Jazz Pharmaceuticals plc (JAZZ) Q1 2019 Earnings Report, Transcript and Summary

Welcome to the Jazz Pharmaceuticals Plc First Quarter 2019 Earnings Conference Call. Following an introduction from the company, we will open the call to questions. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference call is being recorded. I will now turn the call over to Kathee Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

Thank you, Joelle. And thanks to those of you joining our investor call. Today, we reported our first quarter 2019 financial results and reaffirmed our financial guidance for 2019. The press release and the slide presentation accompanying this call are available on the Investors section of our website. On the call today are Bruce Cozadd, CEO, and Matt Young, CFO. Joining for the Q&A session are Dan Swisher, President; Mike Miller, our 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 2019 financial guidance and goals, future growth and growth strategy, product sales and volumes, supply challenges, product launches, regulatory approvals, ongoing and future clinical trials, and other product development activities and corporate development efforts. 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 accompanying slide presentation and under risk factors in our Form 10-K for the year ended December 31, 2018 and our Form 10-Q for the quarter ended March 31, 2019 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 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 available on our website. I'll now turn the call over to Bruce.

Good afternoon, everyone, and thank you for joining us. The first quarter of 2019 was highlighted by clinical, regulatory and operational progress. In March, FDA approved Sunosi for the treatment of excessive daytime sleepiness or EDS in patients with narcolepsy or obstructive sleep apnea. We're looking forward to bringing this novel, differentiated therapy to these underserved and undertreated narcolepsy and OSA patient populations. We launched Xyrem for the pediatric indication in March following our successful implementation of the Xyrem REMS for pediatric patients and their caregivers. On the R&D front, we were pleased to announce positive topline results from our JZP-258 Phase III study in narcolepsy patients and we look forward to submitting data for presentation at a Fall 2019 medical meeting and discussing our planned NDA submission with FDA. In addition to these significant accomplishments, we delivered strong top and bottom line growth, while continuing to make substantial investments in global R&D and commercial operations to advance our pipeline, support multiple product launches and growing strength in our commercial portfolio. After providing details on some of our key commercial, regulatory and R&D activities, I'll turn the call over to Matt to update you on our financials. In March, we received FDA approval of Sunosi or solriamfetol, the first dual-acting dopamine and norepinephrine reuptake inhibitor to treat EDS associated with narcolepsy or OSA. Sunosi's approval is an important milestone for Jazz as we continue to develop and bring to patients new treatment options for chronic and often debilitating sleep disorders. We are preparing to launch Sunosi midyear following a DEA scheduling decision. Launch preparation activities are in full swing our sales force expansion is complete. Our sleep sales representatives will promote Xyrem and Sunosi following launch. We are actively engaged with payers to communicate the value of Sunosi as we work to achieve insurance coverage for patients. Payer consolidation has continued and has led to a reduction in the percentage of individuals who have open commercial payer plans to what we believe is currently in the 10% and 15% range. Around the time of the Sunosi launch, we plan to host investor update call and we look forward assuring additional details surrounding our launch plans and commercial initiatives on that call. Our ongoing efforts to educate health professionals and consumers about EDS and OSA continue. Our disease awareness program, EDSandOSA.com launched last June, educates clinicians on emerging science that suggests EDS may result from brain alterations caused by OSA and that these structural changes are associated with neurocognitive and functional impairment. This program encourages clinicians to screen their OSA patients for EDS and reinforces that treatment options are available. Over the past few months, live educational programs to keep congresses and virtual broadcasts have reached nearly 1,000 clinicians who treat OSA patients. A Different Kind of Tired, our consumer campaign, seeks to raise awareness of EDS associated with OSA. Many people do not associate their daytime sleepiness with their sleep apnea. Through this campaign in the first quarter alone, we've been able to reach more than 5 million unique individuals with education and resources to encourage conversations with their doctors. We're making progress in Europe and planning for the sleep marketplace by adding key sleep leadership and progressing through the regulatory process. On the clinical front, the results of our Phase II proof-of-concept study, evaluating solriamfetol for the treatment of EDS and Parkinson's disease is being presented later this afternoon at the American Academy of Neurology Meeting. The safety profile, which was the the primary objective evaluated in this study, was in line with previous solriamfetol studies. And while we observed activity on the Epworth Sleepiness Scale and maintenance of wakefulness test, we do not plan to move forward with a Phase III study in Parkinson's disease. We have evaluated multiple development program opportunities in a broad range of diseases where we believe solriamfetol has the potential to be an important treatment option. We look forward to announcing our plans for a new Phase III development program midyear. We're pleased to report another strong quarter for Xyrem, with bottle volume growth of 5% compared to the same period in 2018. The average number of active Xyrem patients increased to 14,575, up 6% compared to the same period last year. We continue to see strong patient enrollment and first-time fillers during the quarter. Additionally, our field-based sales and market access team, along with the simple pharmacy, successfully managed the typical first-quarter industrywide payer churn. Our updated disease awareness program has been highly effective in generating visits to the morethantired.com website. In first quarter 2019, we saw symptom screener completion and specialist finder searches increase by over 250% compared to first quarter 2018. Our disease awareness program will continue throughout the year and we believe our education efforts can help more patients receive a proper narcolepsy diagnosis and motivate patients with existing diagnoses to actively seek treatment. In March, we launched Xyrem for pediatric narcolepsy, and initial physician feedback has been very positive. Even physicians who only manage adult narcolepsy patients have expressed interest in learning about the efficacy and safety data in the pediatric population. We look forward to continuing to educate caregivers on the appropriate use of Xyrem in younger patients and to inform clinicians about Xyrem's safety and efficacy profile. We are pleased that almost all payers with age-restrictive policies have already transitioned to policies reflecting the new Xyrem label. In March, we announced positive topline results from our Phase III study of JZP-258, our novel oxybate product candidate with a 92% less sodium than Xyrem in adult narcolepsy patients with cataplexy and EDS. We're excited to be one step closer to bringing what we believe to be an important product innovation to narcolepsy patients who are more likely to suffer from cardiovascular comorbidities than the general population. The Phase III study in adult narcolepsy patients demonstrated highly, statistically significant differences in the primary endpoint that measured the change in the weekly number of cataplexy attacks and the key secondary endpoint of change in Epworth Sleepiness Scale scores with JZP-258 as compared to placebo. Patients randomized JZP-258 showed clinically meaningful maintenance of efficacy for both cataplexy and EDS and a statistically significant worsening for both endpoints in the placebo group. The data demonstrated an adverse event profile consistent with sodium oxybate. We're looking forward to submitting the data for presentation at a fall medical meeting and we expect to meet with FDA to discuss our NDA, with a goal of submitting as early as the end of this year. Now, on to our hem/onc therapeutic area. We delivered another sequential quarter increase in Vyxeos sales in the first quarter of 2019 over the fourth quarter of 2018. In the US, we continue to target key academic and community accounts with education and outreach initiatives focused on the strong overall efficacy profile of Vyxeos, including the increased opportunity for stem cell and resulting favorable outcomes in secondary AML patients. In the US, despite an increase in competitive promotional activities in the AML marketplace, we continue to see interest from new accounts with community hospitals representing the majority of new accounts ordering Vyxeos. Our EU team has been successful in securing EU pricing and reimbursement and we now have final approved pricing in England, Wales, Scotland, Denmark and the Netherlands. In the first quarter, we received health technology assessment recommendations for the value of Vyxeos from France HAS of four/important [ph], Italy of innovative status and Germany GBA of substantial. The multidisciplinary evidence-based health technology assessment process uses stringent criteria and takes into account numerous factors, including safety and efficacy, to determine the overall health economic value of our therapy. We're pleased with Vyxeos' strong efficacy and value has been recognized by multiple EU country health systems. Continuing to generate data from our multipronged development activities will be important to facilitate physician understanding of the benefit and value of Vyxeos for the treatment of AML and MDS. Through our collaboration with MD Anderson, we have ongoing studies of Vyxeos in combination with both gemtuzumab and venetoclax. And this quarter, we expect to start a Phase I attenuated dose-finding study of Vyxeos in higher-risk MDS patients. The protocol for a Jazz sponsored Phase I/II study evaluating low-dose Vyxeos in combination with venetoclax in first-line unfit AML has been finalized and site selection is underway. We expect to begin patient enrollment in the second half of this year. Finally, we're pleased that the Children's Oncology Group has notified us that the Phase II 1421 study of Vyxeos in younger patients, ages 1 through 21, with relapsed refractory AML has been accepted for oral presentation at ASCO. ASCO abstracts will be released on May 15. Turning to Defitelio, we experienced our strongest quarter yet, primarily driven by growth in use by transplant centers to treat both adult and pediatric patients. We believe clinician knowledge and confidence in Defitelio is increasing and is leading to more vigilant monitoring of patients with risk factors for VOD, earlier diagnosis of VOD and quicker initiation of treatment with Defitelio, particularly in adult patients. At the EBMT meeting last month, positive results were presented from DEFIFrance, an observational, multicenter, postmarketing study of defibrotide in adult and pediatric patients from HSCT centers in France. Interim findings were consistent with prior registry trials and provided supportive evidence of the efficacy and safety of defibrotide for the treatment of VOD post HSCT. Defibrotide use was associated with a day 100 survival rate of 85% among patients with severe VOD versus 32% in those who had progressed to very severe disease. This research highlights the potential importance of treating with Defitelio earlier in the disease to reduce VOD-related mortality. In addition, we anticipate that the proposed US VOD diagnostic criteria and grading which were presented at the 2019 Transplantation and Cellular Therapy Meeting and are expected to be published in the next year, will be an important tool to address clinician uncertainty around VOD diagnosis and could reduce treatment delays. We're excited about the progress in our global defibrotide development program and expect to reach several milestones this year. We plan to initiate a Phase II exploratory study evaluating the prevention of CAR-T associated neurotoxicity, complete the interim analysis for the prevention of VOD study to determine final study enrollment sizing, initiate a Phase II study for the treatment of TA-TMA and complete enrollment in the Phase II prevention of acute GVHD study. For Erwinaze, despite several out-of-stock periods in the first quarter, sales increased as a result of higher availability of product compared to prior periods. Significant supply disruptions are impacting our ability to deliver Erwinaze to patients and we expect further supply disruptions throughout 2019. Our work towards developing new crisantaspase product candidates continues and is focus on a reliable supply chain and a potential improved target product profile. We look forward to providing an update on our program later this year. To wrap up, we're building on the momentum of our highly productive first quarter to advance our commercial, regulatory and R&D initiatives. We continue to invest significant resources in the expected midyear US launch of Sunosi, intensive education and outreach initiatives across our key commercial products and the advancement and expansion of our R&D pipeline. We also look forward to continuing our geographic expansion efforts. In the first quarter, we received marketing approval for Defitelio in Brazil and Vyxeos is now commercially available to patients in nine European countries. We're planning for the launch of solriamfetol in the EU following receipt of marketing approval, the expected approval of Defitelio in Japan this year and a new drug submission for solriamfetol in Canada. Finally, we believe our corporate development efforts will lead to further additions to our portfolio of products and R&D programs. Matt, now I'll turn the call over to you.

Thanks, Bruce. And good afternoon, everyone. In the first quarter, we continued to deliver strong top and bottom line growth, in line with our current expectations. Revenues increased 14% to $508 million compared to $445 million in the first quarter of 2018 due to the strong growth of our key sleep and hem/onc products. As a reminder, first quarter 2018 net sales included Prialt, which we invested last September. Xyrem net sales for the quarter were $368 million, up 16% from $317 million last year. For 2019, we are maintaining our Xyrem net sales guidance in the range of $1.53 billion to $1.57 billion and our expectation for mid-single digit volume growth. Turning to Erwinaze, net sales for the quarter were $61 million, an increase of 20% compared to the same period in 2018. We expect significantly reduced product availability in the second quarter, as well as further supply disruptions throughout 2019, creating quarterly variability depending on the timing and extent of those disruptions. We are maintaining our Erwinaze net sales guidance for 2019 in the range of $160 million to $195 million. First quarter Defitelio net sales were $42 million, up 18% from $35 million in the same period of 2018. We're maintaining our guidance for Defitelio net sales for this year in the range of $155 million to $180 million. Vyxeos first quarter net sales were $29 million, an increase of 10% over the first quarter of 2018 and an increase of 13% sequentially from the fourth quarter, primarily due to the contribution from EU sales. We are maintaining our Vyxeos net sales guidance for this year in the range $120 million to $150 million. This guidance assumes our commercial initiative successfully lead to increased growth in the US in the latter half of the year. We're encouraged by the EU launch performance and growing EU sales contribution. We are maintaining our total revenue guidance for 2019 in the range of $2.05 billion to $2.13 billion. Turning to operating expenses, we are continuing to invest on the R&D and commercial front to further diversify our growing R&D pipeline and product portfolio as part of our business model that is focused on sustainable growth. Adjusted SG&A expenses for the first quarter increased 12% to $148 million or 29% of total revenues compared to $132 million or 30% of total revenues in the first quarter of 2018. First quarter 2019 included increased expenses related to the planned launch of Sunosi in the US and the rolling launch of Vyxeos in the EU. For Sunosi, a significant portion of our initial investment in 2019 is focused on building the OSA market through disease awareness as well as other educational efforts. Sunosi-related launch expenses are expected to ramp up further in the second quarter. For 2019, our guidance for adjusted SG&A expenses remains in the range of $620 million to $650 million, 29% to 31% of revenue guidance. Adjusted R&D expenses for the first quarter of 2019 were $55 million compared to $47 million in the first quarter of 2018 or 11% of total revenues in both periods. The increase in adjusted R&D expenses in the quarter reflects our growing investments in our internal programs, including our JZP-258, Vyxeos, defibrotide and asparaginase programs as well as our partner programs and our IND-enabling work with the CombiPlex platform. For 2019, our guidance for adjusted R&D expenses remains in the range of $235 million to $265 million or approximately 11% to 13% of revenue guidance. The adjusted effective tax rate of 19.8% in the first quarter included a one-time impact from the remeasurement of the deferred tax liability associated with the reduced estimated useful life of the Erwinaze intangible asset following receipt of the PBL contract termination notice in February. We're maintaining our 2019 adjusted effective tax rate guidance in the range of 17% to 19%. Adjusted net income for the first quarter increased 17% to $213 million compared to $182 million in the first quarter of 2018 and adjusted net income per diluted share increased 23% to $3.67 compared to $2.98 in the first quarter of 2018. As a reminder, first quarter 2019 adjusted EPS was positively impacted by the significant share repurchase we made in the fourth quarter of 2018. Please note that we are maintaining our 2019 non-GAAP adjusted EPS guidance range of $14.30 to $15 and our guidance for weighted average diluted shares outstanding of approximately 58 million. In the first quarter of 2019, we generated $202 million in cash from operations versus $167 million in the first quarter of 2018. We used $111 million to repurchase shares and had 268 million remaining under our share repurchase program as of March 31. During the quarter, we made an upfront payment of 56 million to Codiak BioSciences under our collaboration agreement. As of March 31, we had $832 million cash, cash equivalents and investments, borrowing capacity under our revolver of $1.6 billion and $1.8 billion in outstanding principal balance of our long-term debt. Our early accomplishments in 2019 has set the stage for exciting year as we launch Sunosi. We continue to make substantial investments to support our key growth initiatives and to identify opportunities to further expand and diversify our commercial and development portfolios with a focus on providing novel medicines to patients and meaningful returns to shareholders. Thank you for joining the call today and I'll now turn the call back over to Kathee.

Thank you, Matt. We kindly request that you limit yourself to one question and a follow-on on the same topic during this call, so that everyone has an opportunity to ask a question today. We will gladly address any additional questions after the call or you can reenter the queue. With that said, operator, please open the line for questions.

Thank you. [Operator Instructions]. Our first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is now open.

Hi. Thanks for taking my question. On Sunosi, could you share some of the feedback you've had from your initial engagement with payers to date?

Yeah. Brandon, we're probably not going to have a lot to say on that. Maybe Mike can tell you a little bit about what we're trying to accomplish in those discussions, but we're probably not going to say a lot in detail. Go ahead, Mike.

Yeah, Bruce. As you said, we are in early discussions with the payers. Our goal really is to create access. There is about 10%, 15% open live count right now with about a six to nine-month moratorium by most payers. But I think, importantly, meanwhile, while we're working with the payers to gain access, we'll be offering a suite of services that will allow really engineering successful trial with these patients and Sunosi.

Okay. And maybe just one follow-up on that. Maybe if I frame it a different way, would you characterize your discussions so far as in line with what you would have expected?

As I said, I discussions are early and we will give you an update, I think, of the Sunosi investor call later on.

Okay, fair enough. Thank you.

Thank you. And our next question comes from Umer Raffat with Evercore. Your line is now open.

Thanks so much for taking my question, guys. My question is on pipeline, but I'll have a question and a follow-up on two different things. My first one is on – an easy one – solriamfetol. Can you maybe just lay out for us the efficacy relative to modafinil or armodafinil just so we sort of have a sense for that, especially as we head into launch? I don't know there's a clear answer to that, but I just want to hear it from you. And the second one was on the CD123 bispecific that Macrogenics has, they noticed that in AML setting, they don't have any responses if it's relapsed AML and they pointed to low CD123 receptor density as being a reasons. So, when they put their bispecific again, they didn't see much responses. What I was curious about is in the dose expansion that's happening with your ABC, it all appears to be happening in relapsed AML setting. And I just wanted to understand that better and have you seen responses in relapsed AML as the CNS is going into that expansion cohort? Thank you.

Okay. Umer, maybe I'll have Jed take the first part of your question, which is really around solriamfetol efficacy, what we see and maybe a comment about modafinil efficacy. Just as a reminder, we've not run head to head trials. We're talking about trials in similar patient populations with similar endpoints.

Yeah. The question is something of course that we have been interested in from the time we started looking at it. And it was the efficacy profile of solriamfetol in the concept study and the follow-up study that really got us excited about it. And we've seen those data now replicated in the pivotal trials very nicely. And so, as Bruce noted, there's no head-to-head data. I would refer you to the literature on modafinil, look at the endpoints with modafinil and armodafinil versus solriamfetol. And I think that that tells the story.

But, again, our trials and typically trials of other agents have measured both objective endpoints like the maintenance of wakefulness tests, they've measured subjective endpoints like the Epworth Sleepiness Scale. And in our trials, we see, for solriamfetol, really strong efficacy across the endpoints, across time of the day from early in the day to late in the day and we see that effect sustained when we do longer-term follow-up studies with patients.

And a very consistent dose-response profile.

So, with that, maybe I'll take the second part of the question and direct it over to Allen Yang. Just as a reminder, the antibody drug conjugate program we're referring to is an ImmunoGen program. We do have a relationship with ImmunoGen. We have the option to opt into to one or more of three programs they have, two of which have been identified. But just as a reminder, we're not running these programs ourselves. Alan, do you want to comment on the question.

Sure, Bruce. Thanks. So, Umer, I think I'll take your second question first and comment on additional data. Again, as Bruce alluded to, this is an ImmunoGen program that we're collaborating with them. They've been excellent collaborators. They've given an update of their data at the most recent ASH meeting for both of their programs. And I think the question – your first question alludes to CD33 expression levels compared to CD123. As you know, there's been multiple agents directed to both of those antibodies, antibody drug conjugates bispecifics, et cetera. And CD33 is more highly expressed. If you look at all of the data in aggregate from different molecules, it's very interesting that CD123 seems to be a very exciting target. Whether it's less amenable to relapse refractory disease because it's expressed at lower levels compared to CD33, I think that that data is still immature, especially with the ImmunoGen compound or overall in the field. I think it's challenging. If you look at Mylotarg and CD33, it took fairly large studies to prove its benefit in upfront disease, although they could see responses in relapse refractory. And I think the same thing is true of CD123. overall we're very happy with both of these ADC conjugates. I think they have single-agent activities and there is a pathway to approval for both of these agents. They are single agents because there's precedence for that, but then there's a possibility of combinations. And those combinations could include hypomethylating agents, which is traditionally done, or combinations with Vyxeos. And I think that's why we're so excited about these programs.

Thank you. And our next question comes from Jason campaign with Bank of America Merrill Lynch. Your line is now open/

Hey, there. Thanks for taking my questions. Just a couple on JZP-258 regulatory strategy. Would you anticipate getting orphan drug status? I know that Avadel got orphan drug status. So, I would think that the population parameters would enable you to get orphan status, but just curios where that stands? Do you intend to use the priority review voucher for this application and are there any issues with getting your REMS sorted out before you can actually file this product? Any color you can just provide on those regulatory elements of 258 would be really appreciated.

Yeah. Jason, good questions. I don't think we're going to comment in any great detail upon our regulatory strategy. Obviously, we studied JZP-258 in the same patient population as sodium oxybate or Xyrem, which does have orphan drug exclusivity. On the PRV, we haven't said which program of our current programs or programs we could bring in the future through corp dev would be the best use of that asset. So, no comment at the moment. And in terms of REMS, we certainly are working to make sure we submit as part of our NDA the best REMS to ensure that physicians and patients understand how to access this new medicine and that we make that as seamless as possible as we can for our prescribers and patients, given our long experience including some improvements to our REMS over the years. So, we want to get that right. I wouldn't describe that as issues. I would just describe that as making sure we thought it all through before we submit to FDA.

Bruce, can you at least comment, would the specialty pharmacy that you use for 258 be the same for Xyrem?

No comment at this time.

Okay.

Thank you. And our next question comes from David Amsellem with Piper Jaffray. Your line is now open.

Thanks. So, just on Xyrem, I believe you have said in the past that contribution from ped is in the guidance. Is it possible for you to talk about how much contribution either qualitatively or quantitatively will be there? And then, just remind us how you're thinking about the opportunity. That's number one. And then, on Sunosi, I know you're talking about additional indications down the road. Are you exploring any indication that's outside of the sort of wakefulness promoting agent realm? Thanks.

So, David, on Xyrem peds, we haven't broken out how much of our guidance is specific to that. And there are a number of reasons for that, including the fact that, of course, we were aware that some pediatric patients were being treated before we got the formal indication from FDA last year. So, there is some pediatric business in there already. And, obviously, we're early in this launch, but we're very excited to get this data out. People haven't had data before that gave them a good sense of how this drug performs in this specific population and we know there are a significant number of pediatric patients who are undiagnosed and we hope now successfully treated with narcolepsy. So, no specific guidance, but we think could be very meaningful these patients and provide some growth in the future. On Sunosi, we're obviously aware that agents like this, although ours is a new mechanism of action. Have successfully been explored in conditions outside of wakefulness and we're contemplating that and what our best path forward is. As I said, our intent is to come back midyear with an indication of where we're going next as we continue to explore the full potential of solriamfetol.

Thank you.

Thank you. And our next question comes from Ami Fadia with SVB Leerink. Your line is now open.

Good afternoon. Thanks for the question. I had two follow-ups to topics that were discussed. First, just with regards to Sunosi, you've mentioned the 6 to 9 month timeframe before which payers got to cover products. How should we think about the launch trajectory of the product in context of that? And when should we start to expect meaningful revenues into next year? And then, just with regards to JZP-258, can you compare and contrast maybe the potential for – the risk benefit around switching patients from Xyrem to 258 depending upon whether or not you use a separate specialty pharmacy to launch 258? Yeah, I think that summarizes the question. Thank you.

So, on the first part of the question, Ami, the 6 to 9 month moratorium was something we built into our thoughts for guidance for this year. Recall that when asked about Sunosi guidance, we said minimal revenues in 2019. There are a lot of other things we need to accomplish earlier than launch to make sure people are aware of this treatment option, its benefits and to do some education particularly in the OSA market about the importance of recognizing and treating EDS. And at the time of our investor call around launch, we'll want to give you some more insight into metrics you can use and we'll be using to gauge early progress in that launch. On the JZP-258 question, I'm quite sure I followed what the question is. You'll recall in the study that we just conducted, we included patients who were naïve to oxybate who then went on to JZP-258. We included patients who were on Xyrem already and were switching to 258. And, obviously, one of the things we're trying to learn, although this was not the primary objective of the study was how patients could, in fact, move from Xyrem to 258 and we'll take all that learning into account as we figure out again our launch plans, our REMS plans, our distribution plans. But I don't view that as a significant concern. Just, again, something where we want to provide good information.

All right, thank you.

Thank you. And our next question comes from Gary Nachman with BMO Capital Markets. Your line is now open.

Hi. Good afternoon. On Vyxeos, could you give us a split between the US and EU in the first quarter? It sounds like more of the growth is coming from the EU. So, how's the market forming there? And talk about why you're confident you'll be able to return to growth in the US over the course of the year. Are you getting more traction with reimbursement, use in the community setting? Just some more detail on that. Thanks.

So, Matt, I don't know if we're providing a specific breakdown. Remember, we're showing significant growth in Europe, in part because we're comparing back to the periods where it was on the market or it was just becoming available. So, not surprising we're seeing growth there, although I have to say we're very pleased with how things are going early on. Matt, anything else you want to say on that.

No, I think we said early on in our guidance that Europe to represent up to 10% [ph] of the contribution. It's running a little ahead of pace. And so, I think we feel good about the contribution from the EU thus far in the quarter and, in particular, also against the health technology assessments and, ultimately, on our path to secure reimbursement across a bunch of geographies that were executing well as it relates to that. so, dynamics are setting up well for success in Europe, but we did see growth in both markets.

And, Mike, maybe you can comment a little bit about what your expectations are for progress across the year.

Yeah. So, we continue to target the academic centers and have expanded our reach into the community where about 40% AML maltreatment exists today. And most of our new account growth is actually coming out of the community area. The AML market is more noisy than it has been in terms of promotional activity, but we feel very good about where we sit as the standard of care for fit secondary AML where we have an OS benefit against 7 plus 3 [ph] and we can derive meaningful complete responses that translate to good transplant outcomes.

Okay, thank you.

Thank you. And our next question comes from David Risinger with Morgan Stanley. Your line is now open.

Thanks very much and thanks for all the details. I'm just curious about your expectations and plans to compete with the [indiscernible]. So, are you expecting that product to launch later this year? And if so, do you need to do anything with your commercial efforts to ensure your rate of [indiscernible] starts is high and so on and so forth? Thank you.

Yeah, David. I don't think we've got any particular insight into [indiscernible] regulatory progress other than the company that has the rights to the drug has said they intend to get approval and launch this year. In terms of our commercial efforts, I think we remain focused as we have them on ensuring people understand the benefits and risks of our product, how to use it safely. As you know, we've continued to grow the product many years after initial introduction. We've continued to study the drug whether that's through the recent pediatric trial, studying oxybate in new and we think better form with the lower sodium content both in narcolepsy and, of course, we have an idiopathic hypersomnia trial going as well. And we want to make sure people understand what makes our drug so efficacious. We know that narcolepsy is underdiagnosed and undertreated. A different treatment option being available for patients may expand treatment, could even lead to improved diagnosis of narcolepsy, and I think that's a good thing for narcolepsy patients.

Thank you.

Thank you. And our next question comes from Greg Fraser with SunTrust. Your line is now open.

Thanks very much. It's Greg Fraser on for Gregg Gilbert. Vyxeos, are you still anticipating interim data from the collaborative study with MD Anderson this year and how are you thinking about the potential importance of that data?

Allen, you want to take that?

Sure, Bruce. Thanks. Yeah, again, I think the challenge here, Greg, is that we don't control that data. That's an MD Anderson study with collaboration. Our hope is that they enroll very quickly, but again the final decision to present the data or not in an interim form rests with MD Anderson. In terms of importance, I think it's incremental. I think they are doing two very important combination studies for us. The combination with Mylotarg and a combination with venetoclax. There will be other studies that will be coming online as well. But, again, combination data is just part of our strategy. We plan to make Vyxeos the backbone of AML therapy. So, there will be other additional studies that we'll have to do looking at younger patients and sort of lower-risk patients as well.

Thank you. And our next question comes from Ken Cacciatore with Cowen and Company. Your line is now open.

Thanks, guys. I just want to drill down a little bit on the Sunosi opportunity. Let's say, wondering if you have any data on the percent utilization of Provigil and Nuvigil in that market? And then, also maybe your sense from speaking with clinicians on the failure rates of Provigil and Nuvigil. So, as you go through managed care, obviously, we want the best tiering possible, but I would think that just getting on formulary if there is high rates of failure in the first line agent would still be not bad positioning for you. So, can you give us a little bit of context around that. Thank you.

Yeah. Ken, I think your question was specific to OSA, but I'll just say slightly different characteristics of the narcolepsy in the OSA opportunities. We see a fairly high treatment rate, but also a fairly high abandonment or failure rate with other agents. In the OSA market, I think the biggest thing to take into account is that most patients are not treated. Those that are may, in fact, have stepped through other therapies and not have the impact they'd like, but I think the bigger driver there is a lot of patients with EDS that's either unrecognized or recognized, but not drug treated. And in terms of your comments on managed care and access, I think we've been consistent in saying for years we wouldn't be surprised if patients stepped through a generic drug that's available before they get to Sunosi. And one of the things that made us excited about this opportunity is the high rate of patients that have voiced dissatisfaction with existing therapies, primarily for not having enough efficacy; in some cases, tolerability issues. As I think Jed so well said earlier, this led us to our interest in this agent in the first place. It was recognizing there was a real market opportunity for a differentiated agent with, hopefully, answers to some of the problems patients have been describing.

Thank you.

Thank you. And our next question comes from Jessica Fye with J.P. Morgan. Your line is now open.

Great. Thanks so much for taking my question. Quick one on Xyrem net price this quarter. I think the deck has volume was up 5% percent and sales grew 16%, which implies a healthy price contribution, but I think it might be somewhat more than the list price increase. Is there anything that you can kind of offer in terms of what would explain that?

Yeah. Jess, nothing really to say. There are not any big wide swings in gross to nets. You know our price action earlier in the year. So, the rest of what you're seeing is just differences in terms of Q1 results. So, nothing really more to say there.

Yeah. Jess, this is Mike. I would say that, in this most recent quarter, we did – I think our field reimbursement folks and our central pharmacy did a really good job of getting through the payer churn. So, I think when you use the comparator of Q1 2018, that may explain some of the lift. We also grew patients about 6%. So, all the math works.

Thank you.

Thank you. And our next question comes from Liav Abraham with Citi. Your line is now open.

Good afternoon. Bruce, can you just update us on what you're seeing on the business development front. I think, last year, you said you would be disappointed if you didn't execute on a transaction. Maybe talk a little bit about your outlook this year as you are almost in the middle of the year both from a supply perspective as well as pricing dynamics in the market? Thank you.

Yeah. Maybe I can do this in conjunction with Matt. I'll just say we're busy and we're busy across the board. We're looking at opportunities across sleep and adjacent areas and hem/onc and adjacent areas. We're looking at things across market or near-market products back to earlier development. We're looking at things across geographies as we continue to expand our geographic footprint. So, there is a lot out there to look at and we're honestly excited by a number of the opportunities we see. I think it would be a good complement to our capabilities and what would fit with our sustainable growth strategy. Matt, maybe I can ask you to comment a little bit on price and how that translates into actionable deals.

Sure, yeah. Just at a high level, valuations in many pockets do remain high, depending on where you're looking. And it's our job to navigate through that and we believe we can still find value in that regard. We continue to see, as Bruce alluded to, interesting [indiscernible] at all stages across our key franchises as well as in some spaces between them. And, obviously, also want to be thoughtful about how we feather in potential deals from an operational perspective just to make sure we can execute on our existing business, but we continue to be hard work and our expectations remain favorable that we can complete successful transactions this year.

Thank you.

Thank you. And our next question comes from Irina Koffler with Mizuho. Your line is open.

Hi. Thank you for taking the questions. Can you give us an update on the PBL agreement on Erwinaze and whether there has been any progress in renewing anything? And the second question is on Xyrem REMS for pediatric. Just wanted to verify that you've enrolled all of the remaining pediatric patients that you were going to enroll or is there still a process underway that could lead to some potential disruption in the enrollment? Thanks.

So, maybe I'll take the second question first and then ask Dan to comment a little bit about PBL. On the pediatric REMS, I think we did a really spectacular job of planning to make that as seamless as possible for patients, caregivers and prescribers, and I think we're largely through that transition of patients who are already on the Xyrem. So, we do not anticipate that that will cause any perturbation in sales growth. Dan, do you want to talk about pediatrics?

Sure, yeah. So, with PBL, we remain very focused on operational issues, near-term [indiscernible], very kind of batch to batch. We can get those batches out. And as you know, even without any kind of renewal, we've got rights to the program through 2020 and inventory beyond. We continue to think we are the best partner for this program. We've got the relationship with the ALL doctors and look forward to engaging and putting our best foot forward. In terms of updates to the process, it's really PBL's process, so we can't comment on so status and timing. It's up to them to provide those updates.

Thank you.

Thank you. And our next question comes from Annabel Samimy with Stifel. Your line is now open.

Good afternoon everyone. This is Nick Rubino on for Annabel. Thanks for taking our question. We just have a quick one. Now that the data are out on the low-sodium products, have you had any further discussions with those physician population regarding the number of patients they believe could benefit from having this option available?

Yeah, I would say we put out a quick top line release just to let you know that our primary and key secondary endpoints were highly statistically significant, positive to generally comment on the AE profile. But I would say we have not yet made data public. We'll do that in an appropriate medical meeting this fall. That'll give us a lot more opportunity to engage with folks about what it means. I think the data we have released has made it easier for us to say we believe the product works and will be an important new treatment and improvement for patients, but I think let's wait until we have more data to share to have additional conversations. And then, in terms of a number of patients, I think there's no patient who is benefiting from the high-sodium load of the existing Xyrem products. We think this would be an improved product for all patients currently taking sodium oxybate. And we've said historically, we know there are patients who don't get Xyrem therapy because their physicians are concerned in the case of those patients about the high-sodium content. And so, we do believe that moving to JZP-258 may open up additional opportunity for a broader patient population.

All right, thank you.

Thank you. And our next question comes from Akash Tewari with Wolfe Research. Your line is now open.

Hey, thanks so much for taking my question. This is more just generally focused on why the low end of guidance wasn't kind of up given the beat that we saw on Xyrem. Just digging into the low end of guidance and if you compare the product specific low end of guidance and compare that to the low end of the guided total product revenues, we're seeing about a gap of $70 million. And if you can assume that about $20 million of that is other, what is explaining that additional $50 million gap given that there is a limited amount of JZP-110 baked into 2019 numbers? Thanks so much.

So, Akash, I'll take the second part of your question and I'll ask Matt to handle the more product specific one. Just in general, when we provide guidance ranges, if you're a fan of Monte Carlo simulations, it's unlikely with independent variables you're going to get all of the low-end or all of the upper end, and so that gives us the ability to narrow our sort of top end and bottom end guidance a little bit more than if you just added up the low-end and the high end of every revenue number or every expense number. So, I think that's most of the explanation for the narrower bottom end. But, Matt, maybe you can comment on the product guidance.

Yeah, just as it relates to Xyrem specifically and overall individual product guidance, which we've maintained, really, again, while we've had a strong first quarter, it's relatively early in the year, the guidance we've provide in February. We now are here in early May. So, at this juncture, we feel it's prudent to maintain our posture despite a really successful first quarter across the product portfolio. But, again, at least calling out one specifically, we mentioned the timing variability related to Erwinaze supply. So, we certainly had a strong quarter there, but are anticipating a weaker one to follow as it relates to that specifically. So, again, taking into consideration just how we're running through the year, at this juncture, we thought it was appropriate to maintain guidance.

Great. That's super helpful. Thanks.

Operator, this will be our last question coming up.

Thank you. And our last question comes from David Maris with Wells Fargo.

Thank you for fitting me in. The stock's about where it was on average last quarter when you spent $100 million on the buyback, and so it would seem that you maybe have another couple quarters to go on the current authorization. So, what are your thoughts and how should investors consider the ability and expectation for buying back stock beyond the current authorization in light of the clearly palpable excitement that management has about the panoply of potential deal targets? Thank you.

Yeah. So, David, a good question. I can't speak for the whole board and preannounce what we're going to do at the end, but I think we've got a good track record over the last few years as we come up on using up our authorization. You've seen us increase that authorization multiple times. And I think we've got a great cash generation in the company, a strong balance sheet and that gives us the capability to both invest in new assets through corp dev, continue to grow our existing business and be buyers of our own stock when we think it's at levels that make that a good move for our shareholders. And we certainly have felt and continue to feel, at current levels, that it's a pretty easy decision for us to be buyers of our own stock. So, my anticipation, although it will be a full board decision, is that we feel similarly that we'd want to balance our desire to buy back stock when we feel it doesn't reflect full value, while maintaining great flexibility to do corp dev which we think can diversify our growth drivers moving forward.

Great, thank you.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Kathee Littrell for any closing remarks.

Thank you, Joelle. Thank you all again for joining us today. We will be participating in the upcoming Bank of America and RBC healthcare conferences 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 today's program. And you may all disconnect. Everyone, have a wonderful day.