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

Thank you, Kevin, and thanks to those of you who are joining our investor call. Today, we reported our fourth quarter and full-year 2019 financial results and provided financial guidance for 2020. The press release and the slide presentation accompanying this call are available on the Investors section of our website. On the call today are Bruce Cozadd, CEO; Dan Swisher, President; and Rob Iannone, Executive Vice President, R&D. Joining for the Q&A session are Mike Miller, Executive Vice President, U.S. Commercial; Jed Black, Senior Vice President, Sleep and Neuroscience; Philip Jochelson, our Sleep and Neuroscience Therapeutic Head; Anne Borgman, our Hematology and Oncology Therapeutic Head; and Shawn Mindus, our Senior Vice President, Financial Planning, Analysis and Strategy. I'd like to remind you that some of the statements we will make on this call relate to future events and performance, rather than historical facts and are forward-looking. Examples of forward-looking statements include those related to our future financial and operating results, including 2019 financial guidance and goals, future growth and growth strategy, product launches, sales and volumes, supply challenges, regulatory activities, ongoing and future clinical trials, and other product development activities and corporate development efforts. These forward-looking statements involve risks and uncertainties that could cause actual events, performance and results to differ materially. They are identified and described in today's press release, in the accompanying slide presentation and under risk factors in our Form 10-Q for the quarter ended September 30, 2019 and our Form 10-Q for the quarter ended December 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 our potential future results. They are not meant to be considered in isolation or as a substitute for comparable reported GAAP measures. Reconciliations of GAAP to non-GAAP financial measures discussed on this call are included in today's press release and slide presentation available on our website. I'll now turn the call over to Bruce.

Good afternoon, everyone. And thank you for joining us. As a global biopharmaceutical company with approximately 1,600 employees, we're successfully executing our long-term growth strategy and are pleased with the substantial progress we made in 2019, including two product approvals and two launches as well as the achievement of key R&D objectives. Through four announced transactions, we bolstered our R&D pipeline with multiple new medicines from early to late stage development, broadening our hematology and oncology therapeutic area into solid tumors, and our sleep and neuroscience therapeutic area into movement disorders. With a strong financial position, including record revenue, adjusted net income exceeding $900 million in 2019, we are well positioned for continued growth. Supporting our growing business, while executing on our key strategic objectives, including multiple product launches and further expansion and diversification of our portfolio remains a critical priority. Now, I'll provide an update on our key sleep and neuroscience programs. In the fourth quarter, we saw demand for Sunosi continue to rise. We had more than 2,200 unique prescribers and more than 13,000 cumulative scripts through year-end. Scripts for the treatment of excessive daytime sleepiness in OSA were 60% of total Sunosi scripts at year-end compared to 50% early in the launch. This increase is encouraging as our 2020 focus is to expand our outreach beyond narcolepsy prescribers and to educate and establish relationships with healthcare providers who manage OSA patients. Additionally, we are very pleased with the strong coverage we have obtained for Sunosi. Sunosi is on the Express Scripts, Cigna, CVS Caremark and Prime Therapeutics preferred tier two formularies, with more than 70% of commercially insured patients having access to coverage for Sunosi. In January, the European Commission approved Sunosi to improve wakefulness and reduce CDS in adults with narcolepsy or OSA. Currently, there are…

Thanks, Bruce. So, collectively, our hematology and oncology products delivered revenue growth of 11% in 2019 versus 2018. We are looking forward to continued global growth in 2020, both within our current portfolio and with the addition of lurbinectedin for relapse, small cell lung cancer in the United States. Also, we're pleased to announce the appointment of Samantha Pearce as Senior Vice President of Europe, Rest of World effective March 2. Sam comes to us from Celgene, where, over the last 10 years, she served in multiple global senior management roles, most recently as vice president and general manager for international markets. So, starting with Vyxeos, in the fourth quarter, worldwide sales benefited from strong performance in Europe as our European teams making progress and increasing awareness of Vyxeos and its very strong efficacy profile. In the United States, we continue our efforts to reach new physicians and broaden the adoption, particularly among community accounts. We have plans in place to expand promotion and distribution to a broader set of community accounts to ensure that every patient has access to Vyxeos regardless of if they are treated in hospital or outpatient at a local community practice. So, now on to Defitelio. We are pleased with the solid global performance for Defitelio in the fourth quarter and for the year 2019 as a whole. The recent launch of Defitelio in Japan is going very well, with positive feedback from physicians and our partner, Nippon Shinyaku. Our 2020 initiatives are focused on educational and promotional efforts to improve physician awareness and time to diagnosis of VOD, to increase the reach and penetration into new accounts, and to make Defitelio available in additional countries. Our internal global expansion team is continuing to assess additional geographic regions for Vyxeos and Defitelio. And in 2020,…

Thank you, Dan. We are pleased with the expanding capabilities of our R&D organization and our progress in diversifying our portfolio through internal efforts as well as external opportunities, including innovative technologies, partnerships and collaboration. We are strengthening and advancing our R&D pipeline, which includes multiple new medicines and early through late stage development, with the goal of providing important new therapeutic options and improved patient outcomes in difficult-to-treat diseases. In 2020, our R&D organization will focus on maximizing opportunities for our commercial products through data generation and evaluation of new indications, continued expansion and diversification of our early and late-stage pipeline, and exploring opportunities to acquire in-license and integrate highly differentiated product candidates into our development portfolio. I'll begin with development activities in our sleep and neuroscience therapeutic area. On the development front, JZP-258, we are pleased with the strong enrollment in our Phase III idiopathic hypersomnia study, which reached 50% enrollment in fourth quarter 2019 and we're looking forward to completing enrollment in this study in the second half of this year. Our development of Sunosi for patients with major depressive disorder and persistent EDS also continues to progress. MDD is a common psychiatric disorder, affecting approximately 11 million to 12 million individuals in the US. Approximately 45% of MDD patients have EDS, with only about 5% receiving therapy. We have finalized the protocol for this pivotal Phase III and expect to initiate the study mid-year Moving to JZP-385, a highly selective modulator of T-type calcium channels for the treatment of patients with a central tremor. We are working to develop a modified-release formulation of JZP-385, with once-daily administration to enhance the clinical profile. We plan to use this formulation in our Phase I/IIb study in patients with a central tremor, which we expect to initiate later this…

Thanks, Rob. I'm delighted to announce that we've appointed Renée Galá as our new Chief Financial Officer effective March 16. Renée will lead all areas across our global finance, FP&A, strategy, corporate development, investor relations and information technology groups. Renée brings more than 25 years of industry experience in finance, corporate strategy and corporate and business development. She most recently served at GRAIL as CFO. And before that, as CFO of Theravance Biopharma. Renée's proven track record, strategic insights and strong leadership capabilities will be instrumental to Jazz as we enter the next phase of maturity. 2019 was an exceptional year for Jazz, with strong top and bottom line growth compared to 2018. We generated $2.2 billion of revenue and more than $900 million in adjusted net income, while making significant investments that we believe are essential to supporting our sustainable growth strategy. We look forward to further diversifying our revenue base by executing on key strategic priorities, including the ongoing US launch and upcoming European launch of Sunosi as well as the US launches of lurbinectedin, JZP-258 and JZP-458 following approval. For 2020, our total revenue guidance is $2.32 billion to $2.4 billion, representing expected growth of 7% to 11% over 2019. Now, turning to our key products. Xyrem continued to deliver strong growth, with 2019 net sales of $1.64 billion, an increase of 17% compared to 2018. As we think about net sales guidance for 2020, we're including Xyrem sales and any initial sales of JZP-258 under the heading of oxybate franchise. The expectations in our guidance reflect low to mid-single digit volume growth, new market entrance, and the impact of contracting on gross to nets, as we focus on our long-term strategy to ensure high quality patient access for our expanding portfolio of sleep products. The oxybate.…

Thanks, Bruce. We kindly request that you limit yourself to one question during this call, so that everyone has an opportunity to ask a question. 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.

[Operator Instructions]. Our first question comes from Brandon Folkes with Cantor Fitzgerald.

Alright. Thanks for taking my question and congratulations on the progress in the quarter and the year. My question is, can you just elaborate on how we should think about the launch ramp for lurbinectedin this year, assuming it gets approved? How long would it take for the NCCN guidelines to change post approval in terms of coverage? Are the inclusion of these guidelines prerequisite for any coverage? And then, maybe are there any risk-weighted lurbinectedin revenue in the 2020 guidance? Thank you.

Sure. I'll start and Mike can add in. But really excited to be in the solid tumor space, area of unmet need, very little in the way of new therapies and second line. So, really favorable profile and we're happy to date with the interaction that the company has been having with the FDA. In terms of the launch ramp, what we've said is, you can model out – there's 17,000 patients in second line. Many of them are dissatisfied with the current one approved treatment option, which is topotecan, and we think we've got efficacy, safety and administration advantages over that. So, the key was, how do we make sure that there's awareness of the clinical data. And PharmaMar has done a nice job of publishing some of that data. Many of us just came back from the World Lung Congress down in Santa Monica. And there was a surprising degree of awareness, given that there's not even a journal publication yet on that. And what is key, particularly as we think about moving into the community practices, is to get inclusion into the guideline. So, we're going to lean into this. We're going to get the data to the relevant part of the NCCN ahead of their annual meeting around small cell, which will be in May. And so, hopefully then, with the data in front of them and a good label approval, potentially in the near future, we would get the inclusion soon after launch. And then, we'll be prepared from a medical science liaison and sales reps to get to close to 90% of the market potential in terms of the doctors we're going to be covering. So, really excited for that. We're not giving specific guidance, I don't think, on sales. But, anyway, really good new opportunity for us as we do an expanded field force around adult and oncology.

And just narrowly to your question, in our total revenues, we have included a little bit for lurbinectedin, but it's not really significant to the company as a whole.

Great, thank you very much. That was very helpful.

Our next question comes from Umer Raffat with Evercore.

Hi. Thanks so much for taking my question. Bruce, I know there could be a possible interim on Erwinaze this summer. And my question is, what should be the bogey on response rate we should be looking for? And I ask because, if I look at your IM study, because IM is the part one of this ongoing trial, the IM study on your label for Erwinaze has a response rate of 100%. So, I was just not sure what the right bogey for us should be going into this.

Yeah. So, let me start by just pointing out, we're talking about JZP-458 here. And maybe, Rob, you could remind people what the end point of our study is and what we'll be looking for to demonstrate the kind of efficacy we need for this product.

Yeah. So, the endpoint is asparaginase activity at 72 hours after the dose. And so, we have an agreement on precision around the proportion of patients who need to hit that target with the FDA. I guess maybe the only other thing I would add is the dose for this trial is selected based on healthy volunteer studies, where we have a high degree of confidence that we'll hit that target as we transition, translate that from healthy volunteers into patients.

Thank you. Our next question comes from Gary Nachman with BMO Capital Markets.

Hi, good afternoon. On JZP-258, any thoughts on how aggressively you'll be promoting the product and the benefits over Xyrem? And if you'll add any reps to try and expand the market. And also, any thoughts directionally on how you might be thinking about pricing, how do you expect payers will handle the two products? Thank you.

Yeah. So, maybe I'll let Dan weigh in a little bit on how we think about sales force. It's too early for us to talk about pricing. In terms of payer access, we certainly will be seeking broad access for what we believe will be a better product for all patients. And our promotion will be tied to that. We've developed this product candidate to be safer, to be a better lifelong therapy for patients. And we're excited for patients to get the benefit of that.

Yeah. Thanks, Bruce. Yeah, in terms of on the sales force side, yeah, the good news is we've got a very deep and longstanding franchise with the narcoleptic treaters. And we continue to very much cultivate those relationships as we've been expanding recently into OSA treaters. And we're going to continue to ensure that we've got the right field force with the right share of voice behind 258, and make sure both medically as well as promotionally, there's a good understanding of the value proposition that 258 brings to patients who have lifelong therapy. So, we see good opportunity with the existing patients, with new patients and with patients who otherwise would not be candidates for the high sodium Xyrem program. In terms of pricing, as Bruce said, we're not going to reference that, but importantly, we do have now payer contracts with most of the major payers broadly across our sleep franchise. And I think our initial goal is make sure that we don't have pricing obstacles. So, as physicians and patients want to convert over to the 258, it's not blocked by market access issues.

And I'll just wrap up by picking up on Dan's comment about sleep franchise and say, when we look at access and, honestly, when we look at promotional activities, it's really across our portfolio. It's not just thinking about a successful launch of 258. It's ensuring we continue to support Sunosi as we expand our knowledge about Sunosi, we expand the physician base that understands the product, and eventually as we think we encourage more patients to go seek treatment.

Okay, thank you.

Our next question comes from Gregg Gilbert with SunTrust.

Thank you. On the pipeline, question on lurbi, perhaps you can talk about why doxorubicin was chosen as the combination agent in the past for that ongoing study, and maybe you can talk about what's on the drawing board in terms of potential future combinations that could make sense. And similarly, on pipeline opportunities for 458, can you provide some color on what studies you may decide to do to expand the market there to get revenue potential well beyond what we've seen historically given the supply issues? Thanks.

So, I can take – this is Rob and I'll take the question on the combination with doxorubicin. So, the program, obviously, was run by PharmaMar and they had a combination with doxorubicin that looked very promising. And those data were emerging even before the single arm data were mature. So, they launched into a pivotal trial in combination with lurbinectedin. Bear in mind that that combination is for the upfront portion of the treatment for those patients who haven't progressed after they've gotten their full dose of doxorubicin. They continue on lurbinectedin at the full monotherapy dose. In terms of other combinations, it's something we are [Technical Difficulty] opportunities with lurbinectedin. We're thinking through that carefully now. We think there's actually a great deal of opportunity. For starters, within small cell lung cancer, potentially getting into earlier lines of therapy. We think there are logical combinations, such as with immunotherapy. There's been some initiation of immunotherapy combination trials already. There may be a rationale for combining with other agents as well and those will be potentially in subsequent lines of therapy. As you know, the basket trial included tumor types beyond just small cell, and so we are looking forward to those data maturing and giving us potentially some signals into other tumor types that we may be able to pursue as well.

And, Rob, I don't know if you want to comment on potential broader use of asparaginase as we develop 458. We've obviously been limited in how we can use asparaginase in clinical investigation due to limited supply, but you might talk about where we could go with asparaginase.

Yeah. Thanks for that, Bruce. So, first and foremost, we'll be thinking about JZP-458 beyond the US. So, in conversation with Europe and Japan around what data sets we would need to ultimately support approvals and other regions. As you know, asparaginase is used differently depending on the protocols and the age groups. And so, we think especially in that adolescent and young adult group where it isn't used as much as in the younger group, there's an opportunity to evaluate it there to show the benefits of asparaginase in that setting. That certainly would be of interest for 458. And interestingly, the literature is, I would say, pretty rich in data of asparaginase and other tumor tests, especially around combinations, other leukemias like AML, solid tumors, et cetera. And so, as Bruce alluded to, with a robust supply, it will give us an opportunity to really truly explore JZP-458 in other indications.

And the one other thing I would just add with your supply constraints, and those supply constraints, we expect, with 458 is to be able to move into other geographic markets. So, we've got a partner in Japan who has been unable to launch despite approval. And I think from both supply and quality, it's very important in some of these other markets. And so, we look forward to supporting our partners in those regions as well.

Thanks. Our next question comes from David Amsellem with Piper Sandler.

Thanks. I wanted to ask a bigger picture question about the oxybate franchise. As you stare down the launch of 258, you have also other wakefulness agents in the market. You have Sunosi, you have pitolisant or Wakix, then there's Avadel's once-nightly product. So, as you think about the longer-term picture for the oxybate market, are you worried at all that the market may start to splinter to some extent and how does that play into your thinking regarding the extent of patient capture for the low sodium product? In other words, how do you look at the market over, say, the next three to four years with a more varied landscape and what that might mean for 258? Thank you.

Yeah. Good, broad question, David. Thank you for asking that. As we look at our sleep franchise, we see a number of growth opportunities. You've seen continued growth in diagnosis and treatment of narcolepsy. We're, obviously, broadening on the excessive daytime sleepiness side outside narcolepsy and OSA. We're now broadening geographically an opportunity we did not have with Xyrem due to prior commercial rights. And we think that that growth potential has a long way to run, including, as I talked about, the potential that 258 might be appropriate for whom Xyrem has not been the appropriate treatment choice. As we see more entrants into the market, both potentially on the oxybate side, as well as the wake-promoting agent side, we're very confident that we have really good products. That's true of our existing product, Xyrem, in terms of its efficacy profile, in both EDS and cataplexy and its long, proven sort of gold standard status, it's true of Sunosi in terms of the data we've put out on the efficacy of that product across narcolepsy and OSA, and we think it's going to be true of 258 and its profile. Having other treatment options out for patients is not necessarily bad. The market remains under-diagnosed and undertreated as we sit here today. More promotion out there to help people understand proper diagnosis of the disease and treatment options isn't necessarily a bad thing. But we're focused on doing what we can with what we believe are really great products on the market today and still to come.

Yeah, the one thing I would add is, we're also pursuing the first ever pivotal trial in idiopathic hypersomnia, which is a significant area of unmet need. And I think 258 again as a chronic therapy with low sodium and a good efficacy profile would be ideal in that setting. We're really pleased that we got 50% accrual last year and on track for full accrual this year and look forward to having the results soon.

All right, thank you.

Our next question comes from Jason Gerberry with Bank of America.

Good evening. Thanks for taking my question. Bruce, there's a fair amount of investor focus on the upcoming Avadel read-out. So, in lieu of that, can you just remind us your confidence that your intellectual property would pose a 30-month barrier to entry? And I just wanted to clarify on your comment around – comment and discussions with PBL and being engaged with PBL, is there something different that we should read into it, any sort of tone shift regarding how the discussions of PBL have evolved? Thanks.

Jason, I'll take the second question first. There was no intended change in [Technical Difficulty] there. That was intended to be very similar to what we said before. Hopefully, it was. On the upcoming Avadel read-out, we'll have to see what the data shows. We'll be very interested to see that data, as will other people. On the IP side, our belief is that, in using the regulatory pathway, they're using – they should certify to orange book listed patents, which would give at least the opportunity, if appropriate, for litigation that could provide up to a 30-month stay. But just in general, say, we have a number of patents that do cover Xyrem and we'll evaluate our options for enforcing our intellectual property.

Okay. Thanks.

Our next question comes from Ken Cacciatore with Cowen and Company.

Thanks. Bruce, just a strategic question. You've been doing these smaller deals and earlier stage deals, but the stock just keeps going down. So, just wondering, why do you think that's happening and what's the stock price telling you? Does it make you pause at all? Does it make you think of taking a different strategic path, maybe going private, a sale or doing larger transactions, just your thought on that. Thank you.

Yeah. Ken, good question. We have done a variety of deals of late, a couple that were fairly early stage that include some targets we're really excited about. We understand those are farther from market and higher risk, but they're also tremendous opportunities with approaches we think are worth pursuing. At the same time, we did a mid-stage development deal in Cavion coming off of Phase II trial that gave us what we believe is the signal we need to proceed with the second Phase II trial. And then, at the end of the year, we did a deal where the NDA had already been submitted. So, that's a variety of types of deals. And we certainly haven't ruled out doing things that would be larger or already on market. We continue to look at a variety of opportunities across sleep neuroscience, across hem-onc, potentially even into other therapeutic areas and across geographies. And our goal is to productively put our capital to work and we've got an appetite to do that, to continue growing returns to our shareholders. And we want to do the deals that will offer the best returns regardless of size. And we think a variety of types of transactions is the right way to do that. We're very focused on revenue diversification, not necessarily in 2019 or 2020, but as we move out through the 2020s because we're very interested in sustainable growth strategy. It's not all about revenues today. It's having that visibility on continued growth in the oxybate franchise and beyond the oxybate franchise. And certainly, if you look at the progress in 2019 and what we've outlined as our objectives for 2020, I think you're seeing an inflection in our ability to deliver on that vision.

Thank you. Our next question comes from Esther Rajavelu from Oppenheimer.

Great, thanks. Thank you for taking my question. I have just one on Defitelio. Can you maybe help us understand the opportunity here with the VOD indication specifically and also with that acute GvHD?

Yeah. So maybe I'll ask Rob to comment on that a little bit, but I'll just start with the big picture, which is we think Defitelio is a really interesting molecule and has a lot of potential use. And we believe that as we look at data coming not only from the treatment of severe VOD, which is the indication we have today in the US and around the world, but also the potential prevention of VOD, the potential prevention of acute GvHD, our work in CAR-T associated neurotoxicity and other indications that, as we develop clinical data around those, it may help people understand that broader potential for the molecule. Rob?

Yeah. Maybe I'll just add from a clinical perspective. So, VOD continues to be a major problem in bone marrow transplant, especially as new agents, more intensive treatment regimens becomes standard. And we know that the earlier the intervention, the better the outcomes, the logical progression and test the notion of giving Defitelio as prevention of VOD and we're hoping that study reads out positive. Likewise, for acute GvHD, it remains a significant morbidity and cause of mortality in bone marrow transplantation. As you know, BMT is much more widely available now as we're doing transplants across HLA barriers, which also results in more significant GvHD in some cases. And so, with the signal that we had suggesting that there may be activity in acute GvHD, we're hopeful that Defitelio provides another treatment option for those patients.

Thank you.

Our next question comes Akash Tewari with Wolfe Research.

Hey, guys. So, given there is a chance platinum-sensitive chemo patients who get re-challenge in second line for small cell will probably show similar efficacy to lurbinectedin, I feel like that kind of suggests the ATLANTIS trial reads out negatively, where do you see this drug fitting into the standard of care? Do you see it taking market share in second line chemo-sensitive patients because of the lower neutropenia rates or maybe in the patients who aren't chemo sensitive? Like, where is the home for lurbinectedin if the ATLANTIS trial fails? Thanks.

So, if you don't mind, I'll take. This is Rob Iannone. So, certainly, while there is some response rate to retreating with a platinum doublet in patients who have had more than a six-month interval, by no means when I say that that's as strong as what we're observing in lurbinectedin. So, I think there's going to be an advantage for lurbinectedin in second line across all treated populations, whether it's the most resistant or the most sensitive. Secondly, I would say, at least initially, the second line is really wide open and you hear this as you talk to key opinion leaders. Again, as Dan mentioned, we had a big presence at the Santa Monica lung conference where there's high interest because topotecan is not only poorly tolerated, it is difficult to give with five infusions consecutively, but also a very low response rate. So, we think the uptake in second line is going to be really brisk. Having said that, from my comments earlier, there's an opportunity to find where to use lurbinectedin to enhance therapy in other indications within small cell lung cancer. So, even upfront therapy, for example, or through rational combinations and there are several different active agents that may be rationally combined with lurbinectedin, given how tolerable it is.

Okay. Just as a follow-up, would it be fair to say then that maybe you're more bullish on the ATLANTIS trial reading out than maybe the Street is necessarily?

My response to you was…

Hey, Rob. I was just going to add one thing just because I thought it was interesting as we got to know the PharmaMar team. Initially, they set that combination up based on pre-clinical data and the rationale that they thought that would be the best path forward to have a positive trial. They were asked to do a monotherapy trial to really just support what the single agent profile was and actually sometimes preclinical data doesn't translate into clinical and they got a much stronger signal in the clinic without monotherapy trials than they thought. They were encouraged to expand that trial which they did and then to submit that data. So, I would say now, our expectation is monotherapy is going to be the likely standard second line therapy and where it's going to get most used. Obviously, we'll see what the combination looks like and what else that tells us. But we're really banking our analysis around the monotherapy being really the second line therapy of choice, but that it's a combinable agent that we do want to explore into other areas, including frontline with immunooncology.

Got it, thank you.

Our next question comes from Ronny Gal with Bernstein.

Hi. Thank you for taking my call. Just a little bit more on the Xyrem. You're guiding to your cumulative 5.5% revenue growth. Can you just share with us what is the, I guess, patient count or volume count embedded into that assumption? And then, if you think about the level of rebating you're providing right now, are you especially fully penetrated across your market in 2020 across the oxybate patient or should we expect another step up in rebate in 2021 as you capture the rest of the market? Just a feeling of what's embedded in your Xyrem estimate for this year.

Yeah. So, Ronny, what's built in from a patient volume perspective is low to mid-single digit volume growth for the oxybate franchise. In terms of rebating, we gave guidance on total revenues, which you can back into. Implies that we're going to realize probably less than half of the gross price increase we took earlier this year. So, there will be net price growth as well as volume growth that get us to the oxybate franchise revenue guidance we gave. Probably too early to predict 2021, although the contract we have put in place does cover most commercial lives. So, I don't mean to imply there's a whole lot to go there, but probably a little too early to call 2021 at this point.

But fair to say there are rebate caps, so essentially growth caps to pricing that are incorporated into those contracts?

So, I'm not going to comment on the specifics of how we've done our contracting, although we've certainly done it with a multiyear horizon in mind.

Great. Thank you very much.

Our next question comes from Annabel Samimy with Stifel.

Hi. Thanks for taking my question. And just, again, on the contracting for the sleep franchise, I was just wondering, first, when you think about 258 and how that's priced, your pricing just rolls right into these agreements without any kind of prior authorizations or step edits or any kind of hurdles or NDC blocks? And I guess, is that one of the benefits of a contracting for the franchise? And if you could just give us a sense of where the Sunosi gross to nets might end up this year? They were pretty high so far, I guess, from the second quarter and launch. I was just wondering what that progression may be as we proceed through 2020. Thanks.

Yeah, Annabel. Thanks for the questions. On the contracting, too early to comment on 258 yet. Again, we did our contracting with a view toward our sleep franchise as a whole over a long period of time, but 258 is not yet an approved product. On the Sunosi gross to nets, we certainly gave a sense during our launch call as to where we thought gross to nets might end up. And honestly, with most of the commercial lives under contract now, I think that's a reasonable place to expect us to be over the course of 2020. Can't talk yet about exact quarter-to-quarter progression, but we think the expectations we set coming in were good expectations. Mike, do you want to add anything on that?

Yeah. Bruce, I'd add one thing, in that typically the gross to nets suffer the most in the beginning of the launch and then get better. And that's what we'll be seeing.

Great, thank you.

Our next question comes from Randall Stanicky with RBC Capital Markets.

Great. Thanks. Bruce, you made a comment earlier about the business growing over the next several years. Do you expect the oxybate franchise to grow over the next couple of years as well versus perhaps taking a step down as we see some of that switch activity take place or the move to 258? And then, the follow up. We saw SG&A up 20% last year. Midpoint has it up 20% this year. You've got several products still coming to be launched. When should we expect to see the operating leverage in the Jazz business model start to play out? Thanks.

So, on oxybate growth, we continue, as I think I said in an earlier answer, to see growth opportunity. Exactly how that's going to play out in adoption of 258, how much of that business comes from patients moving from Xyrem, how much of that comes from new patients going on 258, impact of other entrants into the market including our own Sunosi, probably too early to call that over too long a period of time, but we do think there's opportunity to continue to grow this business. On SG&A, I would say one important thing to understand is that really is an increase in sales and marketing expenses. Our G&A portion of that is essentially flat on a percentage of revenues basis. In terms of when we'll see operating leverage, we're increasing our investment right now because we think it'll pay off for shareholders over a long period of time. You'll see that operating leverage as you see revenue accelerate, and that's going to look a little different product by product. The 258 dynamic where we already have an oxybate product on the market may be different from what you would see with a retail launch like Sunosi, which will be different from what you'll see with an oncology launch like lurbinectedin. So, those will all add up over time, but we do believe, as we get out into 2021 and 2022, we'll start to see that leverage in terms of more rapid growth in revenues than expenses.

Great, thanks.

Our next question comes from Ami Fadia with SVB Leerink.

Hi. Good evening. Thanks for taking my questions. Bruce, as we think about kind of the next couple of years, and more specifically the 2023/2024 time frame, most of the Street has a decline in your revenue as we anticipate entry of competition from generics and then maybe potentially the once-nightly version from Avadel. How are you anticipating kind of that time frame? And do you think you've got other growth drivers in your portfolio that can offset some of it or most of it? And then, what else do you think you would need to do to drive continuous growth?

Yeah. So, I would think about this in terms of our oxybate franchise and then the rest of our business. Our goal is to optimize each of those independently. I wouldn't think about one making up for the other. On the oxybate side, we are anticipating, of course, generic entry of oxybate in 2023. That's through an authorized generic. Remember, we have economics in that authorized generic that are significant. And then, six months after that, several limited volume authorized generics where we again have significant economics. So, between Xyrem, authorized generic, economic share and 258, we think we've got a significant revenue stream for many years into the future. A reminder that we also have a once nightly, although in our case once nightly lower sodium product, also in development and see a continued opportunity here for significant returns to Jazz shareholders. Beyond that, we just talked about a number of early launches or upcoming launches, geographic expansion, label indication expansion and we have no intention of stopping our investment of our cash flow and using our balance sheet to continue adding new growth drivers in the near term and the longer term through our corporate and business development efforts.

Okay. Thank you.

Our next question comes from David Risinger with Morgan Stanley.

Yes. Thanks very much. So, I guess, I'll just follow-up given your comment, Bruce. Could you just update us on the timing of validation of the once-nightly low sodium version of Xyrem that you just mentioned? And I'll leave it at that since you asked for just one question. Thank you.

David, I'm going to give you a second question because you're not going to be happy with the answer to the first, which is we don't have an update at this point. We just haven't said much about the program. In part, that's because our internal efforts right now are squarely on executing a high quality approval and launch of JZP-258, but we think there are some other reasons for us to say less rather than more on the once-nightly front at the moment. So, back to you for another question.

Thank you very much. So, it would be helpful – obviously, there were a lot of questions about the pipeline, but could you just frame for us what you see as the key early stage R&D candidate proof-of-concept readouts in 2020 and 2021?

Rob, you want to talk a little bit about that? I'm not sure we've given too much specific guidance directionally.

Yeah. So, depending on how far back and how far out you want to look, in the earliest part of the pipeline, we have the pan-RAF inhibitor program. We haven't updated any timelines on that, but we continue to be encouraged there. We have Codiak collaboration where we continue to work on several targets, especially in the hem-malignancy area. We have the ability to look at other solid tumor drugs delivered through the CombiFlex technology which we continue to work on and help to progress a candidate in that context as well. Later in development, as was mentioned earlier, we have the central tremor trial, IIb trial which could be part of a pivotal program for central tremor. And then, if you go a bit later than that and you think about marketed products that have ongoing development for 258, you have the idiopathic hypersomnia program, 458 which could have a very accelerated path to approval within Defitelio. We mentioned acute GvHD and pVOD as well.

Thank you.

Our next question comes from Balaji Prasad with Barclays.

Hi. Good evening and thanks for taking my call. So, most of it have been answered. Just wanted to get your updated thoughts on capital allocation. When I look at the share repurchase programs that you have laid out over the last couple of years, you have accelerated. The stock is currently at a price below the average purchase price of the last three years. What are your updated thoughts on it? Would you reconsider the share repurchase or would you accelerate it at these price levels? And would that be the most efficient capital allocation strategy that you could think of for 2020? Thank you.

Yeah. Thanks for the question. So, we still have over $0.5 billion available in our existing authorization. I think, on average, we've bought back more shares when our stock price has been lower than when it's been higher. Not necessarily predicting what we're going to do next, but we think our stock is a very attractive purchase right now and fully intend to continue being a buyer. In part that's because our liquidity and balance sheet and cash flow give us the strength to do that and maintain significant flexibility for corp dev transactions. And I want to emphasize that we fully intend to continue being a buyer of our stock, but our bigger priority is putting capital to work on the business and corporate development side. So, expect us to continue to be a buyer, but to maintain flexibility for biz and corp dev.

Thank you.

Our next question comes from Jessica Fye with J.P. Morgan.

Hey, guys. Good evening. Thanks for taking my questions. Just a couple of quick ones. You're guiding to the oxybate franchise, but will you report sales for Xyrem and 258 separately? And related to that, for 258, once it launches, do you plan to report on a quarterly basis what proportion of the volume is coming from Xyrem relative to 258?

Yeah. I'm not sure we've made all the determinations about what we'll be reporting and not. I do expect we will be reporting sales of the products individually. Our choice to group them for guidance this year had more to do with uncertainty about approval date, launch date. We haven't talked about pricing yet. There are lots of reasons. It's hard for us to give that a more granular guidance. But we understand it'll be important for investors and important for us to understand how 258 performs over time. And we will give you some more expectations as we get closer to launch about what that should look like and what we're trying to [Technical Difficulty].

Okay. Sorry, just to confirm, it sounds like the guidance includes the upfront for lurbi, does it not reflect the anticipated payment to PharmaMar upon approval? And if not, why not?

Thanks for the question, Jess. So, our guidance does include that payment, but that would be a payment on approval. So, rather than expensing that, we would capitalize that and then amortize it over the life of the product.

The $200 million that's in the guidance is the upfront payment to PharmaMar.

Did that make sense?

Yeah.

Operator, this will be our last question.

Next question comes from Graig Suvannavejh with Goldman Sachs.

Great, thank you for taking my question. I just wanted to ask about earnings growth for the company on a near-term basis. I realize that perhaps you're not in a position to provide kind of a longer-term guidance and you just provided 2020. But how should we think about the earnings power of the company over the next several years? Any comments there would be appreciated. Thank you.

Yeah. Good wrap-up question. Again, we're trying to drive diversified revenue growth across sleep neuroscience, across hem-onc and solid tumor, across geographies and then to continue to bring our R&D portfolio to bear, to continue that growth across our existing products and new products. And I do think that unlocks significant earnings growth going forward. Obviously, we announced the deal at the very end of December that closed in January, which brought us another near-term launch that we're really excited about. We think that was a great investment for us to make. But that did have the impact, even putting aside the $200 million upfront expense, did have the impact of adding more expense ahead of revenue for lurbinectedin to our 2020, to our very near-term results. But as we look out in the years to follow, we think we'll see the benefit of that increasing revenue line across products. And maybe since that was our last question, I'll just wrap up with a comment about rate of change. And just to remind all of you that, as we sit here talking about where our business is at February 2020, it wasn't that long ago that you would have evaluated it very differently. Sunosi was just launched. And we've achieved good access and good initial uptake relatively quickly. 258, we hadn't shown Phase III data until September and now we've got an NDA submitted and we're gearing up for a launch. 458, before August of last year, was labeled as in pre-clinical development and we're now trying to get a BLA in as early as the end of this year. Lurbinectedin was something we had never talked about until the beginning of this year and we're gearing up for a product launch. Coming right behind that, we've got good clinical trials including now in movement disorders. We've talked about idiopathic hypersomnia. We've talked about the various Defitelio readouts and progress we've got upcoming. This is a tremendous amount of progress in the near term. And I think it sets us up for a pretty catalyst rich 2020. At the same time, we've been continuing to build out our management team. And I can't tell you how proud I am of the talent we've added to the company, including today's announcements. Remember, we just added Rob Iannone and Neena Patil and Finbar Larkin last year to the executive committee. And then, today, we announced the addition of Sam Pearce and Renée Galá to our management team. So, that's five new senior managers joining our company to help us execute on this broadened portfolio of opportunities and we're really excited to demonstrate what we can do as a team. Kathy?

All right. We'd like to thank all of you. Thank you, operator, for your help today and thank you all for joining us today. We will be participating in the upcoming Cowen and Barclays healthcare conferences and we hope to see many of you there. This now will end our call.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.