Jazz Pharmaceuticals plc (JAZZ) Q3 2019 Earnings Report, Transcript and Summary

Welcome to the Jazz Pharmaceuticals Plc Third Quarter 2019 Earnings Conference Call. Following an introduction from the company, we will open the call to questions. I will now turn the call over to Kathy Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

Thank you, Chris, and thanks to those of you who are joining our investor call. Today, we reported our third quarter 2019 financial results and updated 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; Dan Swisher, President; and Rob Iannone, Executive Vice President, R&D. Joining for the Q&A session are Mike Miller, Executive Vice President, U.S. Commercial; Allen Yang, Senior Vice President, Clinical Development and Acting CMO. And 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 launches, sales and volumes, supply challenges, regulatory activities, 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, in the accompanying slide presentation and under risk factors in our Form 10-Q for the quarter ended June 30, 2019 and our Form 10-Q for the quarter ended September 30, 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 our 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. Thank you for joining us. We delivered strong top and bottom line growth in the third quarter, while executing on commercial, R&D and corporate development goals. I'll start by sharing some key recent highlights. We presented positive Phase III data at the World Sleep Congress on JZP-258, our novel oxybate product candidate with 92% less sodium than Xyrem and made progress in preparing our NDA submission. We plan to redeem our priority review voucher for the JZP-258 NDA for the treatment of EDS and cataplexy and narcolepsy and expect to submit in January 2020. Based on expected FDA review timelines, we can see potential approval as early as third quarter next year. We launched Sunosi in the US in July and are observing growing prescriber interest in product trial, increasing prescriptions and improving patient access. We are engaged in Sunosi EU prelaunch activities as we anticipate a positive CHMP opinion this month and EMA decision in early 2020. We worked with the FDA and the Children's Oncology Group to finalize the protocol for the pivotal study of JZP-458, our recombinant Erwinia asparaginase. We are working toward recruiting first patient this quarter and target study completion next year. Recently, FDA granted fast-track designation for JZP-458 for the treatment of acute lymphoblastic leukemia. We enrolled patients in multiple Vyxeos and Defitelio clinical studies and we also continued to strengthen our development pipeline with the acquisition of Cavion and worldwide rights to CX-8998 for the potential treatment of essential tremor. Now, I'll provide an update on our key sleep neuroscience programs. We're in the early stages of our US Sunosi launch and are looking to bringing patients outside the US where there is currently no licensed drug treatment option for ES and OSA and limited treatment options for ES and narcolepsy. We are pleased with the positive feedback we've received from patients, healthcare providers and key opinion leaders in the US and are encouraged by upward trending demand and rising refill rates which, while early, indicate positive patient experience and growing awareness of Sunosi for the treatment of EDS in narcolepsy and OSA. During the third quarter, there were more than 1,000 unique prescribers of Sunosi, resulting in more than 3,300 scripts. Samples and vouchers are a key resource for healthcare providers and we will continue to utilize these programs, so physicians can gain clinical experience by helping their patients try Sunosi. We're expanding outreach beyond existing Xyrem prescribers to educate and establish relationships with new prescribers, including those who primarily manage OSA patients. During the third quarter, we completed more than 100 speaker programs providing peer-to-peer education about the pathophysiology of EDS and the role of pharmacotherapy in treating EDS and narcolepsy and OSA. Our nonbranded consumer campaigns continue to raise awareness and we are seeing strong engagement as evidenced by growth in unique visits to a different kind of tired.com and Sunosi.com. To help improve appropriate patients get experience with Sunosi, we launched comprehensive patient access programs to help lower patient out-of-pocket costs. Approximately 90% of scripts that have been adjudicated through these programs have resulted in a patient co-pay of $9. Now, I'll spend a moment discussing our strategy to optimize commercial coverage and patient access for our current and future sleep products. We're pleased that, early in the launch, Sunosi has been added to the Express Scripts national preferred commercial formulary. Express Scripts is one of the largest pharmacy benefit managers in the US. The preferred Tier 2 status for Sunosi includes a prior authorization requirement, including step therapy of one generic weight promoting agent, consistent with our prelaunch expectations. We are pleased with our commercial payer coverage today and are actively engaged in contracting discussions with other key payers. Now on to Xyrem. Xyrem had an exceptional quarter with total volume growth of 6.5% compared to the same period in 2018. We are particularly pleased that our expanded sales force was able to continue the strong growth of Xyrem while launching Sunosi. The average number of active Xyrem patients increased to 14,800, up 5% compared to the same period last year. As the only available FDA-approved treatment for both cataplexy and EDS in children and adults with narcolepsy, our efforts are focused on ensuring healthcare professionals are educated on how Xyrem may help narcolepsy patients' EDS and cataplexy symptoms. During the third quarter, we began executing agreements for Xyrem as part of our strategy to ensure ongoing patient access to our products in the current and evolving payer environment. This will have some impact to Xyrem gross to nets. However, we believe that our continued growth opportunities for Xyrem, both volume and revenue growth, as disease education efforts are increasing awareness and diagnosis of narcolepsy in this undertreated and underdiagnosed patient population. Before I turn the call over to Dan, I want to provide a few management updates. We announced today that Mike Miller, our EVP, U.S. Commercial, who many of you know and is on the call today, will be retiring from his role at Jazz next March after 40 years – actually, more than 40 years, Mike – in the industry. Mike has built a strong team and has provided significant contributions to Jazz over the past six years. We are beginning a search for Mike's successor soon to ensure a smooth transition, after which we'll wish Mike all the best in his retirement. Additionally, we are pleased to announce a new member of the executive management team, Finbar Larkin, who joined Jazz in 2013 and was recently promoted to SVP, Head of Tech Ops. Along with sourcing great talent from outside of Jazz, we are always pleased when we can develop and advance leadership from within the company. I'll now turn the call over to Dan to update you on key hem/onc operational activities. Then Rob will provide an update on our development programs and I'll wrap up with an update on our financial performance.

Thanks, Bruce. So, now on to the hem/onc therapeutic area. Starting with Vyxeos, in the third quarter, worldwide sales benefited from continued strong performance in EU. Our European began the commercial efforts in Italy in mid-September and they secured final pricing and reimbursement in Germany. In the US, we continue our education and outreach initiatives, emphasizing the strong efficacy profile of Vyxeos. During the quarter, the NCCN guidelines for AML were updated to remove 7+3 chemotherapy as a treatment option for patients aged 60 and over with fit secondary AML, leaving Vyxeos as the only recommended treatment for this patient population. Also, we expanded our Vyxeos dedicated US sales team by 15 representatives during the third quarter and they have begun promotional efforts as of October 1. This team of 44 sales representatives will focus on physicians in key academic centers and also increase outreach to community oncologists who are more frequently making treatment decisions for AML patients as outpatient treatment options have expanded. Global performance for Defitelio was solid in the third quarter, driven primarily by increased demand in the US. In the EU, growth was impacted by some country-specific headwinds, including typical hospital budget constraints, changes in treatment practices for hematopoietic stem cell transplants and reimbursement for prophylactic use. With the recent approval and launch of Defitelio in Japan by Nippon Shinyaku, Defitelio is now commercially available in 36 countries. Our dedicated global expansion team continues to assess new geographic regions to pursue future marketing authorizations. For Erwinaze, we continued to experience lengthy out-of-stock periods in the third quarter due to ongoing supply and manufacturing issues at our sole manufacturer, PDL. We expect continued supply disruptions and manufacturing issues in the fourth quarter and in 2020. We do remain committed to working with PDL and we're taking steps within our control to improve the reliability of supply and the availability of Erwinaze to patients. Before I turn the call over to Rob, I would like to highlight how excited we are to have Rob leading our R&D organization. His previous experience is extensive, both as a pediatric hem/onc physician at the Johns Hopkins and Children's Hospital of Philadelphia as well as his broad industry experience in areas such as immunooncology, oncology clinical development, ADCs and neuroscience at Merck, AstraZeneca and Immunomedics. His background is invaluable as we expand and grow our R&D pipeline into new areas such as from sleep into neuroscience including movement disorders and beyond our hem/onc focus into precision oncology, including solid tumor applications. So, I'd now like to turn the call over to Rob for an update on our development programs.

Thank you, Dan. We continue to successfully advance multiple R&D programs during the third quarter and had a substantial presence at the World Sleep Conference in September, with 15 posters and four oral presentations across our sleep portfolio. As an R&D organization, we are focused on becoming a global leader and partner of choice, with the goal of bringing novel differentiated therapies to patients through focused discovery and development and expanding the value of our commercial portfolio. Our ability to bring in innovative technologies, coupled with our drug development expertise and executional excellence, are critical to building and advancing a high-value and sustainable pipeline. I'll begin with development activities in our sleep neuroscience therapeutic area, starting with JZP-258. We've been working since 2012 to develop a novel oxybate formulation that would reduce the sodium load patients get with Xyrem, while still delivering the efficacy that has made Xyrem such an important option for narcolepsy patients. These efforts led to a successful development program with JZP-258, a product candidate that resulted in 1 to 1.5 g less sodium per night than Xyrem. We're very pleased with the recent presentation of the positive Phase III study results and the strong, encouraging interest from healthcare providers to date, including physician feedback noting the importance of low sodium treatment option for the management of narcolepsy patients. Narcolepsy is a chronic lifelong disease and is associated with increased cardiovascular risk. JZP is a priority program for us and we believe it will be a clinically meaningful option for all narcolepsy patients. We are incorporating feedback from our recent pre-NDA meeting with the FDA and expect to submit our NDA in January. With our acquisition of Cavion in August, we're excited to broaden our neuroscience therapeutic focus into movement disorders. Cavion completed a Phase II randomized, placebo-controlled, proof-of-concept study with CX-8998, now called JZP-385, a small molecule modulator of T-type calcium channels for the treatment of patients with essential tremor. Cavion's Phase II study utilized an initial exploratory formulation of JZP-385. We have begun commercial formulation optimization work as we continue our efforts to enhance the target profile of JZP-385 and plan to use this optimized formulation in our Phase IIb study, which we expect to initiate next year. Now, turning to our hematology/oncology development activities. I'll begin with Vyxeos. The development program for Vyxeos is progressing well. During the third quarter, patient enrollment initiated in two key cooperative group studies, one in newly diagnosed adult patients with intermediate and high risk AML, with the AMLSG cooperative group, and the second study in high-risk MDS, also known as paloma with the European Myelodysplastic Syndrome's Cooperative Group. Last month, we also enrolled the first patient in a phase Ib study, evaluating low intensity therapy Vyxeos in combination with venetoclax in first-line unfit AML. And we're also making progress to activate sites in the fourth quarter for our Phase Ib master trial to evaluate Vyxeos combinations in fit patients with previously untreated AML. This master trial will be a multicenter, multi-arm, non-randomized trial of Vyxeos, administered in combination with various targeted agents, including venetoclax, midostaurin and enasidenib. Our global defibrotide program also continues to advance. Last month, we announced the enrollment of the first patient in our exploratory Phase II study evaluating defibrotide for the prevention of CAR T associated neurotoxicity. We also recently completed enrollment in the Phase II prevention of acute GVHD study and we expect initial topline results in the second half of 2020. In the prevention of VOD Phase III study, we expect to complete the interim analysis of the first 280 patients and reach enrollment of 400 patients in the first half of 2020. This interim analysis will allow us to determine whether to continue enrollment beyond 400 patients, up to a maximum of 600 patients per our predefined adaptive design, or to stop the study for efficacy or futility. We are focused on optimizing the value of our portfolio by balancing projects within and across therapeutic areas, including the rigorous criteria we set for advancing or stopping some projects. With this in mind, we have prioritized the defibrotide studies focused on prevention of VOD, acute GVHD and CAR T associated neurotoxicity and we have made the decision to discontinue our transplant-associated thrombotic microangiopathy activities. Now, turning to our asparaginase. The JZP-458 study protocol has been finalized and we expect to activate sites, with the goal to begin enrolling patients with ALL and LBL this year. The study will be a single arm, pivotal Phase II/III study, enrolling approximately 100 patients with a planned interim analysis at approximately 50 patients. I'm pleased with our progress on JZP-458 to date, moving from an IND in fourth-quarter 2018 to starting our pivotal study in fourth-quarter 2019. We expect potential completion of study enrollment by fourth-quarter 2020. And assuming positive results, the BLA submission will be our top priority. We look forward to providing this important treatment options to patients as soon as possible. Lastly, we look forward to having a strong presence at the American Society of Hematology meeting to be held in December, with 15 abstracts across our hem/onc portfolio and an update from our partner Immunogen on the IMGN632 program. I'll now turn the call back over to Bruce for the financial update.

Thanks, Rob. Before I review our financial results, I want to publicly thank Matt Young for his six years of contributions to Jazz and to wish him all success in his new expanded role at Grail. In the third quarter, we delivered strong 15% year-over-year revenue growth. Even with increased investments to support our R&D programs and product launches, we generated adjusted net income as a percent of top line revenues of over 40% and strong cash flow. Our financial performance positions the company for continued growth in 2020 and beyond. With revenue growth for 2019 ahead of our expectations, we are increasing our total revenue guidance for 2019 to a range of $2.1 billion to $2.18 billion, an increase of 11% to 15% over 2018. Turning to our key products. We're increasing our 2019 XLIF net sales guidance to a range of $1.60 billion to $1.64 billion and are maintaining our expectation for mid-single digit volume growth. Total Xyrem net sales growth is expected to be between 14% and 17% for 2019. Erwinaze net sales for the quarter were impacted by limited product availability. However, we are maintaining our previous Erwinaze net sales guidance as it anticipated a level of supply disruption. We've narrowed our Defitelio and Vyxeos net sales guidance ranges to $160 million to $180 million and $120 million to $135 million respectively. Now, I'll turn to operating expenses. We've been intentionally increasing SG&A expenses to support the Sunosi US launch and future EU launch as well as the Vyxeos US sales force expansion and continued EU launch. Adjusted SG&A guidance for 2019 remains 29% to 31% of total revenues. Adjusted R&D expenses in the quarter increased to 14% of revenues and reflect our commitment to building and advancing our development pipeline. Adjusted R&D guidance for the full year remains 11% to 13% of total revenues. These investments in the business are critical to fueling our future growth. As we move into 2020, we expect thoughtfully ramp and prioritize our investments in key value drivers, which include supporting future product launches such as Sunosi in the EU, JZP-258 and JZP-458 and advancing our R&D programs, as well as expanding the portfolio through corporate development activities. Our tax provision and effective tax rate for the third quarter on both a GAAP and non-GAAP basis were favorably impacted by the release of reserves upon the expiration of the statute of limitations during the quarter. As a result, we are updating our 2019 adjusted effective tax rate guidance to a range of 14% to 16%. We are increasing our 2019 non-GAAP adjusted EPS guidance to a range of $15.50 to $16.15, an increase of 13% to 18% compared to 2018. In the third quarter, we saw strong cash generation from operations of $338 million. And as of September 30, had $1.1 billion in cash and investments. As of September 30, the remaining amount authorized under our current share repurchase program was $188 million. And last week, our Board of Directors increased our existing share repurchase program authorization by an additional $500 million. To wrap up, I'm excited about the progress and strong execution in 2019 and the growth opportunities ahead for Jazz. We're focused on delivering strong financial performance through an expanded commercial portfolio, continued diversification of our sleep and neuroscience pipeline and continued advancement of our hematology/oncology early and late stage development programs. This quarter, we look forward to continuing our efforts to rapidly progress our novel product candidates, JZP-258 and JZP-458, with a potential to fundamentally change the lives of patients. With $2.7 billion in readily available capital, we will continue to invest in our business and pursue a broad range of attractive corporate development opportunities to provide attractive long-term returns for shareholders. Thank you for joining us today. I'll now turn the call over to Kathy.

Thanks, Bruce. We kindly request that you limit yourself to one question during this call, so that everyone will have the opportunity to ask a question. We will gladly address any additional questions either after the call or you can reenter the queue. With that said, operator, please open the line for questions.

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

Hi. Thanks for taking my question. Can you just talk about the market dynamics that you're seeing in the market with Xyrem since pitolisant came to market? And perhaps elaborate on the pitolisant label. And was that not having cataplexy in the label? How could this differentiate Xyrem long-term? Thank you.

Well, Brandon, while pitolisant got approved in August, they said they were launching in the fourth quarter, and so the results you're seeing from us don't include any impact of pitolisant being on the market. In terms of their label, you're right that we have a different label. We have a label that's for the treatment of cataplexy and EDS in narcolepsy, both in children and adults. We've been the gold standard treatment for a long time and we think many patients that are on Xyrem are actively benefiting from this most effective therapy. Of course, we recently introduced another product for the treatment of narcolepsy – EDS in narcolepsy as well as EDS in OSA in Sunosi and we're excited for people to gain experience with that product as well.

One thing I would just add, Bruce – this is Dan – is as we look forward to finishing the year strong, we have raised our guidance and we continue to believe there is opportunity for growth both in volume and revenue for the Xyrem franchise.

Great, thank you.

Thank you. And our next question comes from the line of Esther Rajavelu with Oppenheimer. Your line is now open.

Thank you for taking my question. I just had a quick one on Sunosi. In the US, what kind of use are you seeing for Sunosi with regards to – between the two indications and are you seeing more use in treatment naïve patients? Are folks switching from other medications to Sunosi? And then, if I can squeeze one more in, market strategy in Europe for Sunosi as you're looking into next year.

Yeah. Maybe I'll ask Mike to talk a little bit about what we're seeing in the early days of the associate Sunosi US launch and then maybe Dan can take the European piece.

Sure, Bruce. It is early. We're excited and pleased with we have seen so far in the launch. With a retail, you don't get necessarily the diagnosis of every script. So, we have to go back and actually do some primary research. Our initial primary research has indicated it's about 50-50 OSA and narcolepsy. That is not surprising given our beachhead strategy was to go after our narcolepsy targets early on and then fan out to a broader OSA treating audience, which we are in the process of doing. Largely, the strength breakout is about 50%, 75%, 50%, 150%. And again, we feel good about the metrics so far.

And on treatment naïve or having been on other agents, most patients in this space have tried other therapies. And again, I don't think we've got specific data since launch – quantitative data on that. But our belief is that many patients have tried multiple other agents and are looking for something that provides the differential treatment. Dan, on Europe?

So, on Europe, very excited for Sunosi to be a meaningful growth driver in Europe and the cornerstone of a new franchise for us outside the US as we move into sleep and neuroscience. In terms of the focus, to date, it's been obviously on the approval and moving through the regulatory process. Importantly, the market dynamics are a little bit different in Europe where, particularly in OSA, there is no treatment option for the treatment of EDS. So, we've been focused this year on medical education and preparing KOLs and others for the opportunity. In terms of priority, we're going to focus on three of the biggest countries first, which will be Germany, France and the UK. And in terms of timing, probably Germany will be the biggest focus for next year where there's more opportunity go faster on the market access side.

Great, thank you.

Thank you. And our next question comes from the line of Ami Fadia with SVB Leerink. Your line is now open. If your phone is on mute, please unmute it.

Sorry, can you hear me okay now?

Yes, we hear you.

Okay, great. Thanks for taking the question. Can you talk to how sustainable the Xyrem growth is? Your revised guidance suggests a little bit of a step down in fourth quarter versus third quarter. Is that reflective of the additional competition you anticipate? And how should we ready thinking about sort of next year's growth if you can just talk to it quantitatively at least? And maybe if I could just squeeze another question just on Erwinaze, while you develop your own product to replace or supplement Erwinaze, can you give us an update on your negotiations to extend the contract? Thank you.

Yeah. Ami, on the sustainability of Xyrem growth, as I said in my script comments, we absolutely believe there is continued growth in the Xyrem. We do have a little bit wider range as we approach the end of this year for reasons I think we detailed in our last call, namely we've got a salesforce that's now detailing two products, not one product. We've got multiple new entrants in the space, including own Sunosi as well as potentially pitolisant. And so, we wanted to give ourselves a little more room there. I also indicated that we did sign an agreement related to Xyrem access and that, while that won't have a major impact on the fourth quarter, that's built into our guidance as well. But the main thing to take away is we continue to feel narcolepsy is underdiagnosed and undertreated. We're looking forward to continuing to get that message out there. The availability of other treatment options may, in fact, create more noise in the marketplace. We'd love to see more patients with narcolepsy get treated. So, we're looking forward to near-term growth with Xyrem or looking forward to bringing 258 to the market as we believe an even improved treatment option and continuing to grow this franchise over time. Not going to say anything more specifically about 2020 at this point. We usually give guidance as we come into our fourth quarter results early next year. On Erwinaze, we are continued to engage with PDL, the current manufacturer. In the process, they're running to figure out who will be the marketer of that product post the expiration of our deal. We continue to feel we'd be an excellent partner, but that process is not yet complete.

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

Thanks. On 258, now that you expect approval in the second half of next year, any comments on launch plans and how you will try to manage the overall franchise with Xyrem? And then, any update on the once nightly low-sodium formulation and how soon you might be able to progress into either Phase II or Phase III with that? Thank you.

Gary, I'll take the second part of your question first, which is we don't have any new updates around the once-nightly program. We do remain interested in that as a future potential product. But, right now, we're focused on 258 and getting that to market. In terms of launch plans, not a lot to say right now. As you know, we just said we'd submit the NDA in the very early part of next year with the PRV. And then, we'll look forward to bringing to market. It's important to note that we think all patients can benefit – all oxybate patients can benefit from the significantly reduced sodium load. Remember, this is a chronic, lifelong medication and that narcolepsy patients on average have significant cardiovascular risk factors. And so, that substantial reduction in daily sodium intake, we think, will be significant across that patient population.

Okay, thank you.

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

Hey. Thanks so much. So, firstly, just wanted to get – understand a bit on what's going on with Vyxeos. It seemed to be down sequentially and you brought down the top end of the guidance. So, how much of the $30 million figure is in the US versus the ex-US and kind of what's the growth cadence been like in both of those territories? And maybe a bit more strategically, just maybe your comments on Avadel and its once-nightly program. It looks like the trial should read out sometime next year. Is that a possibility from a BD perspective for Jazz? You guys have interest in a once-nightly program if they show data that seems kind of interesting. Could this be something that Jazz could look to acquire or do you think there may be FTC considerations that would kind of make that not possible? Thanks so much.

On your Vyxeos question, while we don't provide a specific breakdown of US versus ex-US sales, we did say coming into the year we thought Europe could account for 10% or so of our Vyxeos revenues. We're actually ahead of schedule on that. We're really pleased with the early experience with the Vyxeos EU launch. In terms of growth, I think we pointed out on this call that the expanded Vyxeos sales force in the US was trained in the third quarter, but started their promotional activities this quarter. We're looking forward to seeing what they can do over time, particularly as we do a better job of covering the community accounts. So, we're excited to see what that produces. On your question on the Avadel program, in keeping with past practice, we really don't comment on specific BD opportunities. So, I'm going to decline to answer there. We're, of course, interested to see their data on what change in the PK profile of oxybate does, admittedly, in this case, in a sort of higher sodium version, but we'll be interested to see what that does, in fact, produce. And we'll be watching that along with all of you.

Great. Thanks so much. Really appreciate it.

Thank you. And our next question comes from the line of Jason Gerberry with Bank of America. Your line is now open.

Hey. Thanks for taking my questions. Just one, sticking with the FTC theme, on JZP-458, is there a scenario where you can renew your deal with PDL and also bring JZP-458 into the broader umbrella of products that are sold by Jazz or would you be prevented from selling both? You get to a point once you commence in Phase III where you can't renew with PDL. Just sort of curious about those dynamics, how that works. And then, secondly, just on JZP-258, any important areas now that you have the data where you think you can differentiate from a labeling perspective relative to Xyrem? Thanks.

Yeah. So, on your first question, we have every intent of bringing a new recombinant Erwinia asparaginase product to market. We absolutely think there's room to do that. Remember, the worldwide market is underserved right now. For example, Erwinaze is actually approved in Japan and not yet launched because there's been an inability to supply that market. So, the ability to get asparaginase to all patients who need it around the world, to resume our more focused promotional efforts on ensuring that all patients who might benefit are offered this option including adolescent and young adult patients, taking another look at silent inactivation, and even exploring clinically potential broadened use of asparaginase beyond ALL. I think there's a lot we can do with that. On 258, I don't think we're going to comment specifically on our labeling strategy. Obviously, there will be differences in the label to be sure, starting with the very different sodium content which is, of course, noted and called out in in several ways in our existing Xyrem label. But more to come on that after we have had a chance to get that submission and work with FDA to get to a final product label.

Great, thank you.

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

Thanks. So, on Sunosi, with the Tier 2 win for ESI, just want to clarify that that is without any restriction of step-throughs through the generic modafinil or armodafinil. And, I guess, with a Tier 2 win and to the extent that there are others, how does that change how you're thinking about gross to nets or did your initial expectations around gross to net contemplate these kind of formulary wins? Thanks.

Yeah. David, to the first part of your question, that Tier 2 status is with a step through of one generic agent that's consistent with what we guided to prelaunch. Similarly, the gross to net comments we made on our prelaunch call did anticipate the strategy we're employing.

Okay, thanks.

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

Hi. Thanks so much for taking my question. Bruce, I'm curious to get your take on the recent Takeda data on their narcolepsy drug. I realize it's an IV form and they might have orals as well. But I was curious to hear how you guys looked at it and how the clinician community is sharing feedback with you?

Yeah. I think it's exciting that there's a new mechanism of action being pursued. This is one that I would say many folks in the KOL community in sleep have long been interested in, and this is really the best data people have seen with this approach. We're watching it with interest and remain committed to maintaining a leadership position in the sleep space over time. So, we're looking at this as well as all approaches people are taking to address more serious sleep disorders. But I thought, for early data with that agent, it was really impressive.

Do you think it impacts Jazz franchise down the road?

Well, I think we're a long way from Phase I to what the competitive impact will be years from now. Let's continue to watch the data. And as you yourself noted, I don't think IV is likely the way this ends up. I think that's an early step along their product development evolution. So, let's watch that continue. Thank you very much.

Thank you very much.

Thank you. And our next question comes from the line of Gregg Gilbert with SunTrust. Your line is now open.

Thanks. Good afternoon. How much of Xyrem use is in patients with cataplexy, if you have any research on that? And then, secondly, how would you characterize the technical risk you see for 458 and what's the soonest you could get it to market assuming the interim data point is positive and fileable? Thanks.

So, on how much of the use is in patients with cataplexy, when you're asked what percentage of narcolepsy patients have cataplexy, the estimates vary pretty widely. I think most likely you hear a range of 60% to 100%. And whenever I hear somebody say a range that includes 100%, I always stop and say, it seems to me it's either 100% or it's not, how can there be a range that includes 100%. But what we hear from patients and what we hear from treaters is that sometimes cataplexy goes unrecognized. And it's an amazing thing when you think about the symptom, which is a loss of muscle tone in response to an emotional stimulus. You'd think either you have it or you don't. But what we find is that patients who ultimately are successfully diagnosed with narcolepsy, when asked about cataplexy in terms that they understand – like, do your knees ever buckle when you hear a joke, do your cheeks ever sag when you're feeling emotion – will say, 'oh, yes, that's been true for years.' And when asked, did you ever mention that to your doctor, the response is often I didn't mention that to my doctor, it's just that weird thing that always happens to me. So, long answer, but it's unclear as to whether there are large group of patients that just don't experience cataplexy at all or whether it's cataplexy that hasn't yet been noticed and pointed out. On 458, we're so excited to move this program forward. But, recognize, it is a program still in R&D. We've still got work to do to make sure we're ready to go with the launch with a robust, high-quality, reliable manufacturing process. We need to make sure that we do a nice job executing on the clinical protocol that I think I Jazz, COG and FDA put in place so nicely. And so, we don't assess the technical risk as high, but there's always risk until you finish development. On timing, we've said that we think we could complete enrollment toward the end of next year. If in the interim, analysis yields positive data, that could accelerate our timeline. But there are lots of pieces to our timeline of when we could submit, including a CMC work as well. So, I don't want to get too far ahead of ourselves here. But anything we can do to make sure we bring a quality product to market as quickly as possible, we will do. And I think we've got great partners in COG and FDA, all working together for the benefit of these – largely kids is what they are all who have unfortunately from time to time not been able to get therapy when they need it.

Thank you.

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

Yes, thank you. So, with respect to the NCCN guideline change for – that should potentially benefit Vyxeos, could you talk about that in a little bit more depth and how significant of an inflection you think that will be for the commercial uptake of Vyxeos? Thank you.

Hi. This is Mike. The removal of 7+3 which for secondary AML has been standard of care for 40 years – to have that removed from the NCCN guidelines is pretty significant. So, we remain their only recommended treatment in the guidelines for fit and over 60 that would be treatment-related AML and AML-MRC. So, we're very excited about it and we think the data certainly proves that out. So, we are very prepared to take this with our expanded team, and as Dan spoke about, out to the community where more and more outpatient treatment of AML is happening.

And what was the timing of that?

We began the actual expansion of the team for the NCCN change.

The NCCN change, the removal of 7+3.

Allen, do you know?

Yeah. I think it was in July, but we can get to them on that.

It was in the quarter.

Yeah.

Okay, thank you.

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

Hi. This is Yuko on the call for Jessica. Thank you for taking our questions. How should we think about the potential Sunosi opportunity in Europe? Would you frame your expectations in light of the standard of care and competitive landscape there?

Yeah. So, we've said we think this is a very significant opportunity when you look at patients with excessive daytime sleepiness in narcolepsy and the even broader population of patients with EDS in OSA, we know that, based on our prior research, there is a fair amount of dissatisfaction with available therapies. And we think coming to market with a new agent, new mechanism of action, we think really compelling efficacy data gives patients another great option. In terms of quantifying that, we've certainly given a sense for the size of the patient population, what percent of that population we think is dissatisfied. And we've said that, over time, we think, in the US market alone, this could be a $500 million product in the existing indications. Now, remember, we're going to explore solriamfetol in indications beyond EDS in narcolepsy and OSA, and that doesn't account for an ex-US opportunity. And obviously, we believe we're only a couple of months away from getting an approval to bring that agent to the European market as well. So, a really big opportunity for us. We're just at the starting line from a commercial perspective a couple of months into the US launch and preparing for an EU launch. So, we've got a lot of work ahead of us, but there really is a tremendous opportunity including helping OSA treaters better recognize EDS in their patients. We believe that somewhere on the order of 40% of OSA patients have excessive daytime sleepiness despite compliant use of CPAP. We're not coming along with something that's intended to replace CPAP. This is something you would use along with your CPAP to address that daytime symptomatology with the daytime agents. And I think as they better understand that need, as – over time – patients get more educated to talk to their OSA treaters about their daytime functioning, we see a real opportunity to improve treatment rate in the OSA population.

Bruce, I'd also add to that. I think our non-branded campaign around raising the awareness around EDS and OSA with a different kind of tired.com has really generated a lot of traffic and we're very pleased about that. So, the education efforts continue. Bruce noted, we had 100-plus peer-to-peer programs in Q3 that will certainly increase in Q4 and then on to next year. So, we're excited about it.

Thank you.

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

Hi. This is Nick Rubino on for Annabel. Thanks for taking our questions. How should we think about Sunosi sampling and net pricing dynamics in the early launch? And then, maybe just some color on how we should think about IP and patient life for Sunosi? Thanks.

So, on your first question, how should you think about sampling and net pricing early in launch, as we came into the launch and came into this year, we gave guidance on the revenue side of minimal revenues for sort of the second half of 2019. And we did that in large part because there is a very high gross to net adjustment early in launch. I mentioned that a number of patients are taking advantage of some of our programs to ensure they can get access to the drug with very reasonable out-of-pocket costs. We think that's a cost worth bearing to give people good trial and experience with the drug, both patients and, through the patients, the prescribers, for them to get early clinical experience. So, we'll continue that. We'll give you different guidance as we move into next year. But we think that's the right way to get started with this important new drug. And, Kathy, can you take the IP patent side of solriamfetol?

We can get back to them on that.

Yeah. It's long-lived patent life. We'll come back to you with the exact date.

All right, thank you.

And, operator, this will be the last question coming up, okay?

No problem. And our last question does come from the line of Balaji Prasad with Barclays. Your line is now open.

Hi. Thank you. Good evening. And thanks for squeezing me in? Most of my questions have been answered? Couple of probably classification questions. One on JZP-385, you plan to start Phase IIb in 2020. Is it possible to provide any specific timelines? Is it more towards H1 or H2? And if H2, are there any other gating steps you need to complete before then?

Yeah. Rob, you want to take that one?

I'd anticipate it'd be more likely H2. And as we mentioned in our – earlier in the call, we are finalizing a formulation that would be more appropriate for commercialization to be used in that IIb study.

Thank you. Maybe if I could just squeeze a question on Vyxeos, you mentioned that you expanded the team this quarter. Did you also imply that this was the cause for the growth or is it going to be incremental from here on?

So, we wanted to broaden our reach to make sure we had good coverage in the academic medical centers, but also get out to the broader community treaters. That's something I think we signaled even coming out of our second quarter call. Happy to say we implemented a fairly rapid expansion of our team. Got them trained up and they're out in the field. But they got out in the field as of October 1. So, no impact from the third quarter, we'll see that going forward.

Fantastic. That's helpful. Thank you.

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Kathy Littrell for any further remarks.

And, Kathy, maybe before you go, I just want to wrap up by thanking our teams around all our global sites and in the field for what was a pretty action-packed and successful quarter really across our commercial launches, our existing products, our R&D programs. We're not done. We've got a lot yet to accomplish this year, but I really want to thank our employees around the world for just a really great job.

And I'll just follow-up with the one detail to the question regarding exclusivity around Sunosi. We do have meaningful exclusivity, and that's patent protection through 2027 with the potential for patent term extension after approval. And so, thank you all very much for joining us today. We will be participating in the upcoming Jefferies conference, the Piper Jaffray and the Evercore healthcare conferences and hope to see many of you there. This now will end our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.