Bill Tanner - Lazard Capital Markets
Okay. Good morning. I am Bill Tanner, one of the biopharma analysts here at Lazard Capital Markets. I'd like to welcome everybody to day 2 of the 9th Annual Healthcare Conference. Hopefully, it's been helpful for you thus far and it will be over the balance of the day. Very pleased to have Jazz present our favorite idea has been for sometime a couple of years ago coming out of the conference stock was around $15 or thereabout, so obviously the execution of the company as strong as it's been. It's been somewhat reflected in the stock performance.
So, presenting for Jazz is Bruce Cozadd, who is the Chairman and the CEO, also want to acknowledge Bill Craumer who is with the Investor Relation Corporate Communications team. So, I think you will – you can know the story, it’s a great story if you don't know I think you will certainly see the appeal that we find in. So, Bruce thanks very much for participating and look forward to your comments.
Bruce Cozadd - Chairman and Chief Executive Officer
Okay, thanks Bill and thanks to Lazard for the invitation to present today. We certainly appreciate Bill's steadfast reporting of all good and bad events at Jazz over time. I think he has really kept up the speed on the key drivers of the story.
I am going to do an abbreviated presentation this morning to leave time for some Q&A. I think Bill may have some questions for me as may some of you. So, I am going to skip some slides as I go through. I will be making forward-looking statements during the presentation including, but not limited to our 2012 guidance as I am sure all of you know actual results may differ or subject to risk factors that are detailed in our SEC filings, including our 10-Q filed last week.
I will refer during the presentation some non-GAAP measures including adjusted net income and certain other adjusted items. As always, we do encourage you to look at GAAP numbers too, and we do include a full reconciliation of all numbers we present to GAAP in our presentation, which is available on our website.
We are a specialty pharmaceutical company. We think ultimately we succeed by helping patients and we are very focused on some small patient populations that we think we can significantly help with the unique drugs we sell. We have a highly efficient U.S. product platform. As you can see if you look at the bottom of this slide, our key sales forces in the United States are relatively small. Our largest sales force is just under 80 sales reps targets the narcolepsy population, sleep specialists. We also have a pediatric oncology sales force of 20 and a severe pain sales force of about 30.
So, as I talk through the potential of the products in the slides to come, one thing to remember is that we can very efficiently commercialize these products through a relatively small spend on the SG&A side. If I start with the top line, you can see here we have experienced significant revenue growth and we are certainly expecting 2012 to be a significant year with guided revenues of $575 million to $585 million. But you can also see on the right hand side that we have a little more diversification of revenues than we did last year when Xyrem accounted for virtually all of our revenues. Xyrem, Erwinaze and Prialt are three core franchises do comprise the vast majority of our revenues. And I'll point out that the slide on the right is pro forma. In other words, we have treated these products as though we sold all of them from January 1st. Of course, we have actually only sold Prialt since mid-January and Erwinaze since mid-June. The closing dates of the two acquisitions that brought us those products.
If we move from the top line for the bottom line, I think it's important to note that more than half of the revenues I showed you on the last slide are projected to flow all the way through to adjusted after-tax net income. Now, we have presented a number this year on a continuing operations basis. That's because before the end of the third quarter, we had announced we would be divesting our women's health business. That divestiture did close last month for a purchase price approaching $100 million. And so these numbers now strip that out for the balance of the full year, so we’re presenting an apples to apples as if we had not have women’s health at any point during the year. Our bottom line, EPS as you can see here is guided to $4.65 to $4.75 for the full year.
So, that gives you a sense for our top line and our bottom, let me walk you through our strategy now. We think it’s fairly simple and it’s been unchanged for the last couple of years. The first part of this strategy is to focus on our existing franchise to optimize the value of the products we do have lead by Xyrem which continues, it’s very nice growth. The second part of this strategy is to continue to add products to our portfolio through selective business development activities acquiring products and or companies. And we do think we’ll have the opportunity to do that moving forward. The third piece of this strategy is to invest in research and development activities that are good fit with our commercial strategy and we believe will provide a high return on investment.
At the bottom of the slide I have noted that we’ve tried to think like owners as a management team and in fact we are owners of the stock which means we are very focused on creating shareholder value we’re very focused on pursuing upside, but we are also very interested in protecting against downside, something it’s a little different from an option driven management team.
Quickly on our lead product Xyrem, the couple of things I think I would point out on this slide first of all this drug treats and works in the patient population in narcolepsy patients. We treat the two main symptoms of narcolepsy excessive daytime sleepiness and cataplexy. This is a very disabling condition and research we have done recently shows that it’s poorly understood by both the general public and the general physician population, but even in some cases in the sleep certified physician population. So, we think we have a lot more work to do to make sure people understand appropriate diagnosis of disease. Currently diagnosis takes on average 7 years to 10 years or more and its estimated the three quarters of U.S. population suffering from narcolepsy is not yet diagnosed and treated.
We think we have penetrated at this point about 20% of the diagnosed population, so the 50,000 patients that are diagnosed leaving us significant room for additional growth. And we are pursuing that growth through a number of initiatives targeting compliance, persistency and new patient starts. On the exclusivity side, we do have 10 patents covering Xyrem with expiration dates out through 2024. There is one ANDA filer Roxane. We are in litigation at this point. I think Bill has written extensively on that. No trial date has been set and we continue to think there are a number of barriers to the generic entry to Xyrem. We do have a Citizen Petition pending at FDA. We did disclose yesterday that the first of our two Citizen Petitions was denied by FDA. We just got that news yesterday, we’re still evaluating our options but I didn’t want to point that out to all of you.
Let me skip a couple of slides here in the interest of time. We do have excellent coverage for Xyrem. The second product of future is Erwinaze. This is our treatment for acute lymphoblastic leukemia, the most prevalent trials at cancer, about 90% curable with standard therapy which does include asparaginase one key component of that therapy. Conventional E. coli derived asparaginase, produces hypersensitivity reaction in approximately 15% to 20% of those patients. Once the patients have experienced the hypersensitivity reaction they need to be moved to non-E. coli derived asparaginase and that’s where Erwinaze comes in. Erwinaze is derived from Erwinia chryanthemi and so you don’t get crossed reactivity. This enables patients to continue this life saving therapy.
This product was just FDA approved at the end of last year and we acquired it in June. You can see up on the top right hand side of this slide that estimated revenues for this year on a worldwide basis are $125 million to $130 million. We won’t report all of that in our income statement since we only acquired the product about halfway through the year. We do think there is significant growth potential in Erwinaze as we helped the treaters to understand how to recognize hypersensitivity reactions and the importance of switching from E. coli derived to Erwinia derived asparaginase in that event. But we also know that there are other places asparaginases were used that might provide additional growth opportunity for Erwinaze over time including in the adolescent and young adults population. We think there is also the potential that over time doctors may look for evidence of antibody response to E. coli derived asparaginase to even the absence of clinical signs of hypersensitivity and may elect to switch therapy to Erwinaze at that time not because you’ve seen at that point allergic reaction, but because you know that the antibodies maybe inactivating the various asparaginase activity you are after with this therapy.
And the last product I’ll talk about briefly is Prialt. Prialt is the only non-opioid alternative for patients suffering from severe pain, severe chronic pain who have intrathecal pump therapy. The product has been on the market for a number of years, we think it does have significant growth potential it’s currently using about 3% of intrathecal pumps in this patient population. But we see that a lot of thought leaders will use it more in 25% of their patients. And what those physicians have discovered is that with careful dosing of the product they can get sustained efficacy unlike with the opioids where tolerance requires up in the dose over time and with the avoidance of some of the opioid associated side effects.
We are all going to have to do some work to realize this growth potential. We’re looking at some options to generate additional clinical data. But we’ve also just begun to change the distribution model for Prialt. This is something we just announced on our earnings call last week implementing a hub distribution system to help physicians who might be concerned about reimbursement of the product. We would like physicians to be making this treatment decision should I be using ziconotide or Prialt rather than more seen in the pumps without concern about their ability to be reimbursed if they do buy and build. This product too we believe as long exclusivity and therefore merits the investment we’re going to make in the product to realize growth over time.
We do have small development pipeline that we’re very excited about. First is taking Erwinaze, which in the U.S. is administered through an intramuscular injection and delivering it instead IV as the other drugs such as Oncaspar delivered. This is how Erwinaze has delivered outside the United States, but in the U.S. we need to get it in the label. And we plan to begin enrolment this quarter in our trial to pursue that IV label expansion. Leukotac for steroid-refractory acute graft-versus-host disease is in Phase 3 in the EU now. We don’t expect data in the near-term but that is a longer term opportunity. Asparec is our pegylated recombinantly produced Erwinia derived asparaginase. We believe this could offer some advantages to ALL patients including less frequent dosing and could have some advantages to the company as well including lower cost of goods and lower a tax burden. And finally Clozapine oral solution has a PDUFA date in February of 2013.
On top of the products I’ve already mentioned as I’ve said we do continue to focus on business development opportunities and what we’re looking at is down at the bottom in the slide. We’re looking for products that we think can really make a difference to patients differentiated products that can be sold through that highly concentrated sales force I mentioned at the beginning of the presentation with meaningful exclusivity so that there is a basis for investment in growing the brand and of course good financial return. I’ll just close by flashing up the 2012 guidance that we gave last week again this is on a continuing operations basis and again I would highlight the top line $575 million to $585 million of revenues are producing adjusted net income of $280 million to $286 million or $4.65 to $4.75 a share. Thanks for your time and I’ll now open it up for questions.
Bill Tanner - Lazard Capital Markets
Thanks Bruce. Any questions for Bruce?
Yeah. So, the question for those that couldn’t hear it was if I could elaborate on the Citizens Petition. So, we had a Citizen Petition denied yesterday where we had asked FDA some questions about demonstrating bioequivalents to Xyrem, but we also have a Citizen Petition on file with an expected response date early next month from FDA, which goes to the REMS portion of an ANDA submission. So, our contention is that Roxane did not in fact in their ANDA filing fully flush out our REMS, which is part of getting this drug approved. It was a condition of approval for Xyrem back in 2002. Instead, they continued to provide additional documentation concerning the REMS over a long period of time to FDA. And our belief is that FDA should not have accepted that ANDA for filing without a full and complete description of how that REMS would satisfy the need for a benefit risk balance for sodium oxybate in the treatment of narcolepsy. I would say it's in our mind the parallel to an ANDA filer submitting a file and saying I don't have a formulation yet, but why don't you start reviewing my application, I'll get back to you later with the details of what that would be. That wouldn't be acceptable. We don't think this should be acceptable either.
Bill Tanner - Lazard Capital Markets
And Bruce as it relates on the litigation and are there differing opinions or differing thoughts about a settlement, just wonder if you could maybe elaborate a little bit on your philosophy on that now and what how you might think about that going forward?
Yeah. So, we are involved in a complex litigation concerning many different patents, many patents of different kinds, including formulation patents, used patents, distribution system related patents. We also think there is some regulatory complexity as we have addressed in the Citizens Petition, but generally about how you would have even the potential for multiple safe distribution systems for sodium oxybate. So, it's a complex landscape. We are very serious about generating and protecting our intellectual property. Some people may not remember this, but shortly before Roxane submitted their ANDA, there were two patents covering Xyrem, we are now up to 10. We do have additional patents in the pipeline. And we will defend them very aggressively.
When people ask about settlements, settlements is often a resolution of these matters for companies. We haven't ruled it out, I am not ruling it out, I can’t comment specifically, because we are involved in ongoing litigation, but our job is management team and a Board of Directors is to do what we believe creates the most value for our shareholders, given all the information available to us. And one of the challenges for us is that set of information available to us in general is slightly greater than available to the market generally. We, of course, know what’s going on with our strategy and we know our next couple of moves that may not be visible publicly, but we take that responsibility very seriously to evaluate our alternatives at every moment in time and do what ultimately will create the most value for our shareholders. Any questions? Yeah, anybody, any questions? Brad?
Yeah. So, the question was about the M&A landscape, what we are seeing in terms of available deals, potential size of deals, potential pricing of deals. So, we continue to see a number of very interesting opportunities. We certainly think that if you look across the specialty pharmaceutical landscape, there are companies that I think either are limited in their ability to access capital attractive rates or don't yet have the kind of infrastructure that I think is required to really maximize the potential of some of these product opportunities. And that I think allows for good opportunities for companies like Jazz Pharmaceuticals to engage in a meaningful conversation about the best path forward. So, we do have a number of opportunities under active evaluation. That's generally been true at each point along the way for the last couple of years.
In terms of sizing, the company is in very strong financial shape right now with significant cash on hand. We did put in place the debt facility of about $475 million in conjunction with the EUSA deal. In June, we did say that we thought we would have the cash flow that we could pay that off if we so desire before the end of 2014, which gives you a sense for our cash flow. We think that capital continues to be available and available on very attractive terms. So, I think from a size perspective we have got a fair amount of flexibility.
Pricing was the last part of your question. We have certainly looked at and in fact completed some deals that were competitive processes. We are also involved in conversations, where we are the only party involved in the conversations, but the key in our case whether we’re in a competitive process or in an individual conversations making sure we can in fact execute on a deal that really does create value. And we’re prepared to be patient to make sure that’s the case while we did close two deals in rapid succession in the first half of 2012. I don’t think we have a goal of becoming a deal factory. We want to selectively do some deals that we think can add real value to the company, good strategic fit again with the products with exclusivity in differentiation that can be efficiently commercialized. And when we see an opportunity like that that we can get for a price that makes sense we will move forward.
Bill Tanner – Lazard Capital Markets
Are there questions?
And Bruce just on to continue on that being patient, I mean what’s your sense in terms of the market evolving into more of a buyers market or a sellers market I mean do you see companies with assets that maybe going forward they are going to be a little bit more challenged and so being patient is going bode well. I guess we hear from a lot of managements there is a scarcity value of assets out there, it doesn’t sound like you necessarily agree with that if you look hard enough you can find?
Yeah. I mean it’s tough for me to comment on the landscape as a whole, because we are not in the position, where I think we need to do a lot of deals to advance our company. I think in the absence of any deals, we have a very nice 2013 and 2014 which means we can again be disciplined and chose the deals that makes sense for us. If you’re out looking for a deal or two rather than 10 or 20, I don’t think it’s that difficult to find a couple of deals that really makes sense. If I were to comment on the landscape as a whole I do think it’s a little bit of a buyers world right now, that doesn’t mean there are an infinite number of good assets as you know it doesn’t mean you won’t face competition, but even if you face competition for an asset as you have the unique angle, a unique way that you can in fact add value to that asset by bringing it into your company that may still will be a real opportunity.
And maybe just on that can you comment for those that might be best familiar the importance of the Azur merger and that experience.
Yeah, good question. So just as a reminder the Azur transaction which we completed in January of 2012 did a number of things for the company, it certainly expanded our product portfolio with a number of new products including Prialt that I featured during the presentation. The products we acquired had trailing net sales of about $95 million. We also added to our management team at a number of a levels and I think created a stronger management team today. But last we also reincorporated the company into an Irish domicile, Jazz Pharmaceuticals plc. And we think that has substantial advantage for us in terms of being competitive from a tax basis with other companies in our industry. We’ve estimated a go forward tax rate of – in 2013 and beyond in the mid-20s that’s certainly better than we would have been looking at it 35% to 40% as a California based U.S. company that has some real advantages for our existing business but also positions us very well as we look at new R&D investments and new business development opportunities.
Bill Tanner – Lazard Capital Markets
Your last question is for Bruce. Okay, Bruce thanks very much.
Bruce Cozadd - Chairman and Chief Executive Officer
Alright, thanks Bill, and thank you all.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!