant and oncology centers. Our adult team takes Vyxeos and Defitelio specifically into the adult leukemia centers and the adult transplant centers. So we feel like they are two different worlds – as clinical worlds, and we feel that both teams are well oriented to speak to their customer type and can speak specifically to that patient type. So, we feel confident we can get some good traction.

And any comment Mike on types of patients getting Vyxeos or how docs are using it?

We don't have that sense yet, Bruce, because we haven't – what we would do is probably a chart study or something, when we go back and look at it. Right now, we are seeing very good uptake. We're pleased with it to-date. We believe that most of the patients are treatment related AML or AML with MRC. And again, we'll continue to watch both inpatient and potentially outpatient use. Annabel Eva Samimy - Stifel, Nicolaus & Co., Inc.: Thank you.

Our next question comes from Jessica Fye of JPMorgan. Your line is open.

Great. Thanks for taking my question. I'm curious when we should think about – when we could hear the Phase 2 data for JZP-110 in Parkinson's. And also just I don't know if there's anything you could share about what changed on the JZP-507 filing timeline. I think at one point you were saying potentially sooner than 1Q 2018. Now it's mid 2018, if there's any kind of color you can offer there? Thank you.

Yeah. Let me take the second part of your question first. On JZP-507, we've been saying this year we'd try to be ready to submit that end of this year, but hopefully you get a sense from my comments that we're really trying to optimize the whole here which is the oxybate franchise and how we move from one product to another over time, taking into account the whole marketplaces as we view it. And we think at this point, taking a little extra time to be ready to submit an NDA, re-look at that in the second quarter or mid next year as we're also tracking what's going on with our JZP-258 program, how that's moving forward. Anything else we see in the environment that will help us figure out the best strategy to sequence product launches over time to create the most value. Kathy, what have we said about, if anything, about timing on Parkinson's data on JZP-110? Kathy, you want to answer?

Yeah. So as far as the Parkinson's data, that study, we are working on the enrollment in that study. As you know it's always challenging in these Parkinson's studies because you've got movement disorder docs and sleep docs. So we're working on getting coordination between those two sets of doctors. And so, yes, so we're working on mitigation factors to increase the enrollment in our study.

And I don't think we've released a date when we...

No.

...think we'll have data.

Okay. Thank you.

Our next question comes from Douglas Tsao of Barclays. Your line is open.

Hi. Good afternoon. Thanks for taking the questions. First, Bruce, just thinking about capital deployment, just curious how you're thinking about the sort of balance between share buybacks given where your stock is right now versus business development to sort of add a new product into the bag?

Well, let me start and then Matt can add in as he likes. Couple things, you could probably tell by the financing we did in the third quarter that we actually want to be ready to go on multiple corporate development transactions. We're actually seeing a lot we like. That's no guarantee of exactly when we'll pull the trigger on a transaction. But we're actually feeling good about opportunities to deploy capital to continue to diversify the business with good return characteristics. And if you had told me a while ago we'd have the opportunity to buy our stock at the prices it's trading at, I would have said let's buy as much as we can, and I still think that would be a smart move for us in terms of just shareholder return. But I think the more important thing for us to do is to continue to diversify the business. So, as attractive as the stock is right now, given what we see on the corp dev side, I think we'd rather maintain maximum flexibility there. We do have an ongoing share repurchase program. We bought stock in the third quarter. We are buying stock in the fourth quarter for sure. Maybe we'd buy a little more at these prices, but I don't think we want to accelerate and take the last $200 million of that program all at once when we have the kind of opportunity set in front of us we do. Matt's looking at me because I just stole his whole answer, so.

Exactly. No comment.

Then maybe just as a quick follow-up Bruce, I think you made a point of saying that in terms of active patients on Xyrem right now that includes patients who are paying for drug as well as patients who are not. Should it be our assumption that many of the patients who are not paying for drug will begin paying for drug and when do you expect that to take place?

Well once patients go into our patient assistance program they are allowed the free drug for a year. So, we wouldn't expect any of them to convert back to paying patients earlier than next year. Whether they will or not is really hard for us to predict at this point. It's a possibility, it's not a certainty.

Okay. Great. Thank you very much.

Our next question comes from Randall Stanicky of RBC Capital Markets. Your line is open.

Great. Thanks. I had a follow-up actually for Matt on the last question. Matt, as you think about the type of assets that you're looking at, how has that evolved throughout the year as you've de-risked Xyrem added Vyxeos to the mix; and is a third therapeutic area still something that is of high focus? And then the follow-up, investors seem to be struggling with what the right amount of leverage on any given company in this space is right now. How do you guys think about that and what's your comfort level?

Yeah. Thanks Randall. Couple of things there; so types of assets really on our dashboard do, as we've often said, range quite a span from commercial and near commercial opportunities that may be worldwide, U.S. or regional in terms of Europe. And can also range back down especially in our current therapeutic areas into development stage assets as well. So it really is a span of both maturity and size as it relates to that and we look at sort of a constellation of opportunities as it relates to that and feathering that into our own launch activities as it relates to products we have and development activities we have in terms of both risk and opportunity from the internal portfolio. So it cuts across all that. Right now we're seeing a lot of interesting assets in our existing therapeutic areas, but we are always going to look beyond that given the intermediate and long-term growth and diversification objectives we have. We first would look to sort of adjacencies to those existing therapeutic areas today, but also we'll look beyond that where we believe we have the right ability and expertise to make good return decisions in those environments. And as it relates to the right amount of leverage, we feel like running the business not at what our maximum leverage could be against any particular cash flows but at a point lower than that provides us with lots of flexibility to react quickly in environments that can shift rapidly as well, but also make sure we balance risk against and opportunity and innovation against efficient returns with respect to leverage. So we've historically said we'd like to tread from a long-term perspective, maintain leverage under 3 times or so that we would be willing to go on an excursion to a higher leverage level up to 5 times or so for the right type of asset and for a finite amount of time. So for largely more de-risked assets, I think we could sustain that kind of leverage for longer than where we might go there in order to complete a transaction that would fairly, quickly, de-lever should it be a riskier asset.

Great. Thanks, Matt.

Yes.

Our next question comes from Liav Abraham of Citi. Your line is open.

Good afternoon. Can you perhaps provide an update on your deuterated once-nightly oxybate program? In your slide deck says that evaluation continues, what does that mean and can we expect initial data at some point? And then maybe Bruce following on from your previous comments, to what extent is this program a priority given the other lower sodium oxybate products that you have in the pipeline?

Yeah, really good question. I particularly like the part of that. I'll say we haven't provided additional disclosure at this point on what's going on with our once-nightly program. It is active. I will tell you that. It's moving forward, it's not as late-stage obviously as JZP-507 and JZP-258. In terms of is it a priority given what we've got going, it's not as much a priority as the two programs I just mentioned, but moving forward with a program that would incorporate both once-nightly as well as low sodium has the potential to be a very interesting product. It'll take more time, and then more investment, but it is active and moving forward.

Understood. Thanks.

Our next question comes from Gregg Gilbert of Deutsche Bank. Your line is open.

Good afternoon. Bruce, do you see any interesting narcolepsy molecules to license or acquire that are currently not within your walls today? And maybe for Mike any updated thinking on the average utilization per patient for Vyxeos? I know it's early, but maybe you have some updated color on that. Thanks.

Yeah, on the sleep space including the narcolepsy space, we try to be aware of what's going on in all phases of development from early research up through anything that's in clinical regulatory processes. And I think we are in general fairly aware of what's going on and we'll certainly prioritize things we think could make a real impact for patients given other existing therapies and therapies we think will emerge over time. Can I say every possible therapy of narcolepsy is under our roof, no, but I do think we're looking at things we'd be most interested in and certainly our (53:36) JZP-110 or as it was then called ADX-N05 program resulted from exactly that careful watching of the space and our belief that a really well-differentiated, wake-promoting agent had the opportunity to change therapy for patients both of narcolepsy as well as OSA. Mike, on Vyxeos utilization per patient, any information you could give there?

We don't have a lot of color on the patient level data. I will say that just from questions we have received in, from both the sales force, our medical team, our field reimbursement team, there is interest in some of the accounts. They're asking about outpatient consolidation. We'll see how that evolves. This would be a significant change in the way that AML is traditionally treated. It was primarily an inpatient treatment paradigm. And so, Vyxeos does present the potential of (54:45) some consolidation out to the outpatient setting which is, I think, of interest by some account.

Thanks.

Our next question comes from Dana Flanders with Goldman Sachs. Your line is open. Dana Flanders - Goldman Sachs & Co. LLC: Hi. Thank you very much for the question. My one here is just on Xyrem, very nice volume number after adjusting for some of the onetime issues impacting the quarter. Just in light of that, can you talk about just the broader volume opportunity that you see for Xyrem over the next couple of years? And then are you planning to continue some of those efforts you took in the first half of this year to drive that recovery in volumes heading into 2018? Thank you very much.

Yeah, Dana, this is Bruce. Let me start, and then I'll hand it over to Mike. As we think about the broader opportunity for growth over the long term with Xyrem, we think about the number of patients with narcolepsy who are diagnosed and treated versus the number of patients with narcolepsy who are yet to be diagnosed and treated. And there are probably more patients in the latter category than there are in the former category, which tells us, if we can in fact make a dent in better and/or earlier diagnosis of narcolepsy, the available – easily available market to us should grow and provide a real opportunity for us. And that's one of the reasons we mentioned the uptick in narcolepsy diagnosis, which reverses a years-long trend, and I think tells us what we're doing right now is making a difference. Mike, maybe you can talk about what we're thinking about that in terms of going forward?

Sure. The leading indicators of demand are strong. The patient enrollments in the first time fill volumes are heading in the right direction. We are very pleased with the expansion of our account reimbursement team that is now reaching 660 accounts, which account for about 65% of all narcolepsy treatment going on out there in the community. So we feel very good about that. We have seen demonstrated improvement in the PA approval rate, and that I think bodes well in an increasingly tough reimbursement environment for especially drugs, I think we're doing very well and showing that we can really make an impact. We are pleased with again I think the narcolepsy diagnosis, I think the response to that to change the trend that has been going on for quite some time and reverse that, I think is a real credit to the disease awareness campaign.

Operator?

Our next question comes from the line of David Amsellem of Piper Jaffray. Your line is open. David A. Amsellem - Piper Jaffray & Co.: Thanks, so just a couple. So first on – long-term question on Xyrem, so with your agreement with Hikma, there is a scenario where they can come in earlier than the launch date and I was wondering if you could elaborate on the competitive conditions or volume share conditions that would result in Hikma coming in earlier. So that's number one. And then number two regarding JZP-110 and the commercialization, can you just talk about the extent to which you plan on expanding the sales organization for that and just give us an overall sense of how much incremental spend to support the rollout you're going to have for that? Thanks.

Yeah. So, David on the first part of your question, we haven't given specifics of that arrangement due to confidentiality other than to say it does include a market decline provision which is pretty standard. In general, those call for potential earlier entry by the generic if sales of your product decline very substantially. And decline very substantially, essentially for any reason, whether you've introduced a competitive product, somebody else has introduced a competitive product. Again we don't see products that we think are likely to have a very significant impact on Xyrem revenues in the near future for lots of reasons including timing of competitive programs, potential litigation, differences in product profiles, et cetera. Obviously, we're working on some programs that we think could be significant in this space. And how and when we launch those remains subject to some more work on our part including completing clinical trials of JZP-258, so probably too early to talk about that for now. On JZP-110, probably a little early for us to comment specifically on launch related plans there, although we are coming up on a submission and certainly our teams have done a lot of early work on thinking about the best commercialization plan. There's good overlap between the physicians we currently call on with our sleep sales force and those we'd want to call on with JZP-110, but likely there are additional docs we'd also want to call on particularly pulmonologists. And so, I think it's reasonable to expect there'd be an expansion of our sleep related sales force, exact sizing of that, we're still working on. But we see it as a sizable opportunity in terms of patient population in the OSA space either that currently use this drug to treat residual excessive sleepiness with or without CPAP treatment as well as patients who maybe don't use drug therapy now who maybe should be using drug therapy to combat excessive sleepiness that persist despite their other treatment. So, more work for us to do to fully define that, but a good opportunity that likely will merit more investment on our part on the sales side as well as more broadly. David A. Amsellem - Piper Jaffray & Co.: All right. Thanks, Bruce.

Operator?

Yes. Our next question comes from David Maris of Wells Fargo. Your line is open.

Thank you. Good evening. Matt, based on your read of the current tax reform proposal and understanding that it impacts the whole industry or lots of companies in it, not just Jazz, and understanding that there's a fair chance that it doesn't get passed or passed with a lot of changes, but based on your current read of the current proposal, how would it impact Jazz and to what extent?

Yeah, honestly David, it's little early to say that. I think you did hit some of the important caveats of it's going to affect lots of multinational or U.S. companies if it ever gets enacted in the current form or depending on which elements get eliminated, modified, or otherwise evolve. But the major components as it relates to the Tax Cut and Jobs Act (sic) [Tax Cuts and Jobs Act] as put out there last week, a lower U.S. tax rate would obviously be a large benefit to us. The excise tax for us and others, which in many ways looks a lot like the border adjustment that was vigorously opposed and isn't really consistent with a number of tax treaties would be a negative. Calculating exactly how significant that is at this phase is tough to do. And there's a restriction on interest deductions, which would matter more for more highly levered entities, but could have a negative impact for us as well. And then the elimination of the orphan drug credit. So the totality of that could offset some or all of the benefit in the U.S. tax rate. But we really just don't know the specifics of that at this point in time, should the legislation as currently proposed move forward as is.

All right, thank you.

Our next question comes from Ken Cacciatore of Cowen and Co. Your line is open.

Thanks. Most of my questions have been asked. I guess I'll just ask one question. Bruce, clearly you have a bit of a demoralized shareholder base because you're executing and yet the stock is not going in the right direction. So just – I know you don't want to comment on 2018, you or Matt, but as I look at the numbers it looks like you're an accelerating growth company, not a decelerating growth company with Vyxeos. Can you just speak to that frustration and maybe a little handholding? It seems like you have a lot of leverage in this model and yet again, folks are focusing on really near term issues, and not maybe looking at the positives of the new product cycle. Can you give us a little bit of contextualizing about how you view your growth coming off of 2017? Thank you.

Ken, I think we should have you talk to more of our shareholders. No, I think Ken, our view probably lines up with the way you just posed the question which is we've, from an execution standpoint, put in place a lot of building blocks that ought to pay off. And some of those we're at a good inflection point on. Vyxeos was just launched for a matter of weeks in the third quarter. That's going to be different when that product is on the market for all of 2018. I think we turned around relatively quickly to get the MAA on file for Vyxeos and with acceleration, we have the possibility of having real revenues in 2018 outside the U.S. as well. And then we're gearing up for JZP-110 which we've talked about that as a very significant opportunity for the company – not revenues in 2018, let me be clear but as we head into 2019. So I think from a top line perspective, there's a lot to be excited about in the near-term. Also see our earlier conversation about Xyrem where we think the growth reemerges from the headwind we've had on the lost government pay patients early in 2017. So you start to see that growth again in 2018. So that's a good top line story, and then the question is, what are we doing to make smart investments of that growing revenue line in continuing the growth in narcolepsy diagnosis improvement, making smart R&D investments both within the company and doing maybe some more deals like we did with ImmunoGen where we capture options on programs being developed outside the company. So that we have a real sustainable growth strategy, something that's exciting for 2018, 2019, 2020, but that's also exciting five years down the road because we've started making the investments we need to make today to have that continued growth profile. So, if I combine all of that with what I think most people would say are billions of dollars of cash flow over the upcoming years, that we can invest in broadening our base of assets through corp dev transactions, which I think we've got a good track record of over the past five years, I'm really excited about where we can go. I'm sorry – I really am sorry our shareholders are not seeing the value of some of those moves and some of that execution today. I wish we all were, but I'm also convinced that it's important to run your company so that you've got really good and broad drivers of growth looking at you in a way that all of your shareholders can start to appreciate and become more visible. So, I don't know if that answered your question, but we're working hard not just for where the stock will be this quarter, but where it'll be over time, and I feel good about the moves we're making.

Thank you.

Our next question comes from Irina Koffler of Mizuho. Your line is open.

Hi, thanks for taking the call or the question. On SG&A, it seemed a little light this quarter, and I was wondering if you could just address that. And it sounds like if you're guiding to 27% to 28% or so for the full year, then we should see meaningful uptick. So just wondering, are there going to be additional costs associated with Vyxeos in the fourth quarter and is that a better run rate when thinking about 2018? And then also tied into that SG&A, your Xyrem remediation efforts for what's going on at the pharmacy, is that something that is just sort of one-time costs or is that going to be an ongoing expense for you? Thanks.

Yeah, thanks, Irina.

Yeah, Irina. Let me take the last part of the question, because I think it's a narrow part. I'll hand it over to Matt for the big part of the question. On the remedying things in terms of procedures at the central pharmacy, I don't see that as a big expense. This is really tightening up some operating procedures, changing a couple things. It's not that we need to spend a lot of money on it. We just need to get it right. Matt?

Yes. So Irina, as it relates to SG&A, you're right. Our margin was a little lower this quarter and some of the difference is when we look at for the overall year, we're still falling within the expectations we had provided. So we do anticipate some of that lighter spend to be timing related, and there are some ongoing investments related to Vyxeos as it relates to the MAA and preparation for a European launch that we'll be accruing into the fourth quarter. There are already investments related to launch prep and filings, some of which fall into the G&A side as it relates to JZP-110. And there are a number of other investments we're making to grow the business overall. So nothing unusual and/or a bend in trend from what we anticipated but again investments that will support the accelerated growth we're anticipating in 2018.

Okay. Thank you.

And operator this will be our last call and if anybody is – has not...

Last question.

...I mean our last question – if anybody has not gotten through to the queue, we'll be glad to take calls after. Thank you.

And our last question comes from Bill Tanner of Cantor Fitzgerald. Your line is open.

Thanks very much for squeezing me in. Bruce, had just a couple of questions on the low sodium program. I think in your prepared remarks, you made a comment, best product considering any disruption that could occur during transition was one of the goals to select. I'm kind of curious what that means. But I guess, more specifically, if I look at ClinicalTrials.gov looks like JZP-258 is anticipated at least the last posting there, late 2018. So I guess whether that timing is exactly right or not it seems that the data would become available during the JZP-507 review. So curious I mean how one would handle that if you would pull a filing, ask for a discontinuation, and I'm assuming that it wouldn't really – there's no benefit to having two low sodium formulations on the market.

Really good question, Bill. In terms of what does it mean to avoid disruption to patients, if you knew JZP-258 was going to be right on the heels of JZP-507, query whether you would in fact launch both products and put people through and by people I mean regulators, payers, physicians and patients through, so how and when to launch either or both of these programs is an important thing for us to continue to think through. I will point out just for fairness JZP-258's in a Phase 3 clinical trial and while we're confident of success, there is no such thing as 100% success in any clinical trial. And so we believe JZP-507is a more de-risked program because we have bioequivalence, and so that's an important program for us to have ready to go should that be the right move for us to make. If we could get JZP-258 quickly and with high confidence and launch that product which has the potential to be a better product for patients, that might be the right move. So let's continue to watch our progress on JZP-258, which you're clearly doing on clintrials.gov [ClinicalTrials.gov]. And when we de-risk that program, in terms of us knowing, that is a not just a clinical trial, but a regulatory filing and a salable product. And we'll keep an eye on the environment around us and continue to update our thinking as we move through next year.

Okay. Thanks very much.

And with no further questions, I'd like to turn the call back to Kathy for any closing remarks.

Thank you, operator. Thank you all again for joining us today. We will be participating in the upcoming Jefferies, Piper Jaffray, Evercore and BMO conferences and hope to see many of you. This now ends our call.