Jazz Pharmaceuticals plc Q3 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Abbie, and I’ll be your operator today. At this time, I would like to welcome everyone to the Jazz Pharmaceuticals Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Andrea Flynn, Vice President and Head of Investor Relations. You may begin.

Thank you, operator, and good afternoon, everyone. Today, Jazz Pharmaceuticals reported its third quarter 2024 financial results. The slide presentation accompanying this webcast is available on the Investors section of our website. Investors may also refer to the press release we issued earlier today, which is also posted to our website. On the call today are Bruce Cozadd, Chairman and Chief Executive Officer; Renée Galá, President and Chief Operating Officer; Rob Iannone, Executive Vice President and Global Head of R&D; and Phil Johnson, Chief Financial Officer. On Slide 2, I’d like to remind you that today’s webcast includes forward-looking statements, such as those related to our future financial and operating results, growth potential, and anticipated development and commercialization milestones and goals, which involve risks and uncertainties that could cause actual events, performance, and results to differ materially from those contained in these forward-looking statements. We encourage you to review the statements contained in today’s press release, in our slide deck, and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company’s actual events, performance, and results to differ materially from those contained in the forward-looking statements made on today’s webcast. We undertake no duty or obligation to update our forward-looking statements. As noted on Slide 3, we will discuss non-GAAP financial measures on this webcast. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release and the slide presentation available on the Investors section of our website. I’ll now turn the call over to Bruce.

Thanks, Andrea. Good afternoon everyone and thank you for joining us today. I'll start on slide 5. We are pleased to report on our progress in the third quarter of 2024, which was headlined by delivering strong growth across our commercial portfolio and advancing our zanidatamab development program. Recently we achieved an important clinical milestone with positive data from our Phase 3 trial evaluating Zepzelca in first line maintenance for extensive stage small cell lung cancer. Diving into a bit more detail, I'll begin with our commercial execution for the third quarter. The durability of our neuroscience therapeutic area was underscored by both Xywav and Epidiolex posting record quarterly sales and year-over-year double-digit growth. In addition, our oncology business reported 9% revenue growth year-over-year, including a strong quarter for Zepzelca. In our neuroscience therapeutic area, Xywav remains the oxybate of choice as the number one branded treatment for narcolepsy and the only approved therapy for idiopathic hypersomnia or IH. In IH, physicians and patients continue to provide positive feedback on the benefits of Xywav as we build the market, and we expect this indication to drive growth for the brand. In narcolepsy, we continue to see strong patient demand. Epidiolex growth remains strong as it nears blockbuster status. Patient demand in the U.S. is being driven by multiple commercial initiatives, and we've made steady progress in our ongoing ex-U.S. market expansion. Moving to our oncology therapeutic area, Zepzelca continues to perform well, and we now have an opportunity to move from second-line treatment to first-line maintenance therapy based on the positive results of the IMforte trial. Rob will review the trial results and next steps later in the call. For Rylaze, we are seeing high utilization in the pediatric population and are continuing to roll out programs to drive adoption in the adolescent and young adult market. A recent update to Children's Oncology Group pediatric treatment protocols for ALL has impacted the timing of asparaginase administration. We expect these new protocols will have a temporary negative impact on third quarter and fourth quarter Rylaze revenue, after which we expect demand to normalize by early next year. Turning to our R&D and pipeline efforts, we are focused on rapidly advancing our zanidatamab program. The PDUFA date for zanidatamab in second line biliary tract cancer is coming up at the end of this month, and we are well positioned for launch following approval. Our development program includes multiple ongoing trials and a number of HER2 positive tumors across lines of therapy. Zani is our most de-risked pipeline asset and we are moving forward with a sense of urgency and purpose in order to deliver this therapy to patients with HER2 positive tumors who are in need of new and effective treatment options. At the start of the call, I mentioned our recent data readout on Zepzelca; we're excited that patients will potentially have access to this therapy earlier in their treatment, where there is the potential to increase duration of response in a broader patient population, delaying disease progression and extending survival. Our commercial execution and focus on operational excellence have kept us in a strong financial position again this quarter. We continue to deliver top-line growth and generate significant cash flow from operations. We remain focused on investing in the products, pipeline, programs, and corporate development opportunities that we believe have the highest potential to deliver sustainable growth and enhance value. As Phil will cover in more detail later in the call, we are affirming our total revenue and adjusted net income guidance provided on our second quarter 2024 call and have updated certain other elements of our guidance. I'll now turn the call over to Renée to review our commercial performance, after which Rob will share an update on our R&D progress. Phil will provide a financial overview, and then we'll open the call to Q&A.

Thanks Bruce. I'll begin on slide 7. We're pleased with the performance of our sleep business this quarter. Total revenue, which includes Xywav and Xyrem net sales plus royalties from high sodium Oxybate authorized generics, was approximately $505 million in the third quarter. Xywav net product sales grew 17% year-over-year to approximately $388 million, and we expect Xywav to continue to be the oxybate of choice in both narcolepsy and IH. We are focused on enabling as many patients as possible to benefit from low sodium Xywav and saw an increase of approximately 400 net patients exiting the third quarter compared to the second quarter. In narcolepsy, we are seeing strong demand from both new and transition patients. Further, our ongoing focus on individualized dosing and educating patients and prescribers about the benefits of reducing sodium intake continues to drive growth, and I'm pleased to report we had approximately 150 net narcolepsy patient adds compared to the prior quarter. Moving to IH, we remain excited about the growth potential of Xywav in this indication. There were approximately 3,550 active IH patients on Xywav exiting the third quarter, an increase of approximately 250 patients compared to the prior quarter, which is in line with the growth we've seen in recent quarters. Our expanded field force is continuing to focus on increasing the depth and breadth of IH prescribers, which is a primary driver of demand. We are also seeing positive impact from our field nurse educator program, which supports both narcolepsy and IH indications. This program enables new Xywav patients to interact in person with trained healthcare professionals as they begin oxybate therapy, providing education during the time when patients are titrating and optimizing their oxybate therapy and are most likely to have questions related to their treatment. Moving to slide 8 and Epidiolex, we achieved another strong quarter with net product sales of approximately $252 million in the third quarter, representing an 18% increase compared to the same quarter in 2023. Key drivers of increased demand in the U.S. included the positive response to data on the benefits of Epidiolex beyond seizure control, such as language and communication, cognition, executive function, and emotional and social function, as well as synergies from treatment with Epidiolex plus Clobazam. Building on that body of evidence, which now includes data from more than 2,000 patient experiences, we presented data at the European Epilepsy Congress in September that demonstrated improvements in seizure and non-seizure outcomes in patients receiving Epidiolex in combination with Clobazam. Importantly, our improved understanding of the real-world outcomes benefits of Epidiolex not only extends to patients but to their families and caregivers as well. We're also continuing to see penetration in the adult patient setting, which is supported in part by data showing that many LGS patients may reach adulthood without a specific diagnosis and by providing healthcare professionals with clear diagnostic tools for adult patients. Our virtual nurse navigator program, which we launched earlier this year, provides Epidiolex patients and their families with a resource to discuss medication-related topics such as optimized dosing. While it's still early, we are seeing positive momentum with this program. Further opportunities for growth include focused data generation and geographic expansion beyond the more than 35 countries where Epidiolex is currently approved. Moving to slide 9 and our oncology business. Total oncology revenue for the quarter was approximately $285 million, representing 9% growth from the same period last year. Rylaze net product sales were approximately $99 million, representing a 6% decrease from the third quarter of 2023. As Bruce noted earlier, over the summer, the Children's Oncology Group updated pediatric protocols for ALL that impact the timing of asparaginase administration. Importantly, the updated protocols do not change the recommended total number of doses of asparaginase, so we do not expect an impact on overall demand for Rylaze. We anticipate the revenue impact of this timing shift to be primarily limited to the third and fourth quarter of this year and to normalize by early next year. We continue to see the most opportunity for growth in the adolescent and young adult, or AYA, market, and we are continuing to educate oncologists who treat these patients about the benefits of asparaginase therapy. This quarter we initiated several new programs to drive AYA adoption and continue to see opportunity to build that market over time. Turning to slide 10 in Zepzelca, we delivered another strong quarter, with net product sales increasing 10% year-over-year to approximately $86 million. Zepzelca remains the treatment of choice for second line small cell lung cancer patients, and healthcare providers continue to deliver positive feedback on the product's clinical benefit and ease of use. Last month, we were very pleased to announce positive data from the IMforte trial evaluating Zepzelca in a first line maintenance regimen. Our team is preparing to submit a supplemental NDA to include first line maintenance therapy to the Zepzelca label. If approved, this change in practice to first line maintenance would enable a larger number of small cell lung cancer patients to be eligible for Zepzelca treatment. With that, I will turn it over to Rob for an update on our pipeline and upcoming milestones.

Thanks Renée. Slide 12 provides an overview of the key clinical programs in our pipeline. I'll start with Oncology and zanidatamab, our highest priority pipeline program. During the second quarter, the FDA accepted and granted priority review for our BLA for previously treated, unresectable, locally advanced or metastatic HER2 positive second line biliary tract cancer, setting an action date of November 29, 2024. Enrollment for our Phase 3 first-line gastroesophageal adenocarcinoma or GEA trial remains on track, and we estimate top line progression-free survival or PFS data to be available in the second quarter of 2025. If the trial is positive based on PFS and supported by a trend in interim overall survival analysis, we expect it would support registration filings. We have also recently initiated a Phase 2 pan tumor trial that studies zanidatamab in a broad basket of HER2 positive solid tumors. I'll speak more to our zanidatamab development plan in just a moment. Given the opportunity to help more patients, we are very pleased with the positive results from the Phase 3 IMforte trial which were announced last month. The trial evaluated Zepzelca in first-line maintenance therapy of extensive stage small cell lung cancer in combination with the PD-L1 inhibitor atezolizumab or Tecentriq. Atezolizumab is the most commonly used PD-L1 agent in first-line maintenance following standard-of-care induction therapy with carboplatin, etoposide, and immunotherapy. The combination of Zepzelca and atezolizumab demonstrated a statistically significant and clinically meaningful improvement in the primary endpoints of overall survival and progression-free survival compared to treatment with atezolizumab alone. These results demonstrated the potential of this regimen to delay disease progression and extend survival for patients with this aggressive disease. Importantly, upon approval, patients will have access to Zepzelca earlier in the treatment paradigm, where there’s potential to increase duration of response in a broader patient population, delaying disease progression and extending survival. We plan to submit a supplemental NDA to the FDA in the first half of 2025 to expand the Zepzelca label to include first-line maintenance. We are also looking at appropriate peer reviewed forums to present the data, which is an important step toward possible inclusion in NCCN guidelines and compendia listings. Turning to Epidiolex. In August, we announced top line data from our Phase 3 trial in Japan. While the trial did not meet the primary efficacy endpoint of change in indication associated seizure frequency during the treatment period in pediatric patients, improvements were observed in the primary and secondary endpoints. We remain confident in the overall clinical profile of Epidiolex and we are continuing to collect data in Japanese patients. We plan to engage with regulatory authorities in Japan regarding a potential new drug application. I'll also note that following discussions with the FDA, we are now planning to initiate a Phase 1b trial for JZP441, our clinical stage orexin-2 receptor agonist in narcolepsy type 1 patients in the first half of 2025. Turning back to zanidatamab on Slide 13, I want to touch on updated clinical data from zanidatamab and first-line GEA from an ongoing Phase 2 trial that were presented at the recent ESMO conference in September. Data from 41 patients treated with zanidatamab in combination with physician's choice chemotherapy demonstrated a confirmed objective response rate of 84% and a duration of response of 18.7 months, highlighting the durability of zanidatamab treatment. We also reported PFS of 15.2 months, and while overall survival was not yet mature after a median follow-up of 41.5 months, the Kaplan-Meier estimated 24-month overall survival was 65%, and the 30-month overall survival was 59%. This adds to the growing body of evidence for zanidatamab in first-line HER2 positive GEA, which also includes promising data presented at ESMO 2023 from a Phase 2 study of zanidatamab plus chemotherapy in combination with pizotifen. The results from these separate cohorts give us confidence in both treatment arms of the Phase 3 HERIZON-GEA-01 trial as we approach the data readout expected next year. Moving to slide 14 and an overview of our development strategy for zanidatamab, we remain excited about its potential to transform the current standard-of-care in multiple HER2 expressing cancers, including in cases resistant to prior HER2 targeted therapies. BTC represents our first potential approval for zanidatamab with a PDUFA action date set for November 29th. Our confirmatory Phase 3 trial in first-line BTC is enrolling, and we are pursuing multiple indications for HER2 positive tumors beyond BTC. As I noted, our Phase 3 trial in GEA is ongoing. We have also initiated the Phase 3 EmpowHER trial, which is designed to evaluate zanidatamab in combination with chemotherapy after progression on T-DXd, where we have the opportunity to be the first HER2 targeted therapy to demonstrate efficacy and safety in breast cancer patients post-T-DXd. Additionally, we recently initiated a Phase 2 Pan tumor trial. Zanidatamab monotherapy has shown promising activity across a range of tumor types, and this trial is an opportunity to efficiently generate additional data across a variety of HER2 expressing solid tumors. The trial is enrolling three cohorts; a pan tumor cohort including patients with HER2 positive tumors who are HER2 treatment naive, as well as two cohorts of patients who previously were treated with T-DXd. One of these cohorts is enrolling HER2 positive GEA patients, and the other is enrolling HER2 positive breast cancer patients. Overall, we're excited about the prospect of delivering zanidatamab to BTC patients in the near term, and we're executing on a robust development plan based on our conviction that zanidatamab has significant potential to improve care for patients with multiple HER2 expressing tumors. Now I will turn the call over to Phil for a financial update. Phil?

Thanks, Rob. I'll begin on slide 16 with our top and bottom line results. As a reminder, our full financial results are available in our press release issued earlier today and in our 10-Q, which will be filed tomorrow morning. During the third quarter of 2024, we generated more than $1.05 billion in total revenue, a 9% increase compared to the third quarter of 2023. Our strong top line performance was driven by the growth of our key products Xywav, Epidiolex, and Rylaze, which combined grew 14% year-over-year. In addition, our adjusted net income of $417 million for the quarter represents an increase of 23% compared to the third quarter of last year. We continue to generate significant cash from our business, recording approximately $400 million in cash from operations in the third quarter and roughly $1 billion through the first three quarters of the year. Our strong overall financial position, including $2.6 billion in cash and cash equivalents, means we have significant flexibility to invest in priority commercial and R&D programs and corporate development opportunities. On our cash and investment balance, I would highlight that we intend to make a substantial payment on our term loan B following the mid-January 2025 expiration of the 1% prepayment premium in place after our most recent repricing. Turning to Slide 17 and guidance, we are affirming our full-year revenue guidance of $4 billion to $4.1 billion. This represents a 6% increase in 2023 total revenue at the midpoint. We are also affirming neuroscience revenue guidance of $2.825 billion to $2.925 billion, which is a 3% increase from 2023 revenue at the midpoint. Based on the temporary impact to Rylaze’s revenue resulting from treatment protocol updates that Bruce and Renée spoke to earlier, we are lowering our oncology revenue guidance by $20 million to $1.08 billion to $1.13 billion. We continue to expect total revenue growth for 2024 to be driven by double-digit percentage growth of Xywav, Epidiolex, and Rylaze combined. Moving on to the next slide in non-GAAP adjusted guidance, we are maintaining our prior SG&A guidance and lowering R&D guidance by $20 million to $790 million to $830 million. The reduction in expected R&D spending is primarily driven by ongoing strategic pipeline prioritization, including in response to clinical data readouts. We continue to direct investments to programs with the potential for the highest impact. Our effective tax rate guidance remains at a range of 10% to 12%. Adjusted net income guidance remains unchanged at $1.275 billion to $1.35 billion, while we are increasing our EPS range to reflect the impact on our share count of our election to settle the principal amount of our 2026 convertible note in cash, as well as a share repurchase done in conjunction with the issuance of our 2030 convertible notes. I'd also highlight that operating margin for the quarter was approximately 49%, bringing year-to-date operating margin to 43% in line with our full year guidance. Before I turn it back over to Bruce for closing remarks, I wanted to call your attention to some additional information posted on our website. In conversations with investors and analysts since joining Jazz, some investors expressed interest in gaining greater visibility into the geographic breakdown of our revenue, and others asked for greater clarity on how we arrive at the shares outstanding for our GAAP and non-GAAP EPS calculations. On our website, you'll find an Excel workbook that contains historical information responsive to these requests. We hope you find this information useful in analyzing our results, and we'll continue to look for opportunities to enhance our disclosures in ways that are meaningful for investors. With that, I'll turn the call back over to Bruce for closing remarks.

I'll conclude our prepared remarks on Slide 20. Our commercial execution in the quarter resulted in record quarterly revenue, increasing the number of patients benefiting from Xywav with the addition of approximately 400 net patients exiting the third quarter compared to the second quarter and driving growth of Epidiolex and our oncology franchise. Our R&D engine continues to be productive, advancing our zanidatamab development program and generating data for Zepzelca that may enable us to reach more patients in critical need. And we continue to focus on operational excellence, strategic and disciplined investments in our business, and retaining our strong balance sheet which enables future growth. We're excited about the future of Jazz and believe we are well positioned to deliver growth and shareholder value. That concludes our prepared remarks. I would now like to turn the call over to the operator to open the line for Q&A.

Thank you, and we will now begin the question-and-answer session. Your first question comes from the line of Jessica Fye with JPMorgan. Your line is open.

Hey guys, good evening. Thanks for taking my question. I was wondering on Xywav, can we think of the 150 net patient ads in narcolepsy as reproducible in the future? It's a big uptick from what we saw last quarter, so I'm curious how you're thinking about that and if this might be the impact of the Field Nurse Educator program helping with persistence in the early treatment phase. Thank you.

Yes, thanks Jess. I really appreciate the question. So definitely we are seeing greater persistency and benefit from the field nurse educator program in addition to our wraparound services that we provide to both physicians and to patients. And that's something that we spend a lot of focus on. We think that's an important differentiator for Xywav. With respect to narcolepsy, we have seen some variability. I think what's most important to focus on is what is the source of the demand. It is coming from new patient starts. It's also coming from patient transitions from high sodium oxybates, including reversions from Lumryz. Probably the biggest factor that's driving the demand continues to be the ongoing appreciation of the benefits of low sodium by physicians and patients. Keep in mind Xywav is the only oxybate therapy that doesn't carry warning related to high sodium intake. So as we look holistically at the business, we're really pleased with that 150 net patient add for the quarter. We are seeing definitely improved persistency from the field nurse educator program. As I've mentioned, there is a real appreciation, continued appreciation of the low sodium messaging and importance in particular in this patient population that’s predisposed to cardiovascular conditions. And then also it's worth noting that this is all underpinned by what we're seeing by our field teams, which are really strong focus and execution.

Hey guys, thanks for taking my questions. On Zepzelca, I'm wondering if you can kind of help just frame the regulatory path. Is this submission just on the phase three results alone? Is there any implications to this Phase 3 LAGOON study being confirmatory, or does the frontline data just kind of stand on its own and it would be its own unique indication? And thinking about the commercial opportunity, and you haven't given detailed data, but presumably you said it's clinically meaningful, so it's adding a few months of PFS. So should we just think about this as expanding the market, about 7,000 patients and adding a couple cycles of therapy? Is that the right way to be thinking about sort of the relative impact here? Thanks.

Yes, I'm happy. This is Rob. Thanks for the question, Jason. The Phase 3 trial, which we said resulted in not only statistically significant but clinically meaningful benefit in PFS and overall survival, which was on an interim analysis, we think those data stand alone would support an expansion of the label into a frontline indication. As we said, we're working as quickly as possible to get a submission and ultimate approval in frontline therapy. And we think this will change the standard of care in frontline therapy. That submission is planned for the first half of next year. Part of your question was could that also be confirmatory to our existing accelerated approval in second line? We think it can. That may depend ultimately on the timing of this submission relative to when the LAGOON data would come in. But we certainly think these data demonstrate the benefit of Zepzelca in frontline and that has knock-on effects for the overall activity of it, whether it's used in frontline or in second line. As we said in the past, there are about 30,000 new small cell lung cancer patients every year. Maybe 27,000 of those are extensive stage, and a fraction of those are treated. So we do think that it's a larger number of patients. We're likely to have a longer duration of therapy.

Yes. Hi. Can you give us your latest thoughts on the orexin class, the recent data releases from competition, how you're thinking about it and what can you share about your product 441, any data that you can comment on, any of the commentary on the adverse events that stopped you from working on this before. Just anything more you can tell us about your product as well. Thank you.

Yes, Rob, why don't you jump in on orexin?

Yes, I'm happy to. So, Marc, the field is certainly advancing, especially in the NT1 space, but I would say still relatively early in a couple of respects. One is that we don't yet know what the best-in-class profile would be. Certainly it's one that is safe and well-tolerated, and over time we'll see how these compounds compare to one another regarding things like potential for hepatic toxicity, polyuria, visual disturbances, or even insomnia based on possibly a longer half-life. We also think that this class potentially has benefits beyond NT1, depending on the profile of the asset, and NT2 or IH or even other conditions of daytime sleepiness. As we mentioned, we have a Plan 1B study next year with 441 at a dose that we would evaluate in NT1 patients where we think we have potentially a therapeutic index to some of the toxicities we've seen. And that will inform not only whether 441 could go forward in any of those indications but also potentially inform our backup programs.

Good evening. Thanks for taking my question. Just on the topic of Zani. In GEA, you're conducting the HERIZON-01 trial. Can you give us some sense of in the Phase 2 study, what percent of patients were PD-L1 positive versus negative? And if you saw any difference in the efficacy results across the two subsets? And just thinking about the basket trial, maybe if you could just give some color on how. I believe that Zymeworks had done some work before you guys took on Zani in other cancer types. So how is this basket trial likely to be broader in kind of what areas it might be exploring? Thank you.

Sure. Thanks, Rob. Yes, happy to take that, Bruce. So, on the first one, in terms of the data we've published, Frontline GEA, we haven't looked at PD-L1 status, but we also don't think in that, or at least yet, we don't think that that has any bearing on whether zanidatamab would be effective in that setting. Overall, we think the epidemiology suggests that maybe about half of patients are PD-L1 positive, depending on how you define that. And how you define it certainly is important because it should be defined in terms of what the cutoff is that would predict benefit from the use of a PD1 or PD-L1 agent. In terms of the pan-tumor study that we just started, you're absolutely right. We do have a broad experience from Phase 1 and from different cohorts we've run in patients who are overexpressing HER2. What we find is wherever patients are overexpressing HER2, we see strong activity with zanidatamab. Based on its differentiated mechanism of action, we think that compares favorably to other agents tested across a variety of tumor types. So what the pan-tumor study allows us to do is extend that experience, especially in a variety of rare tumors that are naive to HER2 therapies that could ultimately, depending on the results, support an expanded label. It also allows us to get some additional data in patients who are experienced with other HER2 agents, such as breast cancer and gastric cancer, with monotherapy, that overall could support a pan-tumor indication as well.

Hi, thank you for taking our question. This is a follow-up on Zani. I'm curious about the opportunity in biliary tract cancer. Could you share your current thoughts on the peak assumptions and how the ramp to that peak looks for second line biliary tract cancer? Thank you.

Yes, so I think with respect to how to think about the ramp, it's important to remember first, keep in mind we don't provide product-specific guidance, but I would just remind you that BTC represents a very small patient population and therefore with this first indication that we're going after, the revenue expectations are quite low when we think about BTC. This is a rare cancer, about 3,000 patients in the U.S. in the first line and second line. However, it's also a devastating cancer with five-year survival rates of less than 5% in the metastatic setting. And so for this reason, we feel very strongly in bringing the therapy forward for patients as quickly as possible. But this is not the largest opportunity set. Now with that being said, we do see a much broader opportunity. One being two plus billion dollars in peak with those larger opportunities coming from GEA, on target to read out in the second quarter of next year. Then of course metastatic breast cancer and also now the pan-tumor study underway.

Hi, this is Peyton on behalf of Joe. Thank you for your questions. Regarding the GEA study and zanidatamab, how crucial is it for the study to achieve positive results in both the doublet RMB and the triplet RMC for the primary endpoint? If we only observe benefits in one of the subsets, is there a viable path forward? Could you also outline various scenarios for the data readout? Thank you.

Yes. Rob, you want to take that?

Yes, thanks for the question. So you're absolutely right. The trial is set up so that we have two shots on goal. There's a control arm and then there's Zani plus chemo, then there's Zani chemo with the addition of atezolizumab which is a PD1 inhibitor. Certainly for approval, which we think would be supported on the basis of progression-free survival data, as long as the trend in overall survival is going in the right direction for approval, we need to show benefit of either arm over the control arm. For the ARM that includes the PD1 agent, that has to be incrementally better than Zani and chemo. So it's a so-called contribution of components. We think we'll need to demonstrate that, but certainly it gives us two shots on goal. We have confidence based on the data that have been published in the two cohorts of first line that Zani plus chemo will do very well regardless of the patient's PD-L1 status, as I mentioned before. The addition of PD1 gives us another opportunity because it's clear that for patients who are truly PD-L1 positive, that PD1s can incrementally improve the benefit.

Hi, this is Anastasia on for Akash. Thanks for taking the question. So you mentioned earlier that you have a Phase 3 zanidatamab plus chemo in a post in HER2 positive breast cancer setting. Could you give us some more details on that? Maybe like the development plan, study design, timing, if you're planning any additional studies, and what that patient opportunity might look like relative to GEA. And maybe just how confident you are in the HER2 resistance mechanisms posting HER2 use? Thanks.

Yes, so thanks for the question, and I'll start with the last part of it. We really feel that zanidatamab is a highly differentiated best-in-class HER2 agent, and that's based on published data not only on the mechanism of action and preclinical data which you can find in Nature Communications, but the steady stream of very encouraging data across different tumor types in different combinations. That includes several different cohorts of breast cancer patients. The opportunity we see with the now ongoing Phase 3 trial is to generate data in those patients who are either intolerant to or progressed on T-DXd. As T-DXd has taken a foothold in second line and potentially moves up into frontline, that's the main data gap. What to treat patients with once they progressed on TDXD. We think we have a growing body of data that supports the use of zanidatamab in that setting. It's differentiated in that we see activity in patients who progress after trastuzumab and Perjeta, patients who progress after T-DM1, as well as T-DXd. That's the basic concept here: we would be the first to generate data in the space, and it's going to be a significant unmet need, and we hope to be the first into that place, into that space. The basic design is for patients in that third line plus space; a physician would choose the backbone chemotherapy and then they would be randomized to receive zanidatamab on top of that or trastuzumab, and these would be patients who had already progressed on trastuzumab, where the standard of care is otherwise fairly unclear. We think our data are very supportive of winning in that space.

Hey, this is Jaya calling in for Annabel. Thanks for taking my question. It's related to Zepzelca. You showed efficacy in the first line maintenance setting. Do you have a better understanding of the peak opportunity for the product now, and how do you think physicians will respond to the data? Will they adopt it quickly? On the other hand, does this impact the second line setting?

Yes, I’m happy to jump in on that. So, first of all, we're really excited about the results in the first-line trial. As Rob had mentioned earlier, we do think it will be practice changing, and we look forward to sharing the full data set in the future. Now, with that being said, as we look at where we are today, it's important to note that until we have approval, we won't be actively promoting the first-line indication. Of course, I would expect we'll get use once we are adopted by NCCN guidelines, but until we get the data out there, we would not expect a ton of use in the first line. In the meantime, we're continuing to see strong use of Zepzelca in the second line even with Tarlatumab on the market; we have several years of being the standard of care. In the second line, we have physicians getting a lot of experience with Zepzelca and we get a lot of positive response regarding its clinical benefit and ease of use. Recall, it's given in the outpatient setting and doesn't require inpatient monitoring. We think this will bode very well for adoption in the first line once the data is available. As Rob had mentioned earlier, there are about 27,000 patients in the first line, vast majority of those being extensive stage. So we do expect an overall increase to the revenue opportunity given that once we get into the first line, we'll be looking at a larger patient population as well as longer treatment duration. Rob, did you want to jump in as well?

Yes, I'd love to. I mean, as we said before, we do think these data are practice changing. We haven't shared the data themselves, but we said not only statistically significant, but clinically meaningful differences on both PFS and overall survival. Remember that overall survival was at the time of a planned interim analysis. We think, given that, we're going to move as quickly as possible. We think it's a compelling case, and physicians will find the data compelling as well, and there will be significant uptake there. As I mentioned before, that does mean that it's a larger patient population that we can address than we currently can in the second line. We do expect it to be a longer duration of therapy. Remember, patients typically do not get a complete remission after their chemotherapy induction. So they have active residual disease under the current standard and are essentially waiting to progress. This preemptively treats those patients rather than waiting for clinical progression in the second line. I think that just now that the data show that that gives them an opportunity to benefit for a longer period of time. So we do think it's more patients for a longer period of time. If a patient has received Zepzelca in frontline, and remember, unlike traditional induction chemotherapy, patients will get Zepzelca until progression. So we do think in that case they wouldn't then go on to get Zepzelca again, second line. The point is that we will preemptively use Zepzelca, which accesses more patients for a longer duration.

Thanks. So my question's also on Zepzelca and specifically wanted to get your thoughts on the exclusivity runway for the product on the Orange Book. You got a patent expiration in December of 29 and then you have orphan exclusivity expiring in 2027. With the first line data, do you expect to get an ODE on extensive SCLC first line? How should we think about how your exclusivity runway may or may not change with the first line data?

Yes, so just to jump in here in terms of thinking about the exclusivity runway, I don't think we're in a position to speculate right now on any particular updates. We're thrilled with the data that we've recently generated. As we said, we look forward to sharing that and getting that out into the market to be able to drive further understanding of the use of Zepzelca in the first line. But I would say any further updates on IP changes over time as a result of this would be something that we would update at the time that might be relevant.

Thank you for taking our questions. I was just wondering if you could provide more color on the pipeline prioritization that you mentioned and how we should think about the makeup of the portfolio now. And then given these changes, how does that impact your appetite for potential BD transactions, whether it be in neuro or oncology. Thanks so much.

Yes, maybe I'll take the first part of that, and then Phil, happy to have you jump in on the CorpDev piece of it. In terms of portfolio prioritization, we are always trying to invest in those programs that we think have the most potential, particularly after we've done some de-risking or proof-of-concept work. We clearly have prioritized zanidatamab first among our existing pipeline assets, given the potential broad applicability of that molecule and our excitement about it in multiple settings. We do have some earlier programs we don't talk about as much on these calls, but you'll see our progressing. You can always get more information on that on our website. Then, we do see some variation in R&D spend quarter to quarter depending on exactly what phase of clinical trials we're in, in some cases milestone payments if we're in partnered programs. So I wouldn't read too much into that particular comment. Phil, on CorpDev?

Yes, Andrea, I'd put it in the context of our overall capital allocation. So clearly, we're seeing great growth among a number of our products that are currently on the market. So we're ensuring that we're putting the right investment behind those to maximize the benefit to patients as well as the revenue to Jazz and then prosecuting the pipeline that we currently have in-house, where, as you heard on the call, zanidatamab really is sort of the key to that near-term and medium-term pipeline. We are looking to continue to bolster our future growth prospects through CorpDev. I would say anytime you have negative readouts, that probably increases the desire to do things. Obviously when you have positive readouts and things are advancing, that creates some of the internal movement that may obviate the need for some of the BD or CorpDev. We definitely are actively looking at a variety of opportunities, not only in oncology, but also in neuroscience as well as in select rare opportunities where we think we could deploy our capabilities footprint to benefit patients and rapidly bring innovative new therapies to market. We do have very strong cash flow, as I mentioned earlier on the call, and accessibility to capital, whether that's cash on the balance sheet or through the debt markets to back those CorpDev efforts.

Hi, this is Michael Riad on for Jeff Hung. Thank you for taking our question. Circling back to the discussion on the orexin program for the Phase 1B. Do you have any additional color you could provide on the level of dose reduction you would go for with 441 and NT1? And would there be enough leeway to potentially accommodate expanding to other types of narcolepsy or IH? Thanks so much.

Yes, we haven't yet disclosed the doses that we'll evaluate in the study that we described, but we will look at multiple doses because part of the goal there is to really understand relative to what we observed in healthy volunteers where we think we had a very robust effect, what's the dose that we're going to need in NT1? Obviously, we've watched other programs and we kind of see the relative dose at healthies versus what they've observed in NT1. We need to see where we land where we think we have enough of a safety margin. That will ultimately dictate whether we have a path forward in NT1 or in other indications where you're likely to need higher doses. It's really the goal of the study to better characterize some of the aspects you highlight.

Yes, thanks for the question. I'll start out with comments on what's happening with the business currently and then ask Rob to jump in to talk a bit about the path forward in Japan. With Epidiolex, we're really pleased with the growth that we saw—18% year-over-year. It's our highest net sales quarter to date with more than $250 million of sales. So you can see we are well on our way to having a billion-dollar franchise. In terms of what's driving the growth, we continue to have Epidiolex just seen as a highly differentiated product that starts with the data first and foremost. We have a robust body of evidence that supports both the seizure and non-seizure benefits. That non-seizure benefit data resonates with physicians and caregivers on those benefits, such as cognition, behavior, emotional, and social function. So that is a very strong differentiator for Epidiolex and having an impact in the market. We're seeing strong execution from the teams focused on our key drivers of growth. We've had good momentum in the adult and long-term care setting within the U.S. We provided some new screening tools that we talked about earlier. We have breadth and quality of our access that's continuing to improve, both in the U.S. and also from multiple positive reimbursement decisions outside the U.S. Also, in how we're operating, we've made some structural changes to how we're organized and how our field teams collaborate; that is having a positive impact in terms of our effectiveness. We're piloting some new programs where we're also seeing some early success. In the U.S. we talked about the virtual nurse navigator program—rolled out new campaigns, some highly targeted consumer ads, and even added a few virtual account manager positions. The good thing about doing these pilots is you can see what's working; you can invest more behind them and really drive greater growth by understanding what's having an impact.

Yes, just to remind folks that what we reported on previously was based on an interim analysis at 13 weeks. We know the trial needs to continue to collect additional safety data at 26 and 52 weeks to support registration in Japan. We do think that while the efficacy at the interim hit its pre-specified mark, we believe the data could support registration in Japan, and we are planning to by midyear next year have an interaction with PMDA to clarify next steps.

All right, it looks like that was our last question, so let me wrap by recognizing our Jazz colleagues for their efforts on behalf of patients and their families. I thank our partners and shareholders for their continued confidence and support. Thank you all for joining us today.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.