Good day, ladies and gentlemen. Welcome to the Jazz Pharmaceuticals fourth quarter and year-end 2014 earnings conference call. Following an introduction from the company, we will open the call to questions. I will now turn the call over to Ms. Kathee Littrell, Head of Investor Relations at Jazz Pharmaceuticals. Ma'am, you may proceed.
Thank you so much. Thank you for joining the Jazz Pharmaceuticals investor conference call. Today, we reported our fourth quarter and year-end 2014 financial results and provided 2015 financial guidance in a press release. The release and the slide presentation accompanying this call are available in the News and Events section of the company's website. With me for today's call are Bruce Cozadd, Chairman and CEO, Matt Young, CFO, Russ Cox, Chief Operating Officer, Jeff Tobias, Head of R&D and Chief Medical Officer, and Mike Miller, our Head of U.S. Commercial. Following some introductory remarks, we'll open the call for your questions. Before we begin, I'd like to remind you that some of the statements we will make on this call relate to future events and our future performance instead of historical facts in our forward-looking statements.
These statements include future financial, commercial, development, and regulatory plans, expectations and projections such as our 2015 financial guidance, anticipated growth prospects for our products, planned commercial activities, expected submissions and interactions with regulatory agencies, anticipated litigation and patent-related events, expected future events related to the planned and ongoing clinical trials, and our expectations regarding corporate development initiatives and the planned sale of our general medicines business. These forward-looking statements involve numerous risks and uncertainties that could cause actual events, performance, and results to differ materially. These risks and uncertainties are identified and described in today's press release, the slide presentation accompanying this call, and under Risk Factors in our Form 10-Q for the quarter ended September 30th, 2014, and our Form 10-K for the year ended December 31st, 2014, that we expect to file shortly.
We undertake no duty or obligation to update any forward-looking statements we make today. On this call, we will discuss several non-GAAP financial measures, including historical and, in some cases, expected adjusted net income, adjusted net income per share, adjusted SG&A and R&D expenses, adjusted interest expense, and adjusted effective tax rate. We believe that these non-GAAP financial 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 of GAAP to non-GAAP financial measures discussed on this call are included in today's press release and the slide presentation accompanying this call. Both are posted in the News & Events section of our website. I'll now turn the call over to Bruce.
Thank you, Kathee. Good afternoon, everyone, and thank you for joining us. We do have a lot to cover today, so our remarks may be a little longer than our usual call. 2014 was another outstanding year for Jazz. During 2014, we executed on our growth strategy, delivered strong sales growth for our key products, further diversified our commercial and R&D portfolio, and made significant progress on our operational capabilities through creation of a scalable infrastructure that has enhanced our readiness to support future growth.
I'm pleased with our accomplishments in 2014, which included delivering significant top-line growth to exceed $1 billion in net revenues for the first time in our history, completing three acquisitions, expanding our R&D efforts through beginning the rolling NDA submission for defibrotide in the U.S., receiving sBLA approval for intravenous administration of ERWINAZE, initiating multiple clinical trials, and initiating startup activities for the phase III program for JZP-110, expanding the depth and breadth of our global organization, focusing our investments into key growth areas and franchises, and enhancing our financial readiness through debt financing, including the issuance of exchangeable senior notes in August, all while we continued to generate significant operating cash flow. Now I'll update you on key products in our commercial and development portfolios, starting with our sleep therapeutic area.
Matt will then review our results for the fourth quarter and full year 2014 and provide 2015 financial guidance. Our sleep therapeutic area consists of our lead product, XYREM, which is indicated for the treatment of patients with excessive daytime sleepiness and cataplexy in narcolepsy, and the product candidates JZP-110 and JZP-386. XYREM remains a key driver of our growth. During 2014, we achieved a 10% volume growth rate over 2013. During the fourth quarter of 2014, volume growth was 14% over the same period of 2013, benefiting from a change allowing patients to acquire a couple of extra days of XYREM in order to give them more flexibility when they were traveling or had other issues that could affect the arrival timing of their XYREM refill.
Normalized fourth quarter volume growth would have been about 11%, and we do not expect the one-time event in the fourth quarter to impact bottle volume in 2015. The average number of active XYREM patients grew to approximately 12,250 during the quarter, compared to 11,250 in the same period of 2013. In 2015, we will continue to make targeted investments to grow XYREM. Our major focus areas for 2015 are, one, continuing our sales efforts on further driving increased penetration in the low to mid-decile physicians. Two, educating physicians and healthcare providers on the symptoms and diagnosis of narcolepsy.
Three, enhancing the patient and physician experience with the XYREM Success Program by continuing to work with our central pharmacy on ensuring timely refills and reimbursement decisions in an increasingly complex reimbursement environment. Our decision to expand the XYREM sales force last year to 100 representatives has contributed to our sustained volume growth through 2014, enabling us to expand our physician prescriber base through our focus on educating healthcare providers and increasing the use of XYREM in the low- to mid-decile physicians while maintaining our strong core business in the top-decile physician prescribers. In 2014, there were more than 650 new XYREM prescribers. We believe that these sales efforts will continue to position us well to deliver strong growth of XYREM in 2015.
We believe our efforts over the past three years to educate physicians and healthcare providers to increase awareness of narcolepsy have been successful as we have observed an increasing number of narcolepsy patients diagnosed across the U.S. year-over-year. We've recently reviewed insurance claims database trends on narcolepsy diagnosis to understand the effectiveness of the targeted disease awareness television campaigns we conducted in 2013 and 2014. Thus far, while the rate of diagnosis has increased across the U.S. as well as in the markets where we conducted television campaigns, we have not yet observed a significantly higher increase in the TV test markets compared to matched controls. However, we are pleased with the overall growth of diagnosis and that our disease awareness TV campaign in certain markets did increase web traffic to the MoreThanTired.com website and utilization of the Epworth Sleepiness Scale and the physician finder tools.
At this time, we are not planning to conduct additional TV campaigns on disease awareness during 2015. We will continue to evaluate the insurance claims databases and modify our print and web-based disease awareness efforts as we learn more. During the first few weeks of 2015, we observed a level of payer churn that is common throughout the industry at the beginning of each year as insurance plans change and reauthorizations occur. During 2014, we invested in our central pharmacy and believe that SDS is well prepared for this churn with a strong management team in place, additional headcount to handle volume during the first quarter and process improvements implemented over 2014. We are closely monitoring key leading indicators to confirm that patients are able to receive their new or refill prescriptions in a timely manner.
While we have observed further increases in prior authorizations and reauthorizations as expected in the current managed care environment, our high reimbursement approval rates for patients remain steady. Turning to a brief intellectual property and legal update on XYREM. Patent litigation continues in the district court in New Jersey. No trial dates have been set in any of the cases, although we anticipate the trial of a portion of the case against the first filer, Roxane, could occur as early as the third quarter of 2015. We recently filed a new case against Roxane based on three recently issued XYREM patents, including the patent expiring in 2033 related to methods of co-administering XYREM with valproate.
Last summer, several of the ANDA applicants submitted covered business method, or CBM, petitions asking the Patent Trial and Appeal Board, or PTAB, of the United States Patent Office to review and cancel certain patents covering our restricted distribution system for XYREM. In early 2015, the PTAB issued their decisions denying institution of CBM review for all six patents subject to the CBM petitions. However, in January 2015, two of the ANDA applicants filed petitions with the PTAB for inter partes review, or IPR, of the same six patents. We expect to file a preliminary response to these IPR petitions in the second quarter. We would expect the PTAB to make a decision on whether or not to institute review of the patents in the third quarter.
If one or more of the IPR petitions is instituted, then the PTAB decision on whether the patents are valid would be expected approximately a year later in the third quarter of 2016. Turning to a brief regulatory update on the XYREM REMS. As discussed in prior calls, we initiated dispute resolution with FDA early in 2014 related to the XYREM REMS. We met with FDA during the third quarter regarding our most recent request for supervisory review and subsequently provided additional information per FDA's requests. We expect a decision in the first quarter from this supervisory level of FDA. Now I'll spend a few moments talking about two of our R&D programs in the sleep therapeutic area. Regarding JZP-110, we plan to evaluate this compound for the treatment of excessive daytime sleepiness in patients with narcolepsy and in patients with obstructive sleep apnea.
We are on track to initiate our three phase III studies evaluating safety and efficacy of JZP-110 in the second quarter and anticipate enrolling approximately 900 patients over the duration of the trials. The co-primary endpoint measurements for the studies are the Maintenance of Wakefulness Test and the Epworth Sleepiness Scale. We anticipate that these trials will enroll during 2015 and 2016. Assuming that the trial results are favorable, we expect to submit the NDA in 2017. Regarding JZP-386, our deuterium-modified sodium oxybate licensed from Concert, we began dosing in the second phase I study in normal volunteers this quarter and anticipate receiving data next quarter. We expect to provide an update after we and Concert have evaluated the data and determined next steps. Now I'll provide an update on our hematology/oncology portfolio that consists of ERWINAZE, defibrotide and JZP-416.
ERWINAZE continues to perform well. We remain focused on our efforts to educate healthcare providers on the importance of one, identifying hypersensitivity reactions to E. coli-derived asparaginase in acute lymphoblastic leukemia, or ALL, in both pediatric and adult oncology centers using asparaginase therapy in their chemotherapy regimens. Two, maintaining appropriate asparaginase levels, as well as three, switching or replacing an ineffective dose of E. coli-derived asparaginase when and as appropriate. On another note, we received regulatory approval in France, the first country approval through our ongoing mutual recognition procedure, and we'll seek additional approvals in other EU countries. In the U.S., FDA approved the IV administration of ERWINAZE at the end of 2014. Our sales force was well-prepared and immediately began educational outreach efforts to healthcare providers following the approval of this alternate route of administration for ERWINAZE.
We are encouraged by the emerging data on use of asparaginases in the adolescent and young adult population. A presentation at ASH by Dr. Wendy Stock highlighted the potential opportunity to improve patient care by treating adolescents and young adults with an intensive pediatric regimen. We also continue our efforts as a company to learn more about ERWINAZE in the young adult population, initiating our YA study in 2014. As expected, given the infrequent occurrence of hypersensitivity reactions to E. coli asparaginase in this small population, the limited use of asparaginase in adult oncology centers in the U.S., and the relatively small number of sites that have initiated thus far, enrollment will be slow, and we have yet to enroll our first patient. This year, our efforts will be focused on initiating more sites internationally, which we believe will increase the potential for patient enrollment.
JZP-416 is the pegylated recombinant Erwinia chrysanthemi L-asparaginase that we've been developing for the treatment of patients with ALL who are hypersensitive to pegylated E. coli-derived asparaginase. The pivotal phase II clinical trial began in the fourth quarter of 2014 and was designed as a dose confirmation and PK study of JZP-416 administered in children and young adults with ALL following hypersensitivity to Pegaspargase or Oncaspar. We recently voluntarily suspended patient enrollment in this trial based on the occurrence of hypersensitivity-like reactions following the administration of JZP-416 in some treated patients. We are in the process of collecting and evaluating the available data and plan to conduct additional research and analysis prior to determining whether to resume the study and determining the next steps regarding the development of JZP-416. We anticipate that we'll be able to determine next steps later this year or in early 2016.
The Defitelio launch in the European Union continues to progress well, and our international Defitelio ERWINAZE joint sales force is fully staffed. Our focus in Europe remains on establishing solid pricing and reimbursement in order to maximize access for patients in need, and we will continue to engage in pricing and reimbursement submissions and discussions throughout the EU this year. We will also continue our efforts to provide disease awareness education on VOD for healthcare providers. We held a well-attended continuing medical education event at the Blood & Marrow Transplantation Tandem meeting. We also plan to host two symposia and other educational events at the EBMT meeting in Istanbul in March, and we anticipate that a number of abstracts will be presented during the meeting. Now a brief U.S. regulatory update on defibrotide. We initiated the rolling NDA submission in December.
Our priority is to complete a high-quality package for the defibrotide NDA submission by mid-2015. We are pleased with the progress that we've made in collecting and remediating existing defibrotide clinical data. Defibrotide has Fast Track designation in the U.S., and we plan to work with FDA to seek regulatory approval for defibrotide for the treatment of severe VOD as quickly as possible. Our defibrotide development team is working closely with FDA on design and endpoints for other VOD trials where there has been little previous research or precedent for regulatory endpoints. Our team is assessing potential clinical strategies to evaluate defibrotide in the treatment of earlier VOD, which is VOD before it has progressed to multi-organ failure, and in prevention of VOD in high-risk patients. We expect to provide an update on our development program for defibrotide later this year.
Finally, we recently launched a comprehensive website, www.ProgressiveVOD.com, along with other educational resources designed to educate healthcare professionals on the unpredictability, signs of progression, and potentially life-threatening consequences of VOD and the need for timely diagnosis. Now a few other business updates. During 2014, we scaled back our resources that supported the psychiatric and pain areas while we continued to focus our investments in the key therapeutic areas of sleep and hematology-oncology. Following the 2014 Gentium acquisition, we reorganized our operations in Europe to focus on the company's hematology-oncology business. During the fourth quarter, we signed a definitive agreement to sell certain products and the related business, known to us as the general medicines business, acquired as part of the acquisition of EUSA Pharma. The definitive agreement includes the transfer to the purchaser of designated staff supporting the general medicines business.
We expect to close this transaction in the first half of 2015, subject to the satisfaction of closing conditions and completion of pre-closing activities. 2015 will be another exciting year for Jazz as we continue to focus on growth opportunities for our key products. Additionally, we have a strong balance sheet with increasing cash on hand and financial readiness to implement our growth strategy and focus on delivering shareholder value. Matt, let me turn the call over to you.
Thanks, Bruce, and good afternoon, everyone. We are pleased with our strong performance in 2014 as we saw total revenues increase by 34%, adjusted net income attributable to Jazz increased by 36%, and adjusted EPS attributable to Jazz increased by 34% compared to 2013. We see 2015 as a year of continued investment in our business as we focus on growing our core franchises, including the continued launch of Defitelio in the EU, preparing for the potential launch of defibrotide in the U.S., developing our product candidates, and investing in lifecycle management for key products. Total net revenues of $1.17 billion for 2014 exceeded our expectations as our key products continued to deliver strong growth.
Adjusted EPS for 2014 was $8.43 per share, exceeding our most recent 2014 guidance, primarily due to slightly higher product sales and lower adjusted expenses. Looking ahead, we expect strong top and bottom line growth this year, driven by revenue from XYREM, ERWINAZE and Defitelio. We expect total revenues for 2015 to be in the range of $1.31 billion-$1.37 billion, up 12%-17% on a reported basis from 2014. Net sales of XYREM for 2014 were $779 million, up 37% from $569 million in 2013.
Net sales of XYREM for the fourth quarter of 2014 were $223 million, up 36% from $164 million in the same period of 2013. Our XYREM net sales guidance for 2015 is in a range of $950 million-$970 million, representing expected growth of 22%-25%, reflecting a price increase of 9% taken earlier this month and our expectation of high single-digit volume growth this year. I'll also remind you of the typical fourth quarter to first quarter pattern that we see in XYREM volume related to payer churn and gross to net adjustments. Turning to ERWINAZE.
Worldwide net sales for 2014 were $200 million, up 15% compared to net sales of $174 million in 2013. Net sales of ERWINAZE for the fourth quarter of 2014 were $53 million, up 21% from $43 million in the same period of 2013. Today, we are providing 2015 guidance for worldwide ERWINAZE net sales in the range of $200 million-$215 million, representing expected growth of up to 8%. The guidance for ERWINAZE takes into account the anticipated commercial impact from our clinical trial for ERWINAZE in young adult patients and expected unfavorable foreign exchange impact in the EU, partially offset by a 3% price increase taken in the U.S. on January 7, 2015.
Defitelio pro forma net sales for 2014 were $73 million, up 65% compared to pro forma net sales of $45 million in 2013. Net sales of Defitelio for the fourth quarter of 2014 were $19 million, up 51% from pro forma net sales of $13 million in the same period of 2013. Today, we are providing 2015 guidance for Defitelio net sales in the range of $73 million-$83 million. Our guidance reflects the impact of unfavorable exchange rates in Europe and the near term impact of our continued strategy that Bruce mentioned earlier to maximize patient access and strong reimbursement across the EU over the long term.
We are pleased with our strong underlying growth we are realizing in the countries where we have received final pricing and reimbursement decisions. However, we don't have final reimbursement approval in all major markets in Europe, which in some cases is dampening our near-term growth. Turning to operating expenses, adjusted SG&A expenses for 2014 were $316 million or 27% of revenue, compared to $244 million or 28% of revenue in 2013. Adjusted SG&A expenses for the fourth quarter of 2014 were $82 million or 25% of revenue, compared to $64 million or 27% of revenue in the same period in 2013. The increase in adjusted SG&A expenses in 2014 was primarily due to higher headcount and expenses resulting from the expansion of our business.
For 2015, our adjusted SG&A expenses are expected to be within a range of $355 million-$365 million, or 26%-28% of 2015 revenue guidance. SG&A expenses are expected to increase primarily due to continued investments related to XYREM, planning for potential defibrotide launch in the U.S., and continued Defitelio launch expenses in the EU, as well as expected increases in litigation-related expenses as XYREM and the litigation activities advance, including a potential trial with our first ANDA filer for XYREM as early as the third quarter of 2015. Also, I'll remind you that when we look at fourth-quarter-to-first-quarter adjusted SG&A trends, our adjusted SG&A expenses have historically increased due to our typical pattern of quarterly spending.
Adjusted R&D expenses for 2014 were $71 million or 6% of revenue, compared to $34 million or 4% of revenue for 2013. The increase was primarily related to increased costs associated with the advancement of our sleep and hematology/oncology product candidates and lifecycle management activities for our existing products. For 2015, our adjusted R&D expenses are expected to be in the range of $95 million-$105 million, or 7%-8% of 2015 revenue guidance. R&D expenses are expected to increase primarily due to anticipated investments in clinical development of JZP-110, XYREM in pediatric narcolepsy, JZP-386, ERWINAZE in young adults, as well as estimated costs related to the U.S. regulatory submission of the NDA for defibrotide.
Adjusted interest expense for 2014 was $39 million, including our senior notes issued in August 2014. For 2015, adjusted interest expense is expected to be approximately $40 million. Our adjusted non-GAAP effective tax rate is expected to remain in the high teens in 2015, similar to 2014. Foreign currency gain in 2014 was $8.7 million or $0.13 per diluted share after tax, primarily due to the strengthening of the U.S. dollar against the euro. For 2015, we expect an unfavorable foreign currency exchange impact. The top line revenue impact across Defitelio and ERWINAZE is expected to be approximately $10 million-$20 million, arising from ex-U.S. sales primarily in Europe.
We expect a lesser bottom-line impact as we incur European expenses and have otherwise largely reduced our net exposure. We have assumed a bottom-line impact in the range of $0.01-$0.03 per diluted share. Our 2015 guidance includes two important factors that will affect comparable growth relative to 2014. First, our treatment of depreciation expense for purposes of calculating our non-GAAP adjusted financial measures going forward. Second, the planned sale of our general medicines business. Our 2015 non-GAAP adjusted financial guidance measures do not include adjustments for depreciation expense. Starting with our first quarter earnings release, we will also reflect this change for comparative historical periods.
For context, depreciation expense for 2015 is estimated to be approximately $0.16 per diluted share, while depreciation expense for 2014 was approximately $0.11 per diluted share. Our adjusted EPS guidance for 2015 also assumes the planned sale of the general medicines business. During 2014, the general medicines business had total net product sales of approximately $27 million, and we anticipate that 2015 sales could grow modestly. We have assumed that the negative impact of the sale on our 2015 EPS to be approximately $0.10 per diluted share. The amount depends on the timing of the closing, which we currently expect in the first half of the year.
We anticipate our 2015 non-GAAP adjusted EPS to be in the range of $9.45-$9.75 per share, which represents growth of 14%-17% compared to 2014, assuming no adjustment for depreciation expense. In 2014, the company spent $42 million under our share repurchase program at an average cost of $138.64 per ordinary share, leaving us with $21 million remaining under our previously announced $200 million share repurchase program. As of December 31st, 2014, the principal balance of the company's total debt was $1.5 billion. As of December 31st, 2014, cash and cash equivalents were $684 million.
Our cash and cash equivalents, together with the undrawn capacity under our revolving credit facility, total over $1.1 billion. We continue to believe that we have the financial capacity to pursue additional corporate development initiatives and regularly evaluate a broad group of assets with the potential for a strong strategic fit. We remain open to new therapeutic areas when an asset meets our criteria, and we continue to approach corporate development in a disciplined manner with patience to find the right assets, and further diversify our portfolio and to deliver long-term growth and returns to our shareholders. In closing, we are very pleased with the strong results in 2014, and we expect continued positive momentum in 2015, with top and bottom line growth driven by XYREM, ERWINAZE and Defitelio.
Thank you for joining us on the call today, and I'll now turn the call back over to Bruce.
Thanks, Matt. Separately, we announced today that Jeff Tobias, Executive Vice President of R&D and CMO, will retire in September after four years at Jazz and more than 35 years in medicine and the biopharmaceuticals industry. In the interim, Jeff will transition to a new role, EVP of R&D Strategy and CMO, beginning in April. In this role, Jeff will focus on overseeing the key 2015 R&D value drivers, such as completion of the defibrotide rolling NDA submission and other strategic initiatives. We are very grateful to Jeff for his significant contributions and key role in the company over the past four years. We will miss Jeff's leadership, keen intellect and passion for patients, and wish him the best as he retires from Jazz. Jeff, why don't I turn it over to you before we begin our Q&A?
Thanks, Bruce. The decision to retire this year was a difficult one. The last few years have been extremely rewarding, being part of the rapid growth and success of Jazz as we expanded internationally and importantly, as we brought meaningful medicines to patients in need. It has been a great pleasure to work with the strong management team at Jazz, to be part of an R&D organization of people who are passionate about our mission of improving patients' lives. I am confident that the experienced R&D leadership team is prepared to step forward and help make this a smooth transition. I'll now turn the call over to Kathee.
Thanks, Jeff. In order today to allow everyone to ask questions, I know we normally limit to two questions, but I'd really like to ask you today to try to limit to one and then jump back in the queue, but we're trying to give everyone the opportunity since we know the script ran a little long today. With that said, I'll turn the call back over to the operator to open the line for your questions. Operator?
Thank you, ladies and gentlemen. At this time, if you wish to pose a question or a comment, please press star followed by one. I repeat, to pose a question or a comment, please press star followed by one. Questions will be taken in the order received. We'll pause for a moment to compile a list. All right, our first question comes from the line of Marc Goodman with UBS. You may proceed.
Hi. Can you talk about Defitelio a little bit? Obviously, the FX hit. I'm not exactly sure how much it was of that $20 million. Maybe you can help us with that. It just seems like the guidance is a little bit lower than what we would have thought, and I think you called out reimbursements. Maybe you can remind us of the areas that haven't gotten reimbursement yet that you would have thought that you would have already gotten it, and what's going on. Are you just fighting for price and that's what's taking longer? Just give us a sense of what's going on there. Thanks.
Yeah, Marc, this is Bruce. Let me hand that off to Russ. You know, obviously our goal with Defitelio is to maximize the return on that product to us over time, as opposed to in the short term, and I think as Russ talks you through what we're doing, that'll make sense.
Yeah. Marc, you mentioned the FX headwinds that we're experiencing, so that's to the tune of about $10 million. We also are thinking about this very much, as Bruce mentioned, from a long-term strategy, and some of that requires taking a few short-term hits along the way. We are seeing double-digit growth on a constant currency basis. Remember, we're less than a year into the growth right now, and we expect that growth to continue. You know, the issue that we're experiencing is that we're seeing some change in use in France. They're moving more from prophylaxis to severe VOD treatment, which is consistent with our label. We also would look at that and say, while that's a short-term hit, we do think that the long-term prospects for Defitelio are great.
We're excited about growth coming from the VOD education initiatives to improve diagnosis and awareness of VOD. We're also planning to evaluate defibrotide in earlier use. When I think about it, yeah, there's certainly a number of countries that have come on, and we're really thrilled with what we've seen from a reimbursement perspective. There's a few of them that we're going a little bit slower to make sure that we maximize the long term.
Can you just remind us which ones they are?
There's a number of those that, you know, we're excited about that just hit. You know, the U.K. is one in particular that we're very excited about how that's come online. Ireland as well. We're waiting on places like, you know, Belgium, France, and others, to come online. Again, I think when we think about those other countries, we sit there and go, what's the best long-term strategy to maximize long-term opportunity?
The next question comes from the line of David Amsellem with Piper Jaffray. You may proceed.
Just wanted to drill down on the R&D spend. Can you just talk about how much of that increase in the spend this year is coming from the pivotal studies for 110? Just remind us what the all-in cost of the phase III program for 110 is, including any long-term safety studies or you know other clinical work beyond the pivotals that you need to do before you file. Thanks.
Sure. It's Matt. With respect to JZP-110 in particular, what we've articulated is that we expect the phase III clinical program, which does include the supporting studies, to be in the range of $100 million. We've said the bulk of that spending would be in 2015 and 2016. With that study starting up this year, that is a substantial expense as it relates to the increase in our R&D this year. We recall we do also have several other initiatives ongoing, including pediatric narcolepsy, JZP-386, regulatory spending around the potential defibrotide submission in the U.S., and our ERWINAZE young adult study ongoing.
We have several other initiatives as well that are in fact impacting that program spend, which is really where the vast majority of the spending increase comes from this year in R&D.
Our next question comes from the line of Annabel Samimy with Stifel. You may proceed.
Hi. Thanks for taking my question. I just wanted to circle back on defibrotide again. You mentioned that you're taking some short-term hits, and it was primarily prophylaxis. As you're getting reimbursement approvals through Europe, are you taking any pricing hits, or does the pricing remain consistent? In the U.S., what are the rate limiting steps for the rolling NDA and completing that? What is it that you're still trying to get together in terms of filing that?
Annabel, let me have Russ address the first piece of that, and Jeff can talk about the submission.
Thank you.
Yeah. When I think about it in terms of, you know, where we are, you know, taking reimbursement, and if I use the word hits, I wouldn't characterize it as that. I would characterize it as we're seeing excellent reimbursement and consistent reimbursement, and we're making sure that that's exactly the way that it plays out over all the key countries that we're focused on. You know, we have not seen any changes in overall reimbursement. We have seen some changes in terms of the type of use.
Okay. Not in terms of the pricing?
No.
Okay.
Regarding the NDA submission, you know, we've substantially completed the data collection and remediation that we feel is required to meet the FDA's standards. In our discussions with FDA, we think we're on track with that. Currently, where we're targeting is to complete the CMC module, which is gonna be going in next, and then subsequently the clinical modules, which will be the final stage of the submission. Just we're working toward getting that as quality as we can. I think we're still on track with our initial projections. But obviously, quality is gonna be something we're gonna be looking at all along the way from this point forward.
Thank you.
Next question comes from the line of Michael Faerm with Wells Fargo. You may proceed.
Hi. Thanks for taking the question. Now my question's on XYREM guidance, and it's specifically about the assumption for a single price increase next year. That's a departure from what we've seen in the past several years. I'm wondering, does that reflect changing dynamics you're seeing, whether it's in terms of reimbursement pushback or, you know, maybe detecting changes in the relationship between volumes and prices, price increases? Or is it you being conservative or is it some combination? Thank you.
Yeah. Mike, this is Bruce. I think, you know, we have been pretty consistent over a number of years at not commenting specifically on forward pricing strategy, whether that's magnitude of or frequency of, price increases. I wouldn't read anything more into what we're saying now than our current guidance for the year based on what we've already done. In terms of are we seeing any changes in payer dynamics, maybe I'll have Mike comment on that a little bit.
Sure. Bruce, yeah, in terms of the increasing reimbursement environment and you know how it's playing out, keep in mind that this is really a specialty pharma phenomenon, not just a XYREM phenomenon. Despite that, we have maintained very good coverage rates. We're very pleased through Q1 2015 with the manner in which SDS has handled the PA volume and the processing. We are pleased.
Thanks.
Our next question comes from the line of Gary Nachman with Goldman Sachs. You may proceed.
Hi, good afternoon. Bruce, on the DTC for XYREM, has it been enough time to see if the TV ads really had an impact? It sounded pretty definitive that you didn't see a result so far, but I'm just curious why you didn't, why you think it didn't have the impact you expected and, you know, why you think it's not worth it to continue with these programs going forward? Thanks.
Yeah. Let me start and then maybe I'll have Mike add on. You know, our campaign, which just technically I'll say is not a DTC campaign because it's not branded. We're doing a disease awareness campaign. You know, we recognize that there's some time to diagnosis with narcolepsy. You know, one of the reasons we're attacking this problem in the first place is we're aware that patients can often go many years, sometimes five to 10 years or more, from emergence of initial symptoms to ultimate correct diagnosis of narcolepsy, and we're seeing if we can impact that. You know, we certainly understand there could be some lag between the start of that process, which might be getting in to see a sleep specialist and the conclusion of that process, and I'll let Mike comment a little bit on that.
I would say our specific decision right now on investment is do we see that the investments we've been making have had a measurable impact on actual diagnosis? If they were having a great impact, we'd re-up on that investment. Until we see that, we're not convinced that's the best place to put our dollars in really improving results for narcolepsy patients. Mike.
Yeah. I think one thing to point out, as Bruce said earlier, this is really a test between test and control areas. In fact, what happened was that both groups went up. The diagnosis year-over-year was about 9% gain in the diagnosis of narcolepsy, which we are very pleased with. To Bruce's point, I think it does take time to see that diagnosis. We will continue to monitor those insurance claims to see if that difference did occur. We know that we did see a difference between test and control on website traffic, the Epworth Sleepiness Scale test taking, the physician finder, and we are very pleased with that. We will continue our print and web-based disease awareness efforts. What we have temporarily suspended is the TV until we monitor that situation further.
Okay, thanks.
Our next question comes from the line of Jessica Fye with JP Morgan. You may proceed.
Hey, Jessica, are you there? We're not hearing anything.
Our next question comes from the line of Irina Koffler with Cantor Fitzgerald. You may proceed.
Thanks very much. I don't think I heard you provide tax guidance, if I missed it. The other thing is on XYREM DTC. I mean, it seems like we're going back to the old playbook of what you were doing before. Do you think you can still get another, you know, 1,000 patients in the coming year like you've been typically growing the business? Thanks.
Yeah, just quickly, Irina, on tax guidance, we said, we expect our adjusted tax or our effective tax rate to be in the high teens as it has been.
Yeah. Then on new patient growth, you know, is it back to the same playbook? I would say we're always updating our playbook. We're always trying the things we think will make a biggest impact. We've been, you know, tremendously pleased o ver the past few years that we've been continuing to see significant volume growth for XYREM, which is certainly driven in part by maintaining existing patients on drug, but is absolutely fueled by bringing new patients on therapy, new patients through new doctors and new patients through existing doctors too. No, it's not just the same thing we've been doing for years, but I will say we're pleased that the things we have been doing historically have worked out well. I don't think we plan to go into detail on today's call, so don't ask a follow-up question and try to get me to do it.
I think we did mention we're gonna make some new investments behind XYREM this year, and I think we will have more to say in the quarters to come about exactly what's entailed in that. Those are the investments we believe have the greatest potential to fuel continued volume growth near term and long term for XYREM.
Thank you.
Our next question comes from the line of Jessica Fye with JP Morgan. You may proceed.
Hey, guys. Can you hear me now?
Now we can hear you.
Thanks. Sorry about that. I guess I wanted to ask a question just with the increased focus on these IPR challenges across the industry right now. I think we understand the timelines here, and I realize this is only on certain patents for you guys. Is there any additional sort of framework you can provide us with as we try to handicap the risk associated with this process if it does move forward in the summer? Thanks.
Yeah. Jessica, I'm happy to make a couple comments, but I don't wanna claim that we are the experts on IPR, and I encourage all of you to continue getting smart on this area 'cause like it or not, it appears to be an area we're gonna see more of in our industry going forward. You know, in broad terms, I'd say, you know, it's a way of going after patents. Not infringement of patents. But validity of patents in certain ways, with respect to, you know, prior art, not in other ways such as obviousness. There's a slightly different standard applied to overturn a patent from, you know, something that's clear and convincing. I'm not getting my legal terms right, to something that's more like preponderance of evidence.
It's a slightly different and, I would say, lower standard. You know, what does all that mean specifically with respect to our patents? We'll have to wait and see first as to whether PTAB even decides to get that far, right? Are they even gonna review the patents and make a determination by the third quarter of 2016 as to how they feel about it. I will say we feel a little different about this process versus CBM, and, you know, we've been on record on that for quite some time that with respect to CBMs, we thought the right thing was for PTAB not to pick up our patents for review because they didn't look to us like they fell under that particular piece of the review process.
I think we were also clear in saying if they did get picked up by that particular under the CBM process, we knew that the track record of invalidating patents was very high. I wouldn't say we necessarily feel the same way about IPR, although I will also say there's not as much precedent as all of us would like to feel super confident about where that ends up. I hope that's helpful generally as context for IPR.
Yeah. Thanks.
Next question comes from the line of Ken Cacciatore with Cowen and Company. You may proceed.
Hey, guys. Question, Bruce, on the comment you made about initiating litigation on the XYREM 2033 expiring patents, the valproate combination XYREM patent. Did Roxane certify Paragraph IV to that patent, or are you proactively suing them?
Good catch, Ken. Yes, they Paragraph IV certified.
Okay. Thank you very much.
Our next question comes from the line of John Boris, SunTrust. You may proceed.
John, are you there?
Our next question comes from the line of Louise Chen with Guggenheim. You may proceed.
Hi. Thank you for the questions. Quick question. What gives you confidence that your patents will be upheld in the IPR review? Can you provide us any color on what they are arguing regarding your patents and which patents they are targeting? What happens if the IPR process goes against you?
Yeah. I can't provide too much play-by-play on exactly what we think will happen. I will remind you that, you know, ultimately our belief is if litigation continued moving forward, we'd be arguing about these same issues, if not a broader set of issues, in litigation. This is a slightly different way of getting there on a slightly different timetable with slightly different characteristics. I would say in general, ANDA filers wanna claim both that they don't infringe your patents and that if they did, it doesn't matter because your patents aren't valid. They can do that in many ways. Historically, through litigation, they're now going a different route through IPR.
Much like we haven't done a blow-by-blow in what our arguments in litigation will be, I'm not sure we're gonna do a blow-by-blow as to what our arguments in IPR would be, other than let's first wait and see a couple quarters from now as to whether PTAB is even gonna pick them up and review them, 'cause we don't know that yet.
Our next question comes from the line of Douglas Tsao with Barclays. You may proceed.
Bruce, just in terms of XYREM and the DTC campaign, obviously you alluded that you're gonna be sort of investing in some new marketing initiatives. Just curious, are those gonna be targeted on the undiagnosed narcolepsy population, or will that sort of be focused much more on really just ramping up your penetration into the diagnosed population just simply because, you know, they're just much more readily available?
Again, we have a couple different types of efforts we invest behind. Part of it is very specific to our brand on label for treatment of narcolepsy patients with EDS and cataplexy. We're doing this general disease awareness effort, which obviously is targeted at undiagnosed patients. Maybe I'll have Mike comment on what that mix is and how we think about that.
Sure. With regard to the disease awareness, as I said earlier, we're gonna continue the print and web-based efforts. We will not do it in a targeted approach. We'll do it in a broader approach, which we know have resulted in very good traffic to the websites, to the doc finder and so on. We're very pleased with that. We will continue those efforts. As Bruce said, then you also have the existing patient and current prescriber service area that this is a key area for us to continue to invest in. We're excited about some of the initiatives that we are kicking off in 2015 with regard to those.
Okay, great. Thank you.
Our next question comes from the line of David Maris. You may proceed.
Hi, this is Katie Brennan in for David Maris. Thanks for taking the question. As far as defibrotide in other indications, have you guys made any further progress in kind of specifying where the potential lies? What are your conversations with the FDA looking like on that front? Can you just give us a little more color as to how that'll look in the coming year?
Yeah. Katie, this is Bruce. We don't wanna make a lot of specific comments. We've sort of said we'll get back to you later in the year on that. Maybe I will have Jeff give you a general sense of how we're thinking about the opportunity set for defibrotide.
As Bruce mentioned previously, some of the areas that we are looking at are the earlier intervention into VOD before patients get so severely ill that they've had multi-organ failure and an 80% mortality rate. That's an area that we've been exploring. In addition, we'll be looking at the prophylaxis in a high-risk population, sort of defining what that might look like. Specifically, we are in conversations with FDA regarding some of these paths, because these are new areas that really haven't had a good regulatory pathway established previously. Things about endpoints and design, we are in conversations with FDA now, and we'll continue to be in those conversations going forward.
Thank you.
Next question comes from the line of John Newman with Canaccord. You may proceed.
Hey, guys. Thanks for taking the question. Bruce, I just had a question on ERWINAZE. I just wondered, given what you've seen with JZP-416, has the manufacturing situation with ERWINAZE changed at all? Has it improved a bit? I'm just curious as to how you guys stand at this point with regard to keeping up with current demand and also just maintaining the sort of batch success that you've seen in the past. Thanks.
Yeah, John, thanks for that question. You know, it's important I give you both sides of this answer so everyone hears it clearly. We have been working closely with our contract manufacturer, and I think we are making strides to improve, you know, what we can expect out of the manufacturing of ERWINAZE in terms of quantities, quality, consistency, reliability, absolutely. To that extent, my positive comment would be, we think we do have enough supply to keep up with both current demand and projected growth in demand. That said, I also wanna be clear, as we are in our risk factors, that we can't build enough safety stock of this drug that we could necessarily get through a complete loss of a batch without short supplying the market.
As we've told you know, the overall production cycle for this product is many, many months. You know, while we're getting better and while we've got more inventory on hand and are better prepared to meet demand increases, we aren't yet at a position where we can say, "Don't worry about it. If something goes wrong, we got enough sitting on the shelf that we'll make more before you ever notice there was an issue." I hope that's fair and balanced. In how I lay it out, we're absolutely making progress. We're not saying we can't grow the product, based on our single supply source, but we gotta be fair with you and warn you, we just don't have the kind of protection you'd like to have for a key product like this when you can build up safety stock.
Okay, great. Thank you.
The next question comes from the line of Gregg Gilbert with Deutsche Bank. You may proceed.
Hello. For Bruce and Matt, just wanted to ask you to expound a bit on business development, and how would you characterize the opportunities that are currently in front of you from a size range standpoint, maybe a ripeness standpoint, if you're in the mood to talk about that? Thanks, guys.
Yeah. I'll make the general comment, and I'll put Matt on the hot seat to give you more specifics. You know, in general, I think we've characterized to all of you that you know, our readiness for additional corporate development transactions is based on a number of things. Our financial readiness, and I think, you know, we've talked about the strength of our balance sheet, the financing we've done to enhance our flexibility, our good cash flow. You know, Matt gave you, I think in his commentary, $1.1 billion in cash and equivalents and undrawn revolver we have available to us.
Of course, that doesn't count the fact that we're confident we can finance beyond that based on our own cash flow, and even more than that, if we were acquiring an asset that brought with it incremental cash flow. Financial readiness is one aspect. Operational readiness is another aspect. Are we ready to take on a new challenge? My confidence is much higher today than it was a year ago that our organization is ready for that. You know, we've assembled and are up to speed on our launch strategy in Europe for defibrotide. Our ERWINAZE and defibrotide sales force is completely staffed. As you heard today, I think for the first time, we're, you know, proceeding with a potential divestiture of our other, you know, less core European business. We're getting ready to do more in Europe.
Same thing in the U.S. We've got a great team now focused on sleep and hematology/oncology. We've scaled back our support on psych. You know, we're really focused on areas where we can grow. We got a great defibrotide launch team coming together to get us ready for that during 2015. That puts us in a strong position, I think, to take on an additional commercial asset in the U.S. Similarly, our R&D team has just done a really nice job advancing our programs and getting the key programs, particularly the defibrotide rolling submission and the JZP-110 phase III program, to a point where those are in execution mode, and we can take on another R&D program as well if it fits our strategy. I think our financial readiness has improved.
I think our operational readiness has improved. I think we've got the right management team to take it on. Now I'll turn it over to Matt for the easy part, which is which opportunities when. Matt, take it away.
Thanks, Bruce, for leaving me all the easy stuff. So Gregg, the main thing I'd wanna convey is really we haven't changed our approach. We continue to evaluate a pretty wide range of transactions. I feel good about it, and Bruce talked about both financial and operational capacity. Our capacity to evaluate transactions is also higher than it's ever been. I think we're ready on all fronts and are very active looking at and assessing numerous opportunities. Again, they do range across the same span we've talked about before, you know, at or near market assets as well as development assets in our therapeutic areas.
Again, with respect to at or near market assets, looking outside of our current therapeutic areas as well, as long as we see assets that can generate attractive returns for our shareholders and have good longevity and will help us meaningfully diversify our business over time. From a size and breadth perspective, it's still a large list of things to evaluate. We're gonna continue with the same focus and discipline, though, that we've always had. As a result, I think it remains difficult to predict for you the exact timing of when we will actually get a transaction done. We like what we see, and we like our position and ability to act.
Thanks, guys.
Next question comes from the line of John Boris with SunTrust. You may proceed.
Thanks for taking my question. Can you hear me okay?
Yes, we can.
Great. Thanks, Bruce. Just on the DTC, not to beat a dead horse to death here, but can you just quantify how much you spent in DTC in 2014? Just on Defitelio, can you maybe just cite what the upper and lower limit is of the price band that you might have in place, just to gauge what pricing has been so far for the asset? Thanks.
Yeah. On the spend on our disease awareness campaign in 2014, Matt, have we given that number before?
We have.
I think it's about $5 million. I think that's pretty darn close to what we spent in 2014. On Defitelio, I think you're talking about European pricing.
Correct.
Defitelio, maybe I'll let Kathee or Russ take that one.
Yeah. The price per vial is EUR 426. That's the price we were seeing in a very narrow window around that EUR 426. That translates into dollars for an adult of about 75 kilos, about $93,000-$94,000 a year. For a child of about 25 kilos, it's around $34,000 a year. Take a haircut, that's kinda like a list price.
Thank you.
Our last question comes from the line of Jason Gerberry with Leerink Partners. You may proceed.
Hi, thanks for taking the questions. Just on Defitelio. You mentioned that France the switch from prophylactic to more on-label use. Is France an outlier in terms of using Defitelio prophylactically or are there other markets where we could potentially see a switch away from prophylactic use to more of the on-label use? And then as it relates to reimbursement, in those markets where you're holding tight, are patients still getting product on a compassionate use basis, or are they not getting access to Defitelio in those markets? Thanks.
Yeah. Let me give you an answer to the first part, which is France is an outlier. France has lots of experience with defibrotide. They have tremendous KOL experience, and so it was a larger country just in terms of the, you know, breadth and depth of experience that they had and comfort with the product. They had evolved more to early use and prophylaxis in general. That's where we have seen some changes that's more consistent with the label. I would say they are an outlier. You're not gonna see that in other countries to the extent that you've seen in France. I would say pretty much in general, the other countries are fairly consistent in terms of what we've seen from usage.
As it relates to, you know, to think about the change here, remember, it is available on a compassionate use basis, and so you're then going on to a reimbursed basis on a number of countries. Some countries where it exists, some countries where it doesn't exist. Don't think of this as a launch from nothing. Typically, it's a transition from a named patient basis, and we'll continue to see that happen over the course of 2015. Like I said, if I just step back and I say, "What do I see in terms of growth with Defitelio in the countries where, you know, we are watching not only reimbursement but future growth?" We're actually pretty happy with what we're seeing in terms of double-digit growth.
Okay. Thank you.
Last question.
That was the last question, ma'am. I would now like to turn the call back over to Kathee for any closing remarks.
Well, thank you very much for joining us today. I wanted to mention that we are planning to attend the upcoming Cowen Conference in Boston and also the Barclays Healthcare Conference in Miami, and we look forward to seeing many of you at those conferences. Thank you very much and have a good afternoon.
Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.