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Edited Transcript of JAZZ earnings conference call or presentation 7-May-19 8:30pm GMT

Q1 2019 Jazz Pharmaceuticals PLC Earnings Call

DUBLIN May 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Jazz Pharmaceuticals PLC earnings conference call or presentation Tuesday, May 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Allen Yang

Jazz Pharmaceuticals plc - Head of Clinical Development & Acting Chief Medical Officer

* Bruce C. Cozadd

Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO

* Daniel N. Swisher

Jazz Pharmaceuticals plc - President & COO

* Jed Black

Jazz Pharmaceuticals plc - SVP of Sleep & CNS Medicine

* Katherine A. Littrell

Jazz Pharmaceuticals plc - VP of IR

* Matthew P. Young

Jazz Pharmaceuticals plc - Executive VP & CFO

* Michael P. Miller

Jazz Pharmaceuticals plc - EVP of US Commercial

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Conference Call Participants

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* Akash Tewari

Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst

* Ami Fadia

SVB Leerink LLC, Research Division - MD of Biopharma & Generics and Senior Analyst

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* David A. Amsellem

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* David Reed Risinger

Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst

* David William Maris

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Gary Jay Nachman

BMO Capital Markets Equity Research - Analyst

* Gregory Daniel Fraser

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Irina Rivkind Koffler

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Analyst

* Jason Matthew Gerberry

BofA Merrill Lynch, Research Division - MD in US Equity Research

* Jessica Macomber Fye

JP Morgan Chase & Co, Research Division - Analyst

* Kenneth Charles Cacciatore

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Liav Abraham

Citigroup Inc, Research Division - Director

* Nicholas Carl Rubino

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Umer Raffat

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research

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Presentation

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Operator [1]

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Welcome to the Jazz Pharmaceuticals plc First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I will now turn the call over to Kathee Littrell, Head of Investor Relations at Jazz Pharmaceuticals.

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Katherine A. Littrell, Jazz Pharmaceuticals plc - VP of IR [2]

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Thank you, Joelle. And thanks to those of you joining our investor call. Today, we reported our first quarter 2019 financial results and reaffirmed our financial guidance for 2019. The press release and the slide presentation accompanying this call are available on the Investors section of our website.

On the call today are Bruce Cozadd, CEO; and Matt Young, CFO. Joining for the Q&A session are Dan Swisher, President; Mike Miller, Executive Vice President, U.S. Commercial; Allen Yang, Head of Clinical Development and Acting CMO; and Jed Black, Senior Vice President, Sleep and CNS Medicine.

I'd like to remind you that some of the statements we will make on this call relate to future events and performance rather than historical facts and are forward-looking. Examples of forward-looking statements include those related to our future financial and operating results, including 2019 financial guidance and goals; future growth and growth strategies; 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-K for the year ended December 31, 2018, and our Form 10-Q for the quarter ended March 31, 2019, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements.

On this call, we discuss non-GAAP financial measures. We believe these measures are helpful in understanding our past financial performance and potential future results. They are not meant to be considered in isolation or as a substitute for comparable reported GAAP measures.

Reconciliations to the 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.

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [3]

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Good afternoon, everyone, and thank you for joining us. The first quarter of 2019 was highlighted by clinical, regulatory and operational progress.

In March, FDA approved Sunosi for the treatment of excessive daytime sleepiness, or EDS, in patients with narcolepsy or obstructive sleep apnea. We're looking forward to bringing this novel, differentiated therapy to these underserved and undertreated narcolepsy and OSA patient populations.

We launched Xyrem for the pediatric indication in March, following our successful implementation of the Xyrem REMS for pediatric patients and their caregivers. On the R&D front, we were pleased to announce positive top line results from our JZP-258 Phase III study in narcolepsy patients, and we look forward to submitting data for presentation of a fall 2019 medical meeting and discussing our planned NDA submission with FDA.

In addition to these significant accomplishments, we delivered strong top and bottom line growth while continuing to make substantial investments in global R&D and commercial operations to advance our pipeline, support multiple product launches and grow and strengthen in our commercial portfolio. After providing details on some of our key commercial, regulatory and R&D activities, I'll turn the call over to Matt to update you on our financials.

In March, we received FDA approval of Sunosi, or solriamfetol, the first dual-acting dopamine and norepinephrine reuptake inhibitor to treat EDS associated with narcolepsy or OSA. Sunosi's approval is an important milestone for Jazz, as we continue to develop and bring to patients new treatment options for chronic and often debilitating sleep disorders. We are preparing to launch Sunosi mid-year, following a DEA scheduling decision. Launch preparation activities are in full swing, and our sales force expansion is complete. Our sleep sales representatives will promote both Xyrem and Sunosi following launch. We are actively engaged with payers to communicate the value of Sunosi as we work to achieve insurance coverage for patients.

Payer consolidation has continued and has led to a reduction in the percentage of individuals who have open commercial payer plans to what we believe is currently in the 15 -- 10% to 15% range. Around the time of the Sunosi launch, we plan to host an investor update call, and we look forward to sharing additional details surrounding our launch plans and commercial initiatives on that call.

Our ongoing efforts to educate health professionals and consumers about EDS and OSA continue. Our disease awareness program, edsandosa.com, launched last June, educates clinicians on emerging signs that suggest EDS may result from brain alterations caused by OSA, and that these structural changes are associated with neurocognitive and functional impairment. This program encourages clinicians to screen their OSA patients for EDS and reinforces that treatment options are available.

Over the past few months, live educational programs at key congresses and virtual broadcasts have reached nearly 1,000 clinicians who treat OSA patients. A Different Kind of Tired, our consumer campaign, seeks to raise awareness of EDS associated with OSA. Many people do not associate their daytime sleepiness with their sleep apnea. Through this campaign in the first quarter alone, we've been able to reach more than 5 million unique individuals, with education and resources, to encourage conversations with their doctors. We're making progress in Europe and planning for the sleep marketplace by adding key sleep leadership and progressing through the regulatory process.

On the clinical front, the results of our Phase II proof-of-concept study evaluating solriamfetol for the treatment of EDS and Parkinson's disease is being presented later this afternoon at the American Academy of Neurology Meeting. The safety profile, which was the primary objective evaluated in this study, was in line with previous solriamfetol studies. And while we observed activity on the Epworth Sleepiness Scale and Maintenance of Wakefulness Test, we do not plan to move forward with a Phase III study in Parkinson's disease. We have evaluated multiple development program opportunities in a broad range of diseases where we believe solriamfetol has the potential to be an important treatment option. We look forward to announcing our plans for a new Phase III development program mid-year.

We're pleased to report another strong quarter for Xyrem with bottle volume growth of 5% compared to the same period in 2018. The average number of active Xyrem patients increased to 14,575, up 6% compared to the same period last year. We continue to see strong patient enrollment and first-time fills during the quarter.

Additionally, our field-based sales and market access team along with the central pharmacy successfully managed the typical first quarter industry-wide payer churn. Our updated disease awareness program has been highly effective in generating visits to the morethantired.com website. In first quarter 2019, we saw symptom screener completions and specialist finder searches increased by over 250% compared to first quarter 2018. Our disease awareness program will continue throughout the year, and we believe our education efforts can help more patients receive a proper narcolepsy diagnosis and motivate patients with existing diagnoses to actively seek treatment.

In March, we launched Xyrem for pediatric narcolepsy, and initial physician feedback has been very positive. Even physicians who only manage adult narcolepsy patients have expressed interest in learning about the efficacy and safety data in the pediatric population. We look forward to continuing to educate caregivers on the appropriate use of Xyrem in younger patients and to inform clinicians about Xyrem's safety and efficacy profile.

We are pleased that almost all payers with age-restrictive policies have already transitioned to policies reflecting the new Xyrem label.

In March, we announced positive top line results from our Phase III study of JZP-258, our novel oxybate product candidate with 92% less sodium than Xyrem in adult narcolepsy patients with cataplexy and EDS. We're excited to be one step closer to bringing what we believe to be an important product innovation to narcolepsy patients who are more likely to suffer from cardiovascular comorbidities than the general population.

The Phase III study in adult narcolepsy patients demonstrated highly statistically significant differences in the primary end point that measured the change in the weekly number of cataplexy attacks and the key secondary end point or change in Epworth Sleepiness Scale score with JZP-258 as compared to placebo. Patients randomized to JZP-258 showed clinically meaningful maintenance of efficacy for both cataplexy and EDS and a statistically significant worsening for both end points in the placebo group.

The data demonstrated an adverse event profile consistent with sodium oxybate. We're looking forward to submitting the data for presentation at a fall medical meeting, and we expect to meet with FDA to discuss our NDA with a goal of submitting as early as the end of this year.

Now on to our HemOnc therapeutic area. We delivered another sequential quarter increase in Vyxeos sales in the first quarter of 2019 over the fourth quarter of 2018. In the U.S., we continue to target key academic and community accounts with education and outreach initiatives focused on the strong overall efficacy profile of Vyxeos, including the increased opportunity for stem cell transplant and resulting favorable outcomes in secondary AML patients.

In the U.S., despite an increase in competitive promotional activities in the AML marketplace, we continue to see interest from new accounts with community hospitals representing the majority of new accounts ordering Vyxeos. Our EU team has been successful in securing EU pricing and reimbursement, and we now have final approved pricing in England, Wales, Scotland, Denmark and the Netherlands.

In the first quarter, we received health technology assessment recommendations for the value of Vyxeos from France HAS of 4/important; Italy of innovative status; and Germany, G-BA of substantial. The multidisciplinary evidence-based health technology assessment process uses stringent criteria and takes into account numerous factors, including safety and efficacy, to determine the overall health economic value of a therapy. We're pleased with Vyxeos' strong efficacy and value, has been recognized by multiple EU country health systems.

Continuing to generate data from our multipronged development activities will be important to facilitate physician understanding of the benefit and value of Vyxeos for the treatment of AML and MDS. Through our collaboration with MD Anderson, we have ongoing studies of Vyxeos in combination with both gemtuzumab and venetoclax. And this quarter, we expect to start a Phase I attenuated dose-binding study of Vyxeos in higher-risk MDS patients.

The protocol for a Jazz-sponsored Phase I/II study evaluating low-dose Vyxeos in combination with venetoclax and first-line unfit AML has been finalized, and site selection is underway. We expect to begin patient enrollment in the second half of this year.

Finally, we are pleased that the Children's Oncology Group notified has us that the Phase II [1421] study of Vyxeos in younger patients, ages 1 through 21, with relapsed/refractory AML has been accepted for an oral presentation at ASCO. ASCO abstracts will be released on May 15.

Turning to Defitelio. We experienced our strongest quarter yet, primarily driven by growth in use by transplant centers to treat both adult and pediatric patients. We believe clinician knowledge and confidence in Defitelio is increasing and is leading to more vigilant monitoring of patients with risk factors for VOD, earlier diagnosis of VOD and quicker initiation of treatment with Defitelio, particularly in adult patients.

At the EBMT meeting last month, positive results were presented from DEFIFrance, an observational, multicenter, postmarketing study of defibrotide in adult and pediatric patients from HSCT centers in France. Interim findings were consistent with prior registry trials that provided supportive evidence of the efficacy and safety of defibrotide for the treatment of VOD post-HSCT.

Defibrotide use was associated with a day-100 survival rate of 85% among patients with severe VOD versus 32% in those who had progressed to very severe disease. This research highlights the potential importance of treating with Defitelio earlier in the disease to reduce VOD-related mortality. In addition, we anticipate that the proposed U.S. VOD diagnostic criteria and grading, which were presented at the 2019 Transplantation and Cellular Therapy Meeting and are expected to be published in the next year, will be an important tool to address clinician uncertainty around VOD diagnosis and could reduce treatment delays.

We're excited about the progress in our global defibrotide development program and expect to reach several milestones this year. We plan to initiate a Phase II exploratory study, evaluating the prevention of CAR-T associated neurotoxicity, complete the interim analysis for the prevention of VOD study to determine final study enrollment sizing, initiate a Phase II study for the treatment of TA-TMA and complete enrollment in the Phase II prevention of acute GvHD study.

For Erwinaze, despite several out-of-stock periods in the first quarter, sales increased as a result of higher availability of product compared to prior periods. Significant supply disruptions are impacting our ability to deliver Erwinaze to patients, and we expect further supply disruptions throughout 2019. Our work towards developing new crisantaspase product candidates continues, and is focused on a reliable supply chain and a potential improved target product profile. We look forward to providing an update on our program later this year.

To wrap up, we are building on the momentum of our highly productive first quarter to advance our commercial, regulatory and R&D initiatives. We continue to invest significant resources in the expected mid-year U.S. launch of Sunosi, intensive education and outreach initiatives across our key commercial products and the advancement and expansion of our R&D pipeline.

We also look forward to continuing our geographic expansion efforts. In the first quarter, we received marketing approval for Defitelio in Brazil, and Vyxeos is now commercially available to patients in 9 European countries. We're planning for the launch of solriamfetol in the EU following receipt of marketing approval, the expected approval of Defitelio in Japan this year and a new drug submission for solriamfetol in Canada.

Finally, we believe our corporate development efforts will lead to further additions to our portfolio of products and R&D programs.

Matt, now I'll turn the call over to you.

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Matthew P. Young, Jazz Pharmaceuticals plc - Executive VP & CFO [4]

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Thanks, Bruce, and good afternoon, everyone. In the first quarter, we continued to deliver strong top and bottom line growth, in line with our current expectations. Revenues increased 14% to $508 million compared to $445 million in the first quarter of 2018 due to the strong growth of our key sleep and HemOnc products. As a reminder, first quarter 2018 net sales included Prialt, which we divested last September.

Xyrem net sales for the quarter were $368 million, up 16% from $317 million last year. For 2019, we are maintaining our Xyrem net sales guidance in the range of $1.53 billion to $1.57 billion and our expectation for mid-single-digit volume growth.

Turning to Erwinaze. Net sales for the quarter were $61 million, an increase of 20% compared to the same period in 2018. We expect significantly reduced product availability in the second quarter as well as further supply disruptions throughout 2019, creating quarterly variability depending on the timing and extent of those disruptions. We are maintaining our Erwinaze net sales guidance for 2019 in the range of $160 million to $195 million.

First quarter Defitelio net sales were $42 million, up 18% from $35 million in the same period of 2018. We are maintaining our guidance for Defitelio net sales for this year in the range of $155 million to $180 million.

Vyxeos first quarter net sales were $29 million, an increase of 10% over the first quarter of 2018 and an

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13% sequentially from the fourth quarter primarily due to the contribution from EU sales. We're maintaining our Vyxeos net sales guidance for this year in the range of $120 million to $150 million.

This guidance assumes our commercial initiatives successfully lead to increased growth in the U.S. in the latter half of the year. We are encouraged by the EU launch performance and growing EU sales contribution. We are maintaining our total revenue guidance for 2019 in the range of $2.05 billion to $2.13 billion.

Turning to operating expenses. We are continuing to invest on the R&D and commercial front to further diversify our growing R&D pipeline and product portfolio as part of our business model that is focused on sustainable growth.

Adjusted SG&A expenses for the first quarter increased 12% to $148 million or 29% of total revenues compared to $132 million or 30% of total revenues in the first quarter of 2018. First quarter 2019 included increased expenses related to the planned launch of Sunosi in the U.S. and the rolling launch of Vyxeos in the EU.

For Sunosi, a significant portion of our initial investment in 2019 is focused on building the OSA market through disease awareness as well as other educational efforts. Sunosi-related launch expenses are expected to ramp up further in the second quarter.

For 2019, our guidance for adjusted SG&A expenses remains in the range of $620 million to $650 million

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29% to 31% of revenue guidance. Adjusted R&D expenses for the first quarter of 2019 were $55 million compared to $47 million in the first quarter of 2018 or 11% of total revenues in both periods. The increase in adjusted R&D expenses in the quarter reflects our growing investments in our internal programs, including our JZP-258, Vyxeos, defibrotide and asparaginase programs as well as our partner programs and our IND-enabling work with the CombiPlex platform.

For 2019, our guidance for adjusted R&D expenses remains in the range of $235 million to $265 million or approximately 11% to 13% of revenue guidance. The adjusted effective tax rate of 19.8% in the first quarter included a onetime impact from the remeasurement of the deferred tax liability associated with the reduced estimated useful life of the Erwinaze intangible asset, following receipt of the PBL contract termination notice in February. We're maintaining our 2019 adjusted effective tax rate guidance in the range of 17% to 19%.

Adjusted net income for the first quarter increased 17% to $213 million compared to $182 million in the first quarter of 2018. And adjusted net income per diluted share increased 23% to $3.67 compared to $2.98 in the first quarter of 2018. As a reminder, first quarter 2019 adjusted EPS was positively impacted by the significant share repurchase we made in the fourth quarter of 2018.

Please note that we are maintaining our 2019 non-GAAP adjusted EPS guidance range of $14.30 to $15, and our guidance for weighted average diluted shares outstanding of approximately 58 million.

In the first quarter of 2019, we generated $202 million in cash from operations versus $167 million in the first quarter of 2018. We used $111 million to repurchase shares, and had $268 million remaining under our share repurchase program as of March 31.

During the quarter, we made an up-front payment of $56 million to Codiak BioSciences under our collaboration agreement. As of March 31, we had $832 million in cash, cash equivalents and investments, borrowing capacity under our revolver of $1.6 billion and $1.8 billion in outstanding principal balance of our long-term debt.

Our early accomplishments in 2019 has set the stage for an exciting year as we launch Sunosi. We continue to make substantial investments to support our key growth initiatives and to identify opportunities to further expand and diversify our commercial and development portfolios with a focus on providing novel medicines to patients and meaningful returns to shareholders.

Thank you for joining the call today, and I'll now turn the call back over to Kathee.

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Katherine A. Littrell, Jazz Pharmaceuticals plc - VP of IR [5]

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Thank you, Matt. (Operator Instructions) We will gladly address any additional questions after the call or you can reenter the queue. With that said, operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Brandon Folkes with Cantor Fitzgerald.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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On Sunosi, could you share some of the feedback you've had from your initial engagement with payers to date?

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [3]

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

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Michael P. Miller, Jazz Pharmaceuticals plc - EVP of US Commercial [4]

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Yes, Bruce. So they -- as you said, we are in early discussions with the payers. Our goal really is to create access. There is about a 10%, 15% open live count right now with about a 6% to 9% -- 6- to 9-month moratorium by most payers. But I think importantly, meanwhile, while we're working with the payers to gain access, we'll be offering a suite of services that will allow -- really engineering successful trial with these patients in Sunosi.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [5]

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

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Michael P. Miller, Jazz Pharmaceuticals plc - EVP of US Commercial [6]

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

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Operator [7]

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And our next question comes from Umer Raffat with Evercore.

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Umer Raffat, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research [8]

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My question's on pipeline, but I'll have a question and a follow-up on 2 different things. My first one's on -- an easy one. Solriamfetol, can you maybe just lay out for us the efficacy relative to modafinil or Armodafinil? Just so we sort of have a sense for that, especially as we head into launch, and I know there's a clear answer to that, but I just want to hear it from you.

And the second one was on the CD123 bispecific that MacroGenics has. They noticed that in AML setting, they don't have any responses if it's relapsed AML, and they pointed to low CD123 receptor density as being a reason. So when they put their bispecific in, they didn't see much responses. What I was curious about is, in the dose expansion that's happening with your ADC, it all appears to be happening in relapsed AML setting, and I was -- I just wanted to understand that better. And have you seen responses in relapsed AML as Genics is going to that expansion cohort work?

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [9]

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

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Jed Black, Jazz Pharmaceuticals plc - SVP of Sleep & CNS Medicine [10]

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Yes. The question is something, of course, that we have been interested in from the time we started looking at. So.

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and it was the efficacy profile of solriamfetol in the proof-of-concept study, the follow-up study that really got us excited about it. And we've seen those data now replicated in the pivotal trials very nicely. And so as Bruce noted, there's no head-to-head data. I would refer you to the literature on modafinil. Look at the end points with modafinil and Armodafinil versus solriamfetol, and I think that, that tells the story.

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [11]

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But again, our trials and typically trials of other agents have measured both objective end points like the Maintenance of Wakefulness Test that measured subjective end points like the Epworth Sleepiness Scale. And in our trials, we see for solriamfetol really strong efficacy across the end points, across time of the day from early in the day to late in the day. And we see that effect sustain when we do longer-term follow-up studies with patients.

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Jed Black, Jazz Pharmaceuticals plc - SVP of Sleep & CNS Medicine [12]

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And a very consistent dose-response profile.

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [13]

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So with that, maybe I'll take the second part of the question and direct it over to Allen Yang. Just as a reminder, the antibody-drug conjugate program we're referring to is an ImmunoGen program. We do have a relationship with ImmunoGen. We have the option to opt in to 1 or more of 3 programs they have, 2 of which have been identified. But just as a reminder, we're not running these programs ourselves. Allen, do you want to comment on the question?

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Allen Yang, Jazz Pharmaceuticals plc - Head of Clinical Development & Acting Chief Medical Officer [14]

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Sure, Bruce, thanks. So Umer, I think I'll take your second question first and comment on additional data. Again, as Bruce alluded to, this is an ImmunoGen program that we're collaborating with them. They've been excellent collaborators. They've given an update of their data at the most recent ASH meeting for both of their programs.

And I think the question, your first question alludes to CD33 expression levels versus CD123. As you know, there's been multiple agents directed to both of those both antibodies, antibody-drug conjugates, bispecifics, et cetera. And CD33 is more highly expressed.

If you look at all the data in aggregate from different molecules, it's very interesting that CD123 seems to be a very exciting target. Whether it's less amenable to relapsed/refractory disease because it's expressed at lower levels compared to CD33, I think that, that data is still immature, especially with the ImmunoGen compound or overall in the field. I think it's challenging. I mean if you look at Mylotarg in CD33, it took fairly large studies to prove its benefit in up-front disease, although they could see responses in relapsed/refractory. And I think the same thing is true with CD123.

Overall, we're very happy with both of these ADC conjugates, and I think they have single-agent activities. And there is a pathway to approval for both of these agents. They're single agent because there's precedence for that, but then there's a possibility of combinations. And those combinations could include hypomethylating agents, which is traditionally done or combinations with Vyxeos. And I think that's why we're so excited about these programs.

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Operator [15]

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And our next question comes from Jason Gerberry with Bank of America Merrill Lynch.

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Jason Matthew Gerberry, BofA Merrill Lynch, Research Division - MD in US Equity Research [16]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [17]

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Yes. Jason, good questions. I don't think we're going to comment in any great detail about our regulatory strategy. Obviously, we study JZP-258 in the same patient population as sodium oxybate or Xyrem, which does have orphan drug exclusivity. On the PRV, we haven't said which program of our current programs or programs we could bring in, in the future through corp dev, would be the best use of that asset. So no comment at the moment.

And in terms of REMS, we certainly are working to make sure we submit, as part of our NDA, the best REMS to ensure the physicians and patients understand how to access this new medicine and that we make that as seamless as possible as we can for prescribers and patients given our long experience, including some improvements to our REMS over the years. So we want to get that right. I wouldn't describe that as issues. I would just describe that as making sure we thought it all through before we submit to FDA.

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Jason Matthew Gerberry, BofA Merrill Lynch, Research Division - MD in US Equity Research [18]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [19]

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No comment at this time.

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Operator [20]

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And our next question comes from David Amsellem with Piper Jaffray.

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David A. Amsellem, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [21]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [22]

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Yes. So David, on Xyrem peds we haven't broken out how much of our guidance is specific to that. And there are a number of reasons for that, including the fact that, of course, we were aware that some pediatric patients were being treated before we got the formal indication from FDA last year. So there is some pediatric business in there already. And obviously we're early in this launch, but we're very excited to get this data out. People haven't had data before that gave them a good sense of how this drug performs in this specific population. And we know there are a significant number of pediatric patients who are diagnosed and we hope, now, successfully treated with narcolepsy. So no specific guidance, but we think could be very meaningful to these patients and provide some growth in the future.

On Sunosi, we're obviously aware that agents like this, although ours is a new mechanism of action, have successfully been explored in conditions outside of wakefulness. And we're contemplating that and what our best path forward is. As I said, our intent is to come back mid-year with an indication of where we're going next as we continue to explore the full potential, solriamfetol.

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Operator [23]

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And our next question comes from Ami Fadia with SVB Leerink.

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Ami Fadia, SVB Leerink LLC, Research Division - MD of Biopharma & Generics and Senior Analyst [24]

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I had 2 follow-ups to topics that were discussed. Firstly with just with regards to Sunosi, you mentioned the 6- to 9-month time frame before which payers start to cover products. How should that -- how should we think about the launch trajectory of the product in context of that? And when should we start to expect meaningful revenues into next year? And then just with regards to JZP-258, can you compare and contrast maybe the potential for -- the risk/benefit around switching patients from Xyrem to 258 depending upon whether or not you use a separate specialty pharmacy to launch 258? Yes. I think that summarizes the question.

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [25]

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Yes. So on the first part of the question, Ami, the 6- to 9-month moratorium was something we built into our thoughts for guidance for this year. And you recall that when asked about Sunosi guidance, we've said minimal revenues in 2019. There are a lot of other things we need to accomplish early in the launch to make sure people are aware of this treatment option, its benefits and to do some education, particularly in the OSA market about the importance of recognizing and treating EDS. And at the time of our investor call around launch, we'll want to give you some more insight in the metrics you can use and we'll be using to gauge early progress in that launch.

On the JZP-258 question, I'm not quite sure I followed what the question is. You'll recall in the study that we just conducted, we included patients who were naive to oxybate who then went on to JZP-258. We included patients who were on Xyrem already and were switching to 258. And obviously, one of the things we were trying to learn, although this was not the primary objective of the study, was how patients could, in fact, move from Xyrem to 258. And we'll take all of that learning into account as we figure out again our launch plans, our REMS plans, our distribution plans. But I don't view that as a significant concern, just again, something where we want to provide good information.

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Operator [26]

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And our next question comes from Gary Nachman with BMO Capital Markets.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [27]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [28]

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

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Matthew P. Young, Jazz Pharmaceuticals plc - Executive VP & CFO [29]

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No. I think we said early on in our guidance that Europe to represent up to 10%

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contribution. It's running a little ahead of pace, and so I think we feel good about the contribution from the EU thus far in the quarter and in particular also, against the health technology assessments and ultimately, on our path to secure reimbursement across a bunch of geographies that we're again, executing well as it relates to that. So dynamics are setting up well for success in Europe, but we did see growth in both markets.

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [30]

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

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Michael P. Miller, Jazz Pharmaceuticals plc - EVP of US Commercial [31]

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

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Operator [32]

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And our next question comes from David Risinger with Morgan Stanley.

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David Reed Risinger, Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst [33]

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I'm just curious about your expectations and plans to compete with the pitolisant. So are you expecting that product to launch later this year? And if so, do you need to do anything with your commercial efforts to ensure your rate of new-to-brand starts is high and so on and so forth?

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [34]

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Yes. David, I don't think we've got any particular insight into pitolisants' regulatory progress other than the company that has the rights to the drug has said they intend to get approval and launch this year. In terms of our commercial efforts, I think we remained focused as we have been on assuring people understand the benefits and risks of our product, how to use it safely. As you know, we've continued to grow the product many years after initial introduction. We've continued to study the drug whether that's through the recent pediatric trial, studying oxybate in new, and we think, better form with a lower sodium content both in narcolepsy, and of course, we have an idiopathic hypersomnia trial going as well. And we want to make sure people understand what makes our drug so efficacious.

We know that narcolepsy's underdiagnosed and undertreated. A different treatment option being available to patients may expand treatment, could even lead to improved diagnosis of narcolepsy, and I think that's a good thing for narcolepsy patients.

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Operator [35]

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And our next question comes from Greg Fraser with SunTrust.

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Gregory Daniel Fraser, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [36]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [37]

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Allen, you want to take that?

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Allen Yang, Jazz Pharmaceuticals plc - Head of Clinical Development & Acting Chief Medical Officer [38]

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Sure, Bruce. Thanks. Yes. Again I think the challenge here, Greg, is that we don't control that data that's an MD Anderson's study with collaboration. Our hope is that they enroll very quickly. But again, the final decision to present the data or not in an interim form rests with MD Anderson.

In terms of importance, I think it's incremental. I think they're doing 2 very important combination studies for us, combination with Mylotarg and the combination with venetoclax. There'll be other studies that will be coming online as well. But again, combination data is just part of our strategy. We plan to make Vyxeos the backbone of AML therapy. So there'll be other additional studies that we'll have to do, looking at younger patients and sort of lower risk patients as well.

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Operator [39]

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And our next question comes from Ken Cacciatore with Cowen and Company.

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Kenneth Charles Cacciatore, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [40]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [41]

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Yes. Ken, I think your question was specific to OSA. But I'll just say slightly different characteristics of the narcolepsy and the OSA opportunities. We see a fairly high treatment rate but also a fairly high abandonment or failure rate with other agents in the OSA market. I think the biggest thing to take into account is that most patients are not treated. Those that are, may in fact, have stepped through other therapies and not had the impact they'd like. But I think the bigger driver there is there's a lot of patients with EDS that's either unrecognized or recognized but not drug treated.

And in terms of your comments on managed care and access, I think we've been consistent in saying for years, we wouldn't be surprised if patients step through a generic drug that's available before they get to Sunosi. And one of the things that made us excited about this opportunity is the high rate of patients that have voiced dissatisfaction with existing therapies primarily for not having enough efficacy, in some cases, tolerability issues. And as I think Jed so well said earlier, this led us to our interest in this agent in the first place, was recognizing there was a real market opportunity for a differentiated agent with hopefully, answers to some of the problems patients have been describing.

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Operator [42]

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And our next question comes from Jessica Fye with JPMorgan.

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Jessica Macomber Fye, JP Morgan Chase & Co, Research Division - Analyst [43]

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A quick one on Xyrem net price this quarter. I think the deck says volume was up 5%, sales grew 16%, which implies a healthy price contribution, but I think it might be somewhat more than the list price increase. Is there anything that you can kind of offer in terms of what would explain that?

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Matthew P. Young, Jazz Pharmaceuticals plc - Executive VP & CFO [44]

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Yes. Jess, nothing really to say there, not any big wide swings in gross to nets. And you know our price action earlier in the year.

(technical difficulty)

So the rest of what you're seeing is just differences in terms of Q1 results. So that -- nothing really more to say there.

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Michael P. Miller, Jazz Pharmaceuticals plc - EVP of US Commercial [45]

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Yes. Jess, this is Mike. I would say that in this most recent quarter, we did -- I think our field reimbursement folks and our central pharmacy did a really good job of getting through the payer churn. So I think when you use the comparator of Q1 '18, that may explain some of the lift. We also grew patients about 6%. So all the math works.

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Operator [46]

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And our next question comes from Liav Abraham with Citi.

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Liav Abraham, Citigroup Inc, Research Division - Director [47]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [48]

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

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Matthew P. Young, Jazz Pharmaceuticals plc - Executive VP & CFO [49]

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

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Operator [50]

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And our next question comes from Irina Koffler with Mizuho.

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Irina Rivkind Koffler, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Analyst [51]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [52]

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

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Daniel N. Swisher, Jazz Pharmaceuticals plc - President & COO [53]

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Sure. Yes. So with PBL, we remain very focused on operational issues near-term.

(technical difficulty)

Kind of batch to batch, we can get those batches out. And as you know, even without any kind of renewal, we've got rights to the program through 2020 and inventory, beyond. We continue to think we're the best partner for this program. We've got the relationship with the ALL doctors, and look forward to engaging and putting our best foot forward. In terms of updates to the process, it's really PBL's process. So we can't comment on sort of status and timing. It's up to them to provide those updates.

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Operator [54]

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And our next question comes from Annabel Samimy with Stifel.

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Nicholas Carl Rubino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [55]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [56]

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Yes. I would say we put out a quick top line release just to let you know that our primary and key secondary end point were highly statistically significant positive to generally comment on the AE profile. But I would say we have not yet made data public. We'll do that in an appropriate medical meeting this fall. That'll give a whole lot more opportunity to engage with folks about what it means. I think the data we have released has made it easier for us to say we believe the product works. And will be an important new treatment and improvement for patients. And so I think let's wait until we have more data to share to have additional conversations.

And then in terms of number of patients, I think there's no patient who's benefiting from the high sodium load of the existing Xyrem product. We think this would be an improved product for all patients currently taking sodium oxybate. And we've said, historically, we know there are patients who don't get Xyrem therapy because their physicians are concerned in the case of those patients about the high-sodium content. And so we do believe that moving to JZP-258 may open up additional opportunity for a broader patient population.

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Operator [57]

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And our next question comes from Akash Tewari with Wolfe Research.

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Akash Tewari, Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst [58]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [59]

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

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Matthew P. Young, Jazz Pharmaceuticals plc - Executive VP & CFO [60]

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

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Operator [61]

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

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David William Maris, Wells Fargo Securities, LLC, Research Division - Senior Analyst [62]

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

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Bruce C. Cozadd, Jazz Pharmaceuticals plc - Co-Founder, Chairman & CEO [63]

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

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Operator [64]

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

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Katherine A. Littrell, Jazz Pharmaceuticals plc - VP of IR [65]

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Thank you, Joelle. Thank you all again for joining us today. We will be participating in the upcoming Bank of America and RBC Healthcare Conferences, and hope to see many of you there. This now ends our call.

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Operator [66]

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