Jazz Pharmaceuticals plc (JAZZ) Q3 2018 Earnings Report, Transcript and Summary

Welcome to the Jazz Pharmaceuticals Plc Third Quarter 2018 Earnings Conference Call. Following an introduction from the company, we'll open the call to questions. I will now turn the call over to Katherine Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

Thank you, Michelle, and thanks for joining our investor call. Today we reported our third quarter 2018 financial results and updated 2018 financial guidance. The press release and the slide presentation accompanying this call are available in the Investors section of our website. On the call today are Bruce Cozadd, Chairman and CEO and Matt Young, Chief Financial Officer. Joining for the Q&A session are Dan Swisher, President and COO; Mike Miller, Executive Vice President U.S. Commercial; Allen Yang, Head of Clinical Development and acting CMO; and Jed Black, Senior Vice President, Sleep and CNS medicine. 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 future financial and operating results including 2018 financial guidance and goals, corporate development efforts, future growth and growth strategies future product sales and volumes, future inventory and supply challenges, product launches and regulatory submissions and approvals, ongoing and future clinical trials, and other product development and future regulatory activities, and the timing of these matters. These forward-looking statements involve risks and uncertainties that could cause actual events, performance and results to differ materially. They are identified and described in today's press release and the slide presentation accompanying this call and under risk factors in our Form 10-Q for the quarter ended June 30, 2018 and our Form 10-Q for the quarter ended September 30, 2018 which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On this call, we discuss non-GAAP financial measures. We believe these non-GAAP financial measures are helpful in understanding our past financial performance and potential future results. They are not meant to be considered in isolation or as a substitute for comparable 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 found in the Investors section of our website. I'll now turn the call over to you, Bruce.

Thanks, Kathee. Good afternoon everyone and thank you for joining us. We're pleased with our progress during 2018 including significant commercial and R&D achievements and our sleep and hem/onc therapeutic areas during the third quarter. Overall, our commercial portfolio performed well with Xyrem and Defitelio experiencing strong demand evidenced by double digit growth in the third quarter. While we are facing some challenges with Vyxeos, we continue to believe in the potential for this product in light of its compelling efficacy data. We have previously encountered in results similar challenges in establishing new hem/onc products and are confident in our ability to address the current challenges. On the R&D side, we achieved key milestones in both our sleep and hem/onc therapeutic areas with FDA approval for Xyrem in pediatric narcolepsy and marketing authorization of Vyxeos in the EU. We also completed study recruitment in our JZP-258 study, completed enrollment in our solriamfetol study in Parkinson's disease and advance multiple additional clinical programs. We're pleased to have put the uncertainly of outstanding IP litigation related to Xyrem behind us. The resolution of this litigation provides increased clarity regarding the substantial ongoing value of Xyrem and enhances our ability to maximize the potential of the oxybate franchise. Additionally, the company's strong cash position leaves us well positioned to execute on our strategy of balancing R&D investment and corporate development opportunities in order to drive sustainable growth over the mid to long term. Now I'll provide further details on some of our key commercial, regulatory and R&D activities and then turn the call over to Matt for a financial update. Vyxeos sales were below our expectations in the third quarter. While we were pleased with the growth at some key accounts, we continue to encounter barriers to wider adoption of Vyxeos as a central therapy in secondary AML patients fit for intensive chemotherapy. In order to increase adoption, we identified the need to strengthen the understanding of Vyxeos' differentiated efficacy across a broader population of leukemia treaters, clarify patient selection criteria and the appropriate continuum of Vyxeos therapy and address hospital budget concerns and utilization management. We are implementing an assertive approach to drive change through all key accounts. Our plan includes significant account by account education and outreach to ensure that leukemia treaters understand, one, the superiority of Vyxeos to standard chemotherapy and secondary AML patients as fully supported by AML key opinion leaders and the only category 1 recommendation in the NCCN AML guidelines; two, the full breadth of the appropriate patient population for Vyxeos; and three, importantly, how to use Vyxeos for optimal outcomes. We also are continuing to ensure that hospital budget administrators are aware of the new technology add-on payment for Vyxeos which became effective October 1. The evolving AML landscape has resulted in an environment that requires considerable education and outreach to incorporate changes into longstanding institutional treatment practices for AML. Our efforts are emphasizing the importance of continuing Vyxeos use after initial induction including in a second induction and also in consolidation when appropriate. At the recent SOHO meeting in September, a poster presentation of consolidation-specific data from our Phase 3 study in secondary AML showed patients who receive Vyxeos consolidation had a median overall survival of 25.4 months versus 8.5 months for patients in the 7+3 arm. This prolongation of survival occurred whether patients received consolidation followed by stem cell transplantation or consolidation without transplantation. We believe this data will be an important consideration to further support Vyxeos as the optimal consolidation therapy for their AML patients. During the third quarter, we expanded our hem/onc team with additional sales representatives and medical science liaisons. Our other hem/onc sales teams will also support the AML team to expand our reach to all key accounts. Together with our reimbursement specialists, we believe this expanded team is well positioned to drive improved understanding of and use of Vyxeos. In Europe, our rolling launch is underway and we remain focused on obtaining pricing and reimbursement across the EU5. We have multiple patient access programs in place while we work through the complex P&R environment to facilitate access for patients who can benefit from Vyxeos. As part of our efforts to generate additional data with Vyxeos, we're looking forward to the oral presentation of data from a Phase 1 study evaluating Vyxeos in children and adults up to 30 years of age with relaxed refractory acute leukemia or lymphoma at the ASH meeting next month. We have made progress in our R&D efforts to evaluate Vyxeos more broadly in AML including building an understanding of Vyxeos in combination with other targeted therapies. As part of our collaboration with MD Anderson, two combination studies have been posted on clinicaltrials.gov, one is a Phase 2 study evaluating the combination of Vyxeos and venetoclax in de novo and relapsed refractory AML patients which recently began recruiting. This study will offer insights into how to maximize outcomes in fit patients with the current Vyxeos AML dose and schedule and it will contribute to the continuing rationale for use of intensive chemotherapy in combination with additional agents. The second study will evaluate a Vyxeos and gemtuzumab combination in patients with relapsed refractory AML or MDS after hypomethylating agent failure which is expected to start soon. Additionally, the AML 19 and AML 18 cooperative group studies are in progress and we intend to bring more studies forward in 2019 including in MDS. We believe evaluating Vyxeos in combination with other agents, expanding to standard risk and relapsed refractory patients plus ensuring commitment for research across pediatric and adults, provides an important step towards optimizing the benefit and value of Vyxeos as the chemotherapy backbone of AML therapy. Turning to Defitelio, we're pleased with the performance of Defitelio in the third quarter and believe our educational and promotional efforts are improving physician awareness of VOD. We are continue to improving the lives of patients who develop rare complications following hematopoietic stem-cell transplantation and are making good progress with our defibrotide development program. Patient enrollment in our Phase 3 study for the prevention of VOD has been strong and we will be preparing for the planned interim analysis in 2019. This predefined interim analysis will determine the final enrollment goal of either 400 or 600 patients. The Phase 2 study for the prevention of acute graft versus host disease is also enrolling well. Additionally we continue to collaborate actively with regulatory authorities on optimal protocol development for our pivotal study for the treatment of TA-TMA and now expect to begin enrollment in 2019. Finally our partner, Nippon Shinyaku, submitted in October an NDA in Japan for the treatment of VOD. For Erwinaze, supply challenges continued to impact product availability in the third quarter. As a reminder, we license Erwinaze from Porton Biopharma Limited, or PBL, a company that is wholly owned by the UK Department of Health and Social Care and under our agreement Erwinaze is manufactured by PBL as a single source. While we have been seeking to work with PBL to improve reliability of supply, we are currently in the midst of a global supply outage. While we expect to resume supply this quarter, we unfortunately expect further supply outages later in the quarter and into next year. We are disappointed that the ongoing manufacturing issues at PBL continue to negatively impact our ability to provide patients with this important component of the treatment regimen for ALL and we remain committed to taking all actions in our control to maximize availability of Erwinaze for patients. Now on to the sleep therapeutic area starting with Xyrem and JZP-258, our low sodium oxybate program. Xyrem performance remained strong in the third quarter and in the first nine months of 2018 with bottle volume growth of 9% in both periods compared to the same periods in 2017. The average number of active Xyrem patients increased to 14,100 in the third quarter of 2018, up 6% compared to the same period last year and we continue to see growth in the number of newly diagnosed narcolepsy patients. Our supplemental NDA for Xyrem for pediatric narcolepsy received FDA approval on October 26, representing the first approved cataplexy treatment for patients under age 18. We expect to launch in this indication in the first half of next year following implementation of a REMS modification to include information specific to the pediatric and caregiver populations. On the development front, our Phase 3 randomized withdrawal study of JZP-258 in adult narcolepsy patients with cataplexy and excessive daytime sleepiness continues to progress. We completed study recruitment in September and expect patient randomization to be completed around year end. We expect to share top line results in the spring. Study site activation is in progress for our Phase 3 randomized withdrawal study evaluating JZP-258 in patients with idiopathic hypersomnia and we expect patient enrollment will begin this quarter. We're pleased to have resolved the outstanding patent litigation related to Xyrem. While the launch dates provided in our settlement agreements could be accelerated under certain circumstances, the settlements provide us with substantially increased clarity around the timeline for authorized generic and generic entry and the resulting economics to Jazz. As we've mentioned, the first filer, Hikma, has a right to begin selling a Xyrem authorized generic, or AG, through the Xyrem REMS in January 2023 for up to five years with Jazz receiving meaningful royalties during the first year of the AG period, increasing substantially thereafter. Hikma has a license to launch its generic product as of July 1, 2023, but it will no longer have the right to sell an AG product through the Xyrem REMS if it elects to do so. Three of the second filers each have a right to sell a limited volume of an AG through the Xyrem REMS from July 2023 through December 2025, with each company entitled to an AG quantity equal to a low single digit percentage of Xyrem volume in the year prior to AG launch and Jazz receiving meaningful royalties on these AG sales. Each of the eight second filers has a license to launch its generic product as of December 31, 2025. As a result of the increased certainty provided by these settlements and our continuing investments on our oxybate franchise, we're excited about the long-term contributions of Xyrem and JZP-258 to our expanding sleep therapeutic area. Now on to solriamfetol. We're looking forward to an FDA approval later this year, a DEA scheduling decision in the first quarter of 2019 and launching this meaningful treatment option for patients living with excessive daytime sleepiness, or EDS, due to narcolepsy or obstructive sleep apnea. We are making significant progress toward our U.S. launch, with a strong presence at recent scientific meetings including CHEST and the American Neurological Association in October. We also recently launched a consumer education campaign called A Different Kind of Tired aimed at helping people recognize the signs and symptoms of EDS as well as providing resources and information for patients living with EDS-related sleep apnea. This campaign was developed in response to a recent Jazz-sponsored survey of OSA patients and their partners conducted by the Harris Poll, which reported that EDS associated with sleep apnea can have a negative impact on daily activities including work, driving and personal interactions. We've hired our marketing team and expect sales force expansion next year. The combined sleep sales force will cover both Xyrem and solriamfetol. Our launch strategy will focus on leveraging solriamfetol's differentiated mechanism of action and robust efficacy data to establish a strong foothold with narcolepsy and high-volume OSA treaters. We have a tremendous opportunity to leverage the existing relationships in our current Xyrem call universe, which is comprised of approximately 5,300 physicians who manage narcolepsy patients, 3,000 of whom also manage OSA patients. On the development side, we expect to share early next year top-line results from our completed Phase 2 proof of concept study evaluating solriamfetol for EDS and Parkinson's disease. We are eager to evaluate solriamfetol in other conditions where excessive daytime sleepiness is a debilitating symptom, and expect to share additional information about our development plans next year. To wrap up my remarks, in the third quarter we continued the significant progress we've made year to date with notable regulatory and development accomplishments. As we close out the year, we will continue working to address factors that are influencing Vyxeos uptake in an effort to improve patient outcomes with this important new treatment. We expect to achieve several additional milestones in 2018 including the submission of an MAA for solriamfetol in the EU this month, commencement of our Phase 3 study of JZP-258 in idiopathic hypersomnia and FDA approval of solriamfetol for EDS in OSA and narcolepsy. Our hard work this year has laid the foundation for multiple clinical development milestones in 2019 including receipt of top-line data from our Phase 2 study of solriamfetol for EDS and Parkinson's disease and from our Phase 3 trial of JZP-258 for adult narcolepsy patients. Matt, now I'll turn the call over to you.

Thanks, Bruce, and good afternoon everyone. In the third quarter, we continued to deliver strong top and bottom-line growth while investing in the business to drive performance of key products, expand our global commercial organization and advance the R&D pipeline to support sustainable long-term growth. Xyrem net sales of $357 million in the third quarter were up 18% compared to the third quarter of last year. We are increasing our 2018 guidance range for Xyrem net sales to a range of $1.385 billion to $1.4 billion from a previous range of $1.35 billion to $1.38 billion, representing expected growth of 17% to 18% over 2017. We're also increasing our 2018 Xyrem volume growth guidance to high single digits from mid to high single digits. Turning to Erwinaze, third quarter net sales were $41 million, a decrease of 16% compared to the third quarter of 2017. We experienced supply disruptions during both quarters but we ended the third quarter of 2018 with lower than normal inventory levels, which we estimate negatively impacted net sales by approximately $6 million. Our guidance assumes temporary disruptions in 2018. However, we are continuing to experience supply disruptions and are expecting further supply outages in the fourth quarter and into 2019. As a result of this inability to supply product, we are lowering our guidance for Erwinaze net sales for 2018 to a range of $165 million to $175 million from a previous range of $190 million to $220 million. Defitelio net sales increased 16% to $36 million in the third quarter of 2018 compared to $31 million in the same period of 2017. We are pleased by Defitelio's strong performance in the quarter which includes U.S. net sales of $13 million, an increase of 31% compared to the third quarter of last year. We are maintaining our guidance for Defitelio net sales for 2018 in the range of $145 million to $165 million. Vyxeos net sales were $21 million in the third quarter and $75 million year to date compared to $10 million in the same periods of 2017 following the U.S. launch in August 2017. As Bruce described, we're reinforcing the value of Vyxeos with U.S. AML treaters and institutions, and recognize the changing treatment patterns will necessitate more time and effort. As a result, we are lowering our Vyxeos sales guidance for 2018 to a range of $95 million to $110 million from a previous range of $115 million to $135 million. We believe in the long-term value of Vyxeos and we maintain our prior expectations for worldwide peak sales potential. We continue to believe Vyxeos will play an important role in our current indication to broader AML and MDS populations, and we are investing in the generation of new data to support these and future growth opportunities. Total revenue for the third quarter totaled $469 million, representing an increase of 14% compared to the third quarter of 2017. We are updating our total revenue guidance for 2018 to a range of $1.86 billion to $1.9 billion from a previous range of $1.88 million to $1.93 billion. Turning to operating expenses, adjusted SG&A expenses for the third quarter 2018 were $137 million or 29% of total revenue compared to $104 million or 25% of total revenues in the third quarter of 2017. The increase in our investments reflects the commencement of our rolling launch of Vyxeos in the EU and continued U.S. prelaunch activities for solriamfetol. We expect our prelaunch expenses for solriamfetol to rise in the fourth quarter of 2018 in anticipation of the planned U.S. launch next year following FDA approval and a DEA scheduling decision. Our guidance for the year has been updated to a range of $540 million to $555 million from a previous range of $525 million to $555 million. Adjusted R&D expenses for the third quarter of 2018 were $47 million compared to $43 million in the same period of 2017 or 10% of revenue in both periods. In the quarter, we continued to invest in multiple R&D programs, particularly our Phase 3 studies and in our EU solriamfetol regulatory submission planned this month. Some of our previously anticipated adjusted R&D expenses are expected to shift out to 2019. As a result, we are lowering our 2018 guidance to a range of $195 million to $210 million from a previous range of $205 million to $225 million or approximately 10% to 11% of 2018 revenue guidance. Our tax provision and effective tax rate for the third quarter of 2018 on both a GAAP and non-GAAP basis were favorably impacted by the release of reserves upon the expiration of a statute of limitations during the quarter. As a result, our 2018 guidance for our adjusted effective tax rate has been updated to a range of 16% to 18% from a previous range of 17% to 19%. Third quarter 2018 adjusted net income increased 12% to $222 million or $3.58 per diluted share compared to $198 million or $3.22 per diluted share for the third quarter of 2017. We are maintaining our 2018 non-GAAP adjusted EPS guidance range of $12.75 to $13.25 per diluted share. In the third quarter, we generated $221 million of cash from operations and used $21 million to repurchase shares. As of September 30, 2018, the remaining amount authorized under our commitment, our current share repurchase program, was $106 million and last week, our Board of Directors increased this amount by $320 million. During the quarter, we completed the sale of our rights to Prialt for a total consideration of $80 million of which we received $50 million at closing and are entitled to receive $15 million at the end of 2019 and another $15 million at the end of 2020 under the terms of the sale agreement. As of September 30, we had $1.1 billion in cash, cash equivalents and investments, borrowing capacity under our revolver of $1.6 billion and $1.8 billion in outstanding principle balances of our long-term debt. We are actively evaluating a wide range of attractive investment opportunities and with $2.7 billion in capital ready to deploy, we're in a strong financial position to execute transactions to provide shareholders with an attractive return, further diversify the portfolio and build a sustainable growth company. Thank you for joining us on the call today, and I'll now turn the call back over to Kathee.

Thanks Matt. With 20 analysts covering our company, we kindly request that you limit yourself to one question during this call so that everyone has the opportunity to ask a question. We will gladly address any additional questions following the call. With that said, operator, please open the line for questions.

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

Hi, thanks so much for taking my question. I'll ask one and if you can't answer, I'll ask another one. We saw 4 out of 12 patients on your CD123 ADC had a response, and my question is how many of those 4 responses were on the higher doses?

So just before I have Allen answer that, I'll remind people that when we say our program, this is not our program. This is ImmunoGen, a program to which we have an option.

Yeah, so I'll apologize, I don't know the exact breakdown but I know we saw responses at the lowest dose levels. So, I don't know how many of them are on...

Was there a dose response?

Excuse me?

Was there a dose response on efficacy?

Yeah, Umer, I suggest you direct these questions at ImmunoGen, their data.

Okay. Thank you very much.

Our next question comes from Ami Fadia of Leerink Partners. Your line is open.

Hi, good morning or good evening, actually. With regards to Xyrem, could you give us a sense of what the pediatric opportunity could be? And with regards to the growth trajectory that we've seen this year, how much of that could continue in the coming 6 to 12 months? Thank you.

Yeah, Ami, let me have Mike address the first part of your question. With respect to the second part of your question, I'll remind you that we did pick up some government paid patients this year that were out of our numbers last year. That's provided some tailwind to our reported volume growth number. I think last year we had said the loss of those patients probably was a headwind of 3% to 4% on the volume side comparing 2017 back to 2016. That's been the headwind or, I'm sorry, the tailwind comparing 2018 back to 2017, and we won't have that tailwind again next year. So, a more normalized run rate for volume would be in the mid single digits. But I have to say, we're really pleased with the sort of front end of our funnel in terms of new patient enrollments, first time fills, and as I mentioned during my remarks, we think our general awareness campaign has really improved timing to diagnosis of narcolepsy. So we're actually seeing a broader set of narcolepsy patients diagnosed. Mike, maybe you could take the pediatric question.

Sure, Bruce. There's about 4,000 diagnosed pediatric narcolepsy patients in the U.S. There are a couple hundred already on Xyrem spontaneously, but so that's the potential.

And of course the nice thing about having this approval when we roll out our promotional activities is we'll have in our label and the opportunity to communicate the best data anyone has ever had on how to use oxybate in treating this patient population, what to expect on the dosing efficacy and safety side.

Can you just elaborate on what these patients, if 4,000 are diagnosed today and less than 1,000 are on Xyrem, couple of hundred, whatever that number is, what are these other patients being treated with today? And would all of these be the appropriate patients for Xyrem? Or is there a subset in terms of the severity of symptoms, et cetera? Thank you.

Yeah let's let Jed Black take that one.

Yes, so the patient population, pediatric narcolepsy population, is currently a subset of that is not treated. Those that are treated are on traditional medications that range from, for the sleepiness component, modafinil, methylphenidate and so forth. And then for those are that are on, that are with cataplexy is the traditional antidepressants are commonly used, and then the subset that Mike referenced that are currently on Xyrem. I think this opens the door for those patients that would benefit from Xyrem to have access to it, which is we're very excited about.

This is Mike again. It's estimated that about 30% to 40% of those pediatric patients have cataplexy.

That's helpful. Thank you.

Our next question comes from Jason Gerberry of Bank of America. Your line is open.

Hi, good evening. I guess just wanted to go to Vyxeos. Can you comment at all, that updated guidance doesn't imply a material or a very big step up in the fourth quarter, so can you help us think about, you have the benefit of the NTAP starting October, you've got the sales force expansion. What's changed relative to when you kind of gave us your last 2Q guidance? I know you laid out a laundry list of things that were mentioned on 2Q, but where do you feel like the, maybe you miscalculated the sort of the trajectory here?

Yeah, this is Mike again. So I think that we had a couple of learnings, so one was I think the utilization management steps that have been placed in a number of institutions to Vyxeos and specifically those are really restricting the use of Vyxeos to very much on-label or on 301 patient description. So for example, patients, they have to be over the age of 60 or they have to be outpatient only or patients only fit for transplant. Those are examples of the kind of restrictions that are being put in place that I think were a bit of a surprise to us. It was we all got off to a very good start in the year and then these were raised. We feel very good about the NTAP which is again effective as you said, October 1. Our reimbursement team is blitzing those hospital pharmacies and we have a number of NTAP awareness tactics underway. And I think it's really a reminder to the pharmacy and to the clinicians of the institution how important the NTAP is, both in terms of newness and its advancement in therapy. And then yesterday we received the J-code for Vyxeos. That J-code will replace the temporary code January 1, 2019. That will speed reimbursement to these institutions. They'll be pleased with that outcome. And then I think importantly, we really need to sell hard with the NCCN clinical guidelines as was mentioned before. We are the only category 1 for the AML, or secondary AML, and it's really important that we get the clinicians to push through some of these barriers that are being put up by the pharmacy.

Thank you.

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

Hi, good afternoon. On Erwinaze, I know this has been a long struggle for you guys, but any way you can accelerate alternate supply and what are the some of the options that you have that are in your control that you alluded to, Bruce, earlier? Thanks.

Yes, well it's doing everything we can to ensure better availability of the current therapy and to develop alternatives. And we're not planning to give a substantive update on that today, but as I said, we're very serious about doing anything we can to make a difference here for these patients, both in the short term as we do face more supply uncertainty, and then for the longer term as we try to ensure we get to a position where we have a reliable source of product to treat these kids and adolescents and young adults with ALL.

Okay, thank you.

Our next question comes from David Amsellem of Piper Jaffray. Your line is open. David A. Amsellem - Piper Jaffray & Co.: Thanks. I have a solriamfetol question, so this is going to be a more promotion-sensitive product or more promotion-intensive product than others in the portfolio. So I guess with that in mind, can you give us a sense or how heavy spend will be to launch it next year and how we should think about the trajectory of SG&A spend, not just in 2019 but just over the, I guess, early commercial life of the product? Thanks.

Yeah, David, it's probably little too early for us to be giving specifics on that. We obviously of course haven't provided any 2019 guidance yet. As is true when we're in launch mode or prelaunch mode with new products, we tend to increase our spending and obviously that drives our percentage SG&A, adjusted SG&A to revenues up until the revenues follow. I'm sure that will be true for solriamfetol. We want to get off to a good start with the product. We're convinced it's a good solution to a problem that exists out there, which is a lot of patients who are dissatisfied with available therapies or can't tolerate those therapies, and a lot of patients who aren't currently being treated, particularly in the OSA population, where we know EDS has a significant impact on these patients, but we also know many of those patients aren't specifically seeking treatment for that symptom or physicians are sticking with airway treatment with CPAP rather than realizing the broader problem of daytime sleepiness of their patients. David A. Amsellem - Piper Jaffray & Co.: Thank you.

Our next question comes from Annabel Samimy of Stifel, your line is open.

Annabel, are you on mute?

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

Hey guys, thanks for taking my question. I'm still just trying to understand why Vyxeos was down sequentially if presumably the sites that were using it would continue to do so. Maybe it would be flat, so that sequential decline is just a bit confusing. Did some of the hospitals stop using Vyxeos? And then I'm going to ask a second one; it's related though, which is just, can you maybe make the case for investors to feel good about you deploying capital into the next biz-dev opportunity in the context of these Vyxeos misses?

Yes, Jess, on the first part of your question, I would say Mike referenced perhaps a narrowing of the patient population being treated with Vyxeos, back toward even a subset of what's in the label.

Yes.

But to the 301 population, there's also some patients who start with induction on Vyxeos aren't getting Vyxeos in consolidation. You could imagine they started their induction in one quarter and went to consolidation in a second quarter. You could imagine that that could have an impact on sequential sales. And I'll let Matt maybe talk about deployment of capital and biz-dev opportunities, but as we've seen with a number of our products, oxybate being the more pronounced example, but I feel confident we can say this about defibrotide and about Vyxeos too. One of the things we love about these assets, these are long-lived assets that can be rolled out in an initial indication. That indication can be broadened through additional clinical work, which we are doing with defibrotide, which we are doing with Vyxeos, which we already started with solriamfetol. They can be broadened on a geographic basis, as we've seen with the current launch of Vyxeos in Europe, the upcoming MAA filing for solriamfetol in Europe, the JNDA filing of defibrotide in Japan, and so we look to grow these over a long period of time. I think it's a little bit early to be making any definitive statements about the return of capital on some of the products we've brought to market thus far, but Matt maybe you could address the question more broadly.

Yeah thanks, Bruce. I would more or less echo some of what you said. I think what we've found with assets that we have acquired and our track record in terms of performance subsequently has been that we have been able to achieve commercial success. We've been able to ultimately achieve product approvals in various geographies in a timely manner, in some cases in advance of the guidance we provided at the time of the acquisition and we've been able to complete development in indications, solriamfetol being a good example of that but also, as Bruce alluded to, to be able to expand the indication you set for some of our molecules. So we continue to believe we can add real value to assets as we bring them into the portfolio and do believe we have executed. That execution hasn't been seamless in every case and I think we have seen, since is some temporary setbacks for ourselves commercially in the past and have articulated a plan to get through them and have gotten through them. So we certainly don't feel that we should be more conservative as relates to that. I think we continue to believe there are great assets out there. I'd say that's true of Vyxeos. Our conviction remains unshaken. There is extremely strong data with respect to Vyxeos and the opportunity to continue to make sure that the efficacy and safety advantages and opportunities are properly understood by the market and that we continue to generate data that supports that in broader populations is something that will ultimately yield a good success for the product.

Thank you.

Our next question comes from Ronny Gal of Bernstein. Your line is now open Aharon Gal - Sanford C. Bernstein & Co. LLC: Good evening and thank you for taking my questions. If you don't mind, just one more on Vyxeos. If I think about this NTAP, how much is enclosed the cost of the hospital versus the reimbursement rate and then versus DRG reimbursement rate, are we essentially there with the NTAP? Are we half of the way there? Just to understand kind of like if the hospital really has a meaningful financial incentive with the NTAP to reverse their prior policy.

Yeah, this is Mike, so a couple of things. So one is a big reminder on this is that Vyxeos is used for the majority of the time at outpatient. So you really reduce the number of days of hospitalization by using Vyxeos. So that's a really big part and about 95% of all the AML costs associated in the system is right in hospitalization. So it is very important to keep the patients out of the hospital and Vyxeos does that. And I think that's one aspect. The other is obviously the drug cost which is up to half the cost of the drug in Vyxeos cases and that will go on for another three years still be the codes catch up to the right cost. Aharon Gal - Sanford C. Bernstein & Co. LLC: Thank you.

Okay.

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

Thanks. Bruce, how do you think about the Xyrem awareness program? Is that continuing into 2019? And then as we think about the patient pick-up, obviously the volumes that it's helped drive have been really solid, but should we think about those patient volumes as, just to characterize it as low hanging fruit or is there a steady state opportunity to continue to add new patient volume as you continue to invest behind that? Thanks.

Yeah, Randall, I think one thing we should point out is that current spend and current success in improving diagnosis of narcolepsy probably pays off most in future periods. So if I tell you this quarter the diagnosis rate for narcolepsy went up, that probably didn't translate into a lot of Xyrem use this quarter. That's just really increasing the patient pool that can get effective treatment including Xyrem in the periods to come. So I think today we're probably benefiting from general awareness spending in prior periods. But to your question of whether we're going to continue that investment, maybe I'll have Mike talk about that.

Yeah, so we've done extensive looks and analytics around the general awareness campaign and we're very pleased with the metrics that we see, both the traffic to the website, the use of the diagnostic test and just general interest. And so we will continue that. We see that the narcolepsy diagnosis claims have increased, and while we cannot attach the exact time period when that happens, we know there is a lag, we are seeing growth in our patient enrollments and first-time fills as Bruce has said, and it's really generated what we call the top of the funnel for Xyrem and I think more people are getting treated for narcolepsy.

Maybe I can just ask Dan to weigh in a little bit about how we're thinking about taking some of the learnings of this approach with respect to Xyrem forward to solriamfetol.

Yeah, thanks, Bruce. So I think there's some similarities on the solriamfetol where excessive daytime sleepiness is not well recognized and looked for, particularly among the sleep apnea patients. We estimate less than 10% of those patients are getting drug treated so and awareness where you activate the consumer and make them aware of the condition and that there is a medical condition to talk about with your physician is going to be very important we think in the uptake of that drug as well.

Great. Thanks guys.

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

Oh yes, thanks for taking the question. It's on the sleep franchise or the oxybate franchise. Can you talk a little bit about what you're looking to do ahead of the pediatric launch, particularly with the new REMS and making sure of it, we don't have some of the same disruption that we've had in prior years with the central pharmacy when there's been a new REMS put in place. And maybe looking little bit further out, if JZP-258 shows success and gets filed next year, what's your thought in terms of the pace of switching post approval to that compound as opposed to Xyrem just in terms of how you'd phase that launch? Thanks.

Yeah, David, good insightful question on the REMS given our past experience. I think it's important to point out that the modifications we're making to the REMS are very specific to the pediatric patients and are intended to have as close to zero impact on the current adult population as possible. We need to get good information in there for pediatric patients. We need to change some of the information that says the patient must sign for shipments of this controlled substance. Probably we don't want the seven year olds signing for the shipments of Xyrem. So there is some things that are specific to pediatrics and caregivers and we'll do everything we can with our partner, Express Scripts SDS, to make sure we're ready to go and part of our delay between getting this approval and actively promoting the product next year is to ensure we're ready to go on the REMS side. On your JZP-258 question, I would say let's see the data next year. We're continuing, as we always do, to evaluate the landscape using all current information, including our fairly recent completion of the final settlement of the outstanding ANDA litigation and what else is going on in the marketplace to help us figure out the optimal launch strategy for JZP-258 and the optimal strategy to make sure patients benefit from the product with the significantly reduced sodium load that we see in JZP-258. But probably too early to talk timing or strategy right now.

Our next question comes from David Risinger of Morgan Stanley. Your line is open. David R. Risinger - Morgan Stanley & Co. LLC: Yes, thanks very much. So my question relates to where you left off, Bruce, on 258. Obviously the drug is going to succeed in Phase 3 versus placebo, but when do you think data will be presented at a medical conference in 2019 so we can better see the detailed efficacy to compare it to the efficacy in the Xyrem label and see what you've replaced the sodium with and whether there are any different side effects associated with whatever replaces the sodium to keep the drug stable, et cetera. It'd be great to get a better sense for when you expect Wall Street to have that clarity. Thank you.

Yeah, I don't know if somebody else wants to give how specific we want to get. We're very focused on, as I said, we've completed recruitment. We're looking to finish up randomization and get to that data as fast as we can and get out at least top line information. I don't know exactly when we get to medical meeting presentation of more fulsome data. The big sleep meetings we're at every year, you know when those are, including May, June timeframe. Whether we'll hit that depends on when we finish the trial and when we get the top-line data and we can submit to some of these meetings. So I'm not sure we can say much more than that. Now that would be the fastest timeline and more to come as we achieve some of those milestones between here and there. David R. Risinger - Morgan Stanley & Co. LLC: Got it, thank you.

Our next question comes from David Maris of Wells Fargo, your line is open.

Hey, Bruce, so one of the overarching questions that seems to have been a theme here is about the variability from quarter to quarter and kind of how dramatically things have changed guidance-wise late in the year. What would you say to an investor that says, well I hear the reasons and they sound reasonable, but is this a problem with the commercial organization not seeing their landscape properly or finance being able to set realistic and conservative goals? Is this just reflective of the business that you have, the variability, or is there something else that needs to be fixed?

Yeah, David, good question from the fourth David to ask a question on this call.

The first David. Let's be clear on that.

In terms of changing guidance late in the year, we had some guidance get better and some get worse, leaving aside for a moment the Erwinaze, which is just a function of we can't sell product we don't have. We had some good changes in guidance including on the Xyrem top-line side, which I think is very significant to the company and its shareholders on the spend side as well. The real negative one was Vyxeos and I would say your greatest period of sales uncertainty is around launch and changes in the landscape around you, meaning other entrants, and we had both simultaneously for Vyxeos. That makes it a little harder to accurately forecast. And the other thing I would say is we operate with less data in the case of our hem/onc products than we do with Xyrem where we're sort of getting daily granular data on every piece of our operations and really have much more to work with to do accurate forecasting. When you're getting data that in a purely quantitative sense is number of vials shipped and sold, that's a little different from knowing exactly which patients they went to and whether it was induction or consolidation. And we get the best data we can through identification of institutions to which the product is going, and based on occasional retroactive chart audits to better understand things at a granular level. But our real-time data that do super accurate forecasting doesn't exist early on and we learn as fast as we can and develop an action plan to address that. This is not the first time we've had to do that. We've done it across multiple products historically. I think we've done a nice job of understanding a problem and deploying a fix and part of our confidence that we can do that here is because the product itself, from a data perspective, in terms of what it does is really a great product, right. The objective endpoints we have the strength of the data, not just as we see it, but as NCCN sees it, as thought leaders see it. This is a product that should get broader use. Our job is to make sure we do that education, help people understand that, so that they can make the right treatment decisions for their patients. And I'm confident we've got the right team to do it, not just on the commercial side but really across all of Jazz working together to focus on our mission, which is improving patients' lives and we can't do that until the treatment community understands that Vyxeos as compared to 7+3 offers something very different. And we've got a lot of data already to show that. More of that existing data is coming out now and we're generating new data. I'm really pleased with how our team is pursuing that across Jazz-initiated trials, co-op trials, trials through our MD Anderson collaboration and otherwise to generate that additional data as quickly as possible. And so you ask a good question and I take the question exactly the way you asked it, which is should we be reading something into this. It would always be easier to do a launch the second time if you knew exactly how things would turn out, but in our business you don't. You do the best planning you can and then you react to the data you've got. And I think historically we've shown we can react fairly quickly. We were surprised by the third quarter performance relative to where we had been coming into that quarter. We were focused on ramping from the then base of sales as opposed to having to recover from a loss of sales. So yes, that was a surprise, but I think we've got the right plan in place to address it.

Thank you very much.

Our next question comes from John Boris of SunTrust. Your line is open.

Thanks for taking the question. Just, Bruce, on Erwinaze, what is the I guess issue? Is it batches? Do you have a corrective action plan that you're currently working with? How much interaction is there with the FDA, local government in trying to bring this situation on Erwinaze to a head and ultimately resolution?

Yeah, John, good question. You know there are a number of pieces to this. One is capacity, how many batches can be pushed through an existing facility with existing equipment and existing personnel. And we haven't seen improvement in that over the past couple years despite plans that would indicate that would happen. There is also an issue with what the yield is or the number of usable units that come out of each produced batch, which I think has to do with quality and consistency. And obviously based on a number of inspections by multiple regulatory authorities, there have been issues. There is absolutely a plan in place to deal with those issues that's being executed on. But it's not complete yet. There hasn't been yet an inspection that went in and showed that everything had been rectified, although I think progress is being made. And so if you in some cases are slowing down production to deal with some of those quality issues or the corrective action plans or otherwise, and you haven't completely fixed it yet, you get fewer batches with fewer units per batch and the combination of those two things has left us in a position we're in, which is worse than the position we've been in for several years. For several years we've been unhappy about occasional temporary supply outages that have meant there are days or weeks when we couldn't ship product. But you'll notice, we really didn't have to change our guidance intra year. It was a question of timing of shipments. And this time we're coming along late in the year and making a substantial negative revision to guidance, which indicates that this isn't just about timing of receipt of product, it is really about how much product we can get. And that's a worse situation we've been in. Again, efforts are underway to improve that situation. But we're not going to be out of a supply-constrained environment even under a good scenario for a while. Now supply constrain still could be supply goes up meaningfully in future periods, but we still won't be in a position where we can go out and generate the kind of demand that I think there would be for optimal use of this product across the pediatric and adolescent and young adult ALL population. So even in a good scenario, we're still supply constrained and in a bad scenario like the one we're in now, even our existing revenue level can be at risk. And we talk about that in our Risk Factors, invite you to read those again. But unfortunately right now, we're living something that while we've written about it as a risk factor for several years in terms of the potential for even worse supply situation, we hadn't seen it until now.

Thanks.

Our next question comes from Bill Tanner of Cantor. Your line is open.

Thanks for taking the questions. I had maybe for Jed on 258 on idiopathic hypersomnia, just Jed, if you could speak to the prevalence of IH and how it's actually diagnosed currently and I guess specifically a differential diagnosis relative to narcolepsy?

Yes, so the epidemiologic data on IH suggests that it's – the prevalence is not completely clear but close to that of narcolepsy. Some of the numbers range from about half the prevalence of narcolepsy to others are close. Some are actually a little lower than that but that's our expectation. With respect to the question regarding the differences between narcolepsy and IH, both are conditions of excessive sleepiness. The IH population is a bit, there is a bit more variability in IH than there is in type 1 narcolepsy. But as you know in narcolepsy, we have type 1 and type 2, and there is a fair amount of variability there. And we see some overlap between the so-called type 2 narcolepsy where there is no cataplexy and idiopathic hypersomnia. So there are folks with idiopathic hypersomnia that look a lot like type 2 narcolepsy and then there are folks that look quite a bit different. And so a couple of characteristics that differentiate IH from narcolepsy is that the idiopathic hypersomnia population will often have very prolonged sleep at night. And also a substantial subset of that group have great difficulty awakening and getting up in the morning. And we don't see that in narcolepsy, in addition to their excessive daytime sleepiness. And I think that that response to your question with respect to Xyrem and that population, we have some off-label experience as well as cases that have been reported in case series, and that's led us to be very interested in the use of JZP-258 in this population and we anticipate a good result.

And operator this will be our last question.

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

Good afternoon. Thanks for fitting me in. Just a final question on Vyxeos from me and, Bruce, based on your comments throughout the call, I assume that your peak sales expectations for Vyxeos haven't changed. Can you confirm that? And then secondly, any change in your anticipation or expectations for the ramp of the product? How should we be thinking about this ramp heading into 2019 given the data points that you have to hand and will it take you longer than your initial expectation to reach your peak sales expectations? Thank you.

Yeah, good questions. On the first part, I can confirm our expectations have not changed. I think Matt alluded to that in his comments. We think both based on the existing label and data that's been published, there is a significant opportunity, and then obviously we're looking to create additional data that would support the use of Vyxeos as the chemo backbone for AML therapy. On the ramp, how long will it take, we really don't know right now. And I emphasized in my remarks and Mike has been working with his team to emphasize a key account by key account strategy here. And I think if we get other accounts to do what some of our accounts have done, which is establish a treatment approach where all the treaters in that institution have a unified approach to use Vyxeos in the right patients and understand that is a superior treatment to 7+, you can have an institution convert. And when other institutions will convert, I can't say, but when it happens it's significant. And I do believe there could be an impact here when you get a certain number of institutions to convert, I think prevailing practice norms dictate that other institutions at least think seriously about whether they should follow suit. So we need to see some of these other institutions change their ingrained behaviors, and as we see that, I think we'll have a better sense for what that ramp will look like. In terms of timing to peak sales, it's not a positive that we're off to a slower start than we would have thought for sure. But I don't know yet whether it will actually change when we get to peak sales, because again if you can convert some of these institutions and get that adoption and that conviction and we generate the kind of data we're talking about, it doesn't necessarily mean that peak sales would occur further out in the future. Odd are a slower start generally translates to later to peak sales, so I'm not trying to say otherwise, but not necessarily. And if I flash back to various times in our European defibrotide launch or our U.S. defibrotide launch, there are times when things weren't going exactly the way we wanted and we retooled our efforts, used a similar key account by key account approach, more focus, better materials, which of course with NTAP and NCCN and the JCO publication and other things, ASH upcoming. We've got more information out there that I think will be helpful. We think we can make that kind of progress and then build on that progress. I think we've got the right team. I think we've got the right plan. We'll have more to say in future quarters, but just so you all understand, what we'll be looking at internally to judge that ramp is what we're seeing on an account by account basis. And that will help us understand whether the approach we're taking is in fact the right approach to effectuate that kind of change and that will help us be more specific in terms of expectations going forward.

Thanks. That's helpful.

Yeah and I'll just say, I understand the third quarter Vyxeos sales were a disappointment and certainly the Erwinaze supply chain change, it disappoints us, honestly, more on a patient level than even a financial level. But I'm also very pleased with the big accomplishments we've been putting up this year. Settlement of the remaining Xyrem litigation has been something people have been waiting eight years to get to and I think our team did a terrific job in helping to resolve that outstanding litigation that allows us to plan better. And then when you look at our regulatory submissions, on-time approvals and clinical progress, I think there's a lot to be excited about and we'll get through some of the short-term issues and look forward to broadening our business through these additional indications, through the additional geographies and through some additional corporate development work. And I'm excited about the opportunities we have in front of us there too to continue to broaden our portfolio.

There are no further questions at this time. Please proceed with any further remarks.

Thanks, Michelle, and thank you all again for joining us today. We will be participating in the upcoming Stifel, Jefferies, Piper Jaffray and Evercore health conferences this month and hope to see many of you there. This now ends our call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.