And John, for joining us and making the long trip out. I know it's the 43rd annual. Bruce, I can't remember when we first got together, but it's been a lot of years now.
Oh.
All of a sudden, trying to count it up. Why don't we just start off? I know maybe you want to make some opening comments, and we'll get into Q&A.
Yeah, so happy to. Let me start out with the exciting opening comments. We're going to make forward-looking statements. See our risk factors. If I refer to non-GAAP financials, we always have a reconciliation on our website. I'll also point out, if you're watching me in the room, I have a tremor in my right hand that's not nerves. If my left hand starts shaking, I'm nervous. So you can differentiate on that. I'm joined by two colleagues here in front of you. Kim Sablich has been with the company since June 1, 2020, runs our U.S. commercial business, has overseen a number of successful launches already during her tenure. John Miller may be less familiar to many of you.
John's a longtime leader within the Jazz organization, promoted onto the executive committee a few years ago, and responsible, among other things, for corporate strategy, but has played roles across the commercial and development parts of our business over time. So, Ken, I've been here a lot of years, working with you a lot of years. Jazz turns 20 in two weeks, two weeks from yesterday. It's hard to believe how much the company has changed over time, so I'm glad to give an update on where we are today. We finished 2022 strong. Our fourth quarter results were just released at the beginning of this month and showed substantial revenue growth as oxybate continued to grow, led by Xywav.
Xywav became our leading narcolepsy product, passing Xyrem, both by number of patients and by revenues in the fourth quarter, as it also continues to grow in a newer indication, idiopathic hypersomnia. We're really excited about where we can go with that. Epidiolex resumed its strong growth in the back half of 2022. That product, we believe, is solidly on track to be a blockbuster product by 2025. And oncology grew very nicely too, led by Zepzelca and Rylaze. We just gave guidance for this year. The midpoint is $1 billion in oncology revenue, again, on track for what we told people to expect in 2025. So all systems go from a commercial perspective to grow toward what we expect could be $5 billion in revenues in 2025, including a component to come from new corporate development.
On the pipeline side, a lot of new clinical trial starts, some exciting data readouts coming in 2023 and 2024. We had two recent readouts of zanidatamab, the product we added toward the end of 2022. Since the deal, already positive readouts in BTC and GEA. We also added an orexin agonist last year, as well as a third new compound to our pipeline. So really excited about what's going on in our pipeline. And then we also said at the beginning of last year, we'd improve our operating margins over time. And just last year alone, we went from a 43% operating margin in 2021 to a 48% operating margin in 2022.
That gives us some room in our margin to make bigger investments in R&D, which we're doing as we move into 2023, really putting our muscle behind some things that I think will contribute to longer-term growth of the company in addition to the near-term growth we've got. People seemed heartened by our revenue guidance for this year, which calls for revenue growth despite the fact that we're facing oxybate competition for the first time in our history. And then I'll also say, just from a financial strength perspective, we had a great year at $1.3 billion in operating cash flow in 2022, strong delevering after the GW acquisition from 4.9 times in May of 2021 down to 2.9 times by the end of 2022. That really puts us in a strong position to continue to be active on the corp dev side.
And we believe the current market environment, whatever you think of it, gives companies that are in a position to acquire innovation a good running start. There are lots of opportunities on our dashboard in the neuroscience and oncology front. So we think we'll continue to be busy on the corp dev side.
Thanks for the update. You know, Bruce, one of the things that I find interesting in a lot of the conversations with accounts that you would find to be or think to be high quality is they say all the time there's a lot of discussion about corporate development, a lot of discussion about the ability to lever up. And that seems to get disproportionate attention versus, "Hey, we have no problem levering down. We have no problem going down to lower than one and a half times, lower than one time." Can you talk about that? Just, again, a lot of the commentary is about corporate development, but a lot of folks feel that you have a lot of great assets in-house, and they wouldn't mind you executing on it, but also driving leverage down.
Yeah. So we have a history as a company of levering up temporarily to do a transaction and then delevering quickly and substantially in the years that followed. So this is not. GW is not our first time doing this. Of course, over the years, the company's gotten bigger. The size of the deals we've been doing has gotten bigger. So proportionately, it looks a little bit more, but that pattern is intact. I point out that we have the ability to use leverage because it gives us another tool to drive shareholder returns, right? We don't have to use equity every time we want to do a deal. In fact, we've been pretty equity-sparing over the years in how we've done our transactions. I'll remind people we used a little bit of leverage in the GW transaction.
We did that strategically because it made the debt package we were able to get a little more issuer-friendly, both in terms of rates, but also flexibility to pay down debt, particularly helpful now that interest rates are rising. So I'm not saying we'll never use equity. We may use equity if it makes sense, but the ability to borrow off certain cash flows really gives us another tool to optimize the return to shareholders of transactions.
Okay. As we think forward now, you've done a wonderful job with Xywav and IH and obviously the conversion from narcolepsy. I think I can't even imagine five years ago if we were sitting here and thinking that this would be the spot we'd be in. I think we'd all be running around celebrating the position you put yourself in. I think one of the concerns folks have is the generics, now that they're available. Would there be any implications to recapture some of the conversion of narcolepsy to Xywav, number one? And then Avadel coming into the market, could that eat into what you have captured and transition to narcolepsy? And then is idiopathic hypersomnia immune to any generic kind of pressure? And same thing with the once nightly from Avadel. Our understanding is obviously they weren't studying that indication, so no one in idiopathic hypersomnia.
But can you talk about just even the ability to kind of maintain what you have and the ability for IH to grow unencumbered from those launches?
Yeah, maybe I'll just start with a high-level overview, which is we introduced Xywav as a superior product a number of years ago. Even FDA came out and said it's a clinically superior product to the older Xyrem or high-sodium Oxybate. We've been effectively competing with Xyrem for the past couple of years, very successfully, I'll point out. Xyrem sales have been falling, and we're okay with that because we're putting patients onto a better product. With that as the backdrop of what's been going on, as we contemplate new entrants into the high-sodium world, I don't think we have the concerns you do, but I'll let Kim elaborate on that.
Yeah, I'd say we feel very confident in the ability of Xywav to grow in the face of potentially several AGs next year and potentially branded competition because the market really is showing us that they believe that reducing sodium in this patient population at risk for cardiovascular disease, heightened risk, is very important. And we've had very strong transitions. And one of the most compelling things we look at is when you've got in front of you a patient that is naive to Oxybate and looking to be put on it for the first time, by and large, the vast majority of the time, the healthcare providers are choosing to start them on Xywav. So, as Bruce said, we've been out there with the storm. We've had good momentum.
And we really don't anticipate the market dynamics around that to change just because another Xyrem, an authorized generic of Xyrem, comes into the marketplace. We still believe we're going to see nice momentum coming, both in terms of patients being transitioned from Xyrem or even go out and say, "I think we'll start to see transitions from the AG once there are patients on the AG." And then the other driver is those new patient starts. So we feel really good about that. We've got strong 90% coverage of commercial lives. And again, we don't see that really changing in the short term.
Kind of dovetailing into that, maybe the once nightly and how the implications may be, but what's always striking to us when we talk to clinicians is that those high-sodium twice nightly Xyrem, to what degree sometimes they're scared to actually move. They really feel well controlled on their medication. So can you just also just factor in how is the once nightly going to play in? Is it kind of on those still sitting on the high sodium? Where would you see implications from that?
Yeah, sure. So we are not of the mindset that all patients are looking for a once nightly option. We think that's probably the exception to the rule. I think we've seen with patients who are actually experienced in taking oxybate that they actually appreciate a little bit of the flexibility that you get out of taking your product two times a night and being able to kind of flex that dose between the first and second one, ability to get up in the middle of the night to go to the bathroom and check on the kids and so forth. So there's certainly going to be a place for this product, but we really believe that the market is moving and has moved to a place where you're going to have to make a big trade-off there.
Is the supposed convenience advantage of a once nightly product really worth taking on the extra sodium and increasing your risk of cardiovascular events? And we believe that that's ultimately a very differentiated and important proposition in the market.
I just want to make sure people understand the sodium difference between the high-sodium products and the low-sodium products. Taking the high-sodium product is like taking the low-sodium product and eating five servings of fast food French fries every night for the rest of your life. That's what you're talking about. So when we say less salt, does that matter? It's a lot less salt, and it does matter a lot.
So as we turn to idiopathic hypersomnia, I know we're pretty excited here at Cowen from all our survey work, our doc conversations. It's really interesting from a company perspective, a little bit of riches here. You have a big target of moving these narcolepsy patients over, and yet you're launching into a new indication. You have the benefit of it's the same clinician base, so they're comfortable with the drug. But from a sales force perspective and maybe efforts focus from the senior management down to the sales force, how have you been handling this? Idiopathic hypersomnia is on a really nice trajectory, but I would imagine there's some level of confusion on how you kind of present to the sales force. How do you attack kind of this big kind of pod of narcolepsy versus kind of a new indication? Can you talk about that, the challenges and the opportunities?
It's an embarrassment of riches, and I assure you the sales force is not confused when Kim gets done describing their incentive comp plan and what we want them to do. I'll let Kim talk about our relative efforts.
Yeah, I mean, they're both very important, and our sales force understands that. Our marketing team is putting equal effort behind the two in non-in-person channels as well. And I'd say we've been having success, right? Just look at what we've done. 800 patients last quarter starting Xywav, 300 in IH, 500 in narcolepsy. And we really don't see why that's not going to continue into the coming year. And we do need to be at a very high level execution-wise to make sure when we're going into these customers, the same customer for narcolepsy is 90% of the time, the same customer for idiopathic hypersomnia, that we are getting in two separate product discussions and moving them along the belief continuum and taking action on both. So good success so far, and I think we're only going to get better at that in the coming year.
And I would just add to what Kim said. We've got great data physician by physician as to what's going on. And so our planning is a little more sophisticated than everybody do the following in all offices for the next quarter. It really is right down to the physician level in terms of, for this physician, here's what she or he might most benefit from hearing on this call.
Kind of also fascinating conversations with the clinicians about idiopathic hypersomnia, kind of learning about the patients, which maybe you can help us flesh out. They talk about it being kind of challenging. Sometimes you're dealing with teens. It's getting confused with depression. That maybe a lot of these patients are kind of getting stuck at the general practitioner level because it's really just a unique diagnosis. So maybe you can talk about, I know there's nothing average about any patient, but an average patient, are they getting to a sleep specialist? And then I'm going to finish off with, obviously, I'm old enough that I do see drug commercials on TV because I watch those types of channels.
Direct-to-consumer maybe advertising beyond to the patient level, but maybe helping at the general practitioner level with kind of an ad campaign like that help ferret out or direct these patients' GPs to know what they're seeing to get them to the right treatment. Just, can you talk about that?
So, maybe if you pass the mic to John, I'll ask John to start a little bit with how to recognize and diagnose IH, and I'll let Kim talk about promotional tactics a little bit, marketing tactics.
Yeah, great. So IH is like narcolepsy, a debilitating disorder with serious symptoms. Patients often go on a very long diagnostic journey to actually get a diagnosis. And as you said, Ken, it really starts with having a good clinician who knows how to make the diagnosis. So IH patients will generally have very long sleep times, more than 10 hours in many cases, but it's non-restorative sleep. It's not refreshing. So they don't benefit from naps like a narcolepsy patient would. They also have an extremely difficult time waking up. We talk about this as a sleep inertia. I mean, very, very hard time to wake up. It can take like two hours for them at times. And then there are some objective measures that are different between narcolepsy and idiopathic hypersomnia.
Idiopathic hypersomnia patients generally have sleep latency less than eight minutes on MSLT, which is a daytime measure of how quickly you fall asleep, and then less than two short-onset REM periods on the PSG, which is how quickly you get into REM sleep, where narcolepsy patients would generally have greater than two short-onset sleep REM periods.
Easy for you to say.
Yeah.
Do you want to talk about DTC and whether that makes sense, digital approaches?
Yeah, sure. So first, I want to say, Ken, thank you. What you're describing is that this is a market-built opportunity for us. And I know it's very tempting to conclude. We keep talking about 37,000 patients out there that we're going after at the onset that are already diagnosed and actively engaging with the healthcare system. But despite that, it is a space where, despite that diagnosis being in the chart of the IH patient, there's still a need to educate practitioners to think more holistically about that diagnosis and that condition because to date, they have not had anything. There's been nothing FDA-approved to treat this condition. So when they think about treatment, it's usually been about off-label usage of a wake-promoting agent, really just to treat the daytime symptom of excessive daytime sleepiness.
And now we have a product available to treat all the symptoms of idiopathic hypersomnia. And we have to educate and remind people this is a 24-hour condition. Talk about the things John just mentioned about what you see at nighttime versus the daytime and get them to think more holistically about the patient and ultimately about what that patient that is appropriate for Xywav looks like. So a lot of our efforts are going towards the healthcare provider community. A lot of it is on education, not only about Xywav, but around the condition. We do have consumer efforts going on. It just depends on what you think of as DTC being my past life. It means mass media, big spend, and so forth. We don't need to do that here with this smaller orphan condition and so forth. We are able to reach them more efficiently through channels.
We actually started educating patients and physicians in advance of the approval of Xywav in terms of disease education and helping them understand and appreciate this isn't about quantity of sleep. It's about quality of sleep and restorative sleep and so forth. We will continue to do that in, I think, a more focused and cost-effective way.
The sales force now has obviously been out there for a while, but now marketing and IH. When we talk to clinicians and when we run surveys, they talk about it potentially being the clinicians do that it could be the same size as narcolepsy. That's the feedback we get. You have real-time contact with these clinicians in a much broader way. I think you could do more real-time survey than we ever could. Can you talk about expectations eventually down the road? Is that the right feedback? Should we be thinking that it could be the same size as narcolepsy at some point?
I mean, I would say in our industry generally, when a first drug is approved for an indication, you typically see a diagnosis increase in the years that follow. Some of the thinking is somebody's out promoting and talking and educating, right? So there's some input there. Part of it is that physicians get a different benefit of moving all the way to diagnosis when it unlocks a treatment option, when diagnosis equates to there is a drug that's been demonstrated in this population to have a benefit and translates to payer benefit in that getting that diagnosis unlocks access through payer coverage. So we wouldn't be surprised if diagnosis went up naturally in this space.
We, like you, Ken, have heard the comments from sleep specialists that if asked the question, "In your practice, doctor, do you have more narcolepsy or more idiopathic hypersomnia patients?" They often say, "I have as many or more IH patients as I do narcolepsy patients," which leads us to believe the market opportunity is much greater than that starting diagnosed and seeking healthcare population of 37,000 that we talk about.
We want to talk about Rylaze, but before we get there, just very briefly on Epidiolex. Ken, we've talked about the different indications, Dravet, Lennox-Gastaut, TSC, as well as some of the off-label use that our clinicians have discussed with us. Just help us understand where the expected growth drivers will be, what are the mature markets, and also talk about the ex-U.S. opportunity.
Yeah, I'll just start by saying we are very pleased to see in the back half of 2022 our estimations come true in terms of gaining momentum in the market, picking up. Really pleased that we had 12% growth on a pro forma basis year over year, and we think we've got really nice momentum going into 2023. And that's because the things that we were saying and describing late in 2021 and 2022 are happening. We were able to get at a much more increasing rate into offices to talk to them face-to-face to increase our overall volume of promotional efforts to continue to build the relationships that GW started to build when COVID hit. We are seeing our prescriber base continue to grow, new prescribers coming on each and every quarter.
Then we're seeing proof of a hypothesis that we had where we were talking about once HCP has the opportunity to try Epidiolex in a few patients and see for themselves what it can do, that they would start to use it more broadly and earlier in the treatment algorithm. We now have quantitative data from prescribers saying that they are now saying they're using it earlier in the treatment. 60% say they're using it earlier in the treatment paradigm than they were just a year ago. All of that is coming true. We think a lot of the momentum that we've seen in the back half has to do with the data we were very focused on promoting last year around the synergistic effects of using Epidiolex in combination with clobazam.
It produces efficacy that they have never seen before, 60% in LGS and Dravet and TSC, 50% reduction in seizures. And it gets them again to think about, "Why am I not really using this more frequently?" So all of that, I think, bodes well. That all carries into this year. And the last thing I'll say at the start of 2023 is that while we already had very strong payer coverage before 2023, we improved it even further, not so much in terms of the number of patients with coverage.
You can't get much better than 98%, but really the quality of that coverage in terms of being broader, and particularly Medicaid, more and more states saying you can use it in the broad refractory type patient and in the commercial side, them reducing some of the utilization management criteria to make it a bit easier to get the prior authorization through.
And then I would add ex-U.S.. We're seeing really nice growth in Europe as we continue to broaden our reach. We launched in France at the end of 2022, which was the fifth of the five major European markets. And while we've seen great volume growth in Europe last year, a lot of that was muted out on the revenue line by the FX headwinds. We don't expect that same headwind in 2023. So nice growth already happening in Europe with more ahead of us. I think we're launched in 15 of 35 approved markets and continuing to do rolling launches with excellent pricing in Europe relative to the U.S. And then lastly, we are pursuing Asia as well with an ongoing phase III trial in all three of the seizure types up and running in Japan.
Can we talk about the runway that you'll have for growth for Epidiolex right now, the patent exclusivity and the moat that you might have? And then also just so we could touch just for time, the manufacturing expertise and then the potential bioequivalent studies that others might have to run.
I mean, the strategic rationale for the GW deal was many things, including that we thought this would be a blockbuster product, but also that it would be a product with long durability. And we did extensive diligence, obviously under confidentiality with GW to assess that, looked at their existing patent estate, the existing IP, as well as their strategy to continue to protect other elements of their innovation, including some patents that were predicted to issue after that deal closed. Those patents have issued. They cover slightly different things and go out longer to 2039 rather than 2035. And importantly, include a composition of matter-like patent that really goes to the total composition of Epidiolex, not just the cannabidiol portion, but what else is in the formulation.
Is that just the last couple of percent and doesn't matter, or does it in fact contribute to the activity and performance of the agent, which obviously has implications for both botanical and synthetic routes to creating Epidiolex? In our ongoing litigation, which just commenced at the beginning of this year against all ANDA filers, we have asserted all of our IP that's Orange Book listed against them. There's a lot of know-how that goes into a very different manufacturing process than most of us are used to in the drug business. We don't usually start with growing plants as the starting point for coming up with a really effective agent. GW has 20 years of experience, well over $100 million in capital investment that's gone into sort of perfecting that.
In the FDA guidance around botanical routes, they've got some specific commentary about using specific cultivars of your plants. There's a lot of, again, proprietary know-how on the GW side that we don't think other firms are really set up to successfully do. That's a little different from, can you in a lab generate some bioequivalence data? It's different to actually turn that into a commercial product without infringing IP.
Are there any questions? Okay. So you provided that billion-dollar midpoint guidance this year for oncology, which assumes really nice growth for Rylaze. So do you want to just talk about the Erwinaze supply disruptions, where it might have gone there, and your expectations for Rylaze going forward?
John, you want to take that?
Yeah, I can do that. I mean, we never really felt like we got to see the full potential of Erwinaze due to the supply and quality issues that we experienced starting back in 2015. And I think as we've launched Rylaze, that's kind of played out as we had hoped. We exited fourth quarter 2022 sales were just over $80 million just for the fourth quarter in the U.S. alone. And so that product's on a really good growth rate in the U.S. We submitted our European file in the second quarter of 2022. We're targeting a potential approval date sometime this year. I'll remind you that in Europe, that represented for Erwinaze about 20% of the total market opportunity. So most of the market opportunity with Erwinaze was in the U.S. And then we're also excited to target a submission approval and launch in Japan.
We do see opportunity to continue to grow Rylaze in the U.S., outside the U.S., in Europe, and in Japan.
And I'll just add, I'm not sure it's come through in our public commentary to date, but people should remember that we set out in partnership with FDA and COG, the Children's Oncology Group, to actually develop a better product, one that delivered a more consistent level of active enzyme than was possible in Erwinaze. So even putting aside capacity and quality issues, we actually think we've got a better product for patients in terms of achieving the therapeutic benefit of a full course of asparaginase treatment. And we think clinicians understand that.
So in the last few minutes, we do want to touch on your orexin program from Sumitomo. Phase I initiated in Q4, healthy volunteer studies. So do you just want to walk through the phase I study design and next steps going forward?
Yeah, I want to hand the mic back to John, and I'll just say when we brought the product in from Sumitomo, there was phase I work already ongoing in Japan, some of the data of which we had seen already. Other data continued to emerge even before we submitted an IND and began studies in the U.S., but maybe John could talk about where that program is right now.
Yeah, I mean, we have a robust phase I development program aimed to really further explore the pharmacology of the asset. We announced that we had started the phase I single ascending dose study at the end of 2022. So first patient in that study, we expect that. Results from that in the first half of 2023. We've also started a multiple ascending dose study. Both of those are in sleep-deprived healthy volunteers, which is a common approach in early drug development in narcolepsy. And so we're going to get some data this year. We're excited to see what that looks like. And we think it's a really exciting asset in our pipeline.
Okay, with that, I see we're almost up to time. You know what's interesting, Bruce, is we think about the stock. Stock's been under pressure, and yet you're executing very well. And if I think 12 months forward, we'd be sitting here around this time in 2024, we'd be looking at Vision 2025, hopefully on track without the extra business development. I think you talk about pipeline and business development, maybe $500 million. But if we just use some round numbers, as I look at 2025, and we'd be sitting here in 2024, you'd have almost $30 in earnings. Leverage may or may not be sub two or lower, depending on what you do. We'd be proving out that Xywav and IH is going in the right direction. We're holding narcolepsy, maybe even stealing some more, as Kim has talked about.
We'd be trading at less than five times earnings.
We would not be trading at less than five times.
I agree with you 100%. So everyone should be taking a look. This is really a compelling time. And I think what's different than the five years to seven years past when we were talking about what might be every quarter, it is or it isn't. And so this is a very unique time where execution is going to be showing up or not showing up every quarter. Anyways, we'd encourage folks to be taking a hard look. This is a really good time.
Yeah, and we're excited to continue demonstrating the execution. To go from a company where 80% of our revenues were in a product that was going to face competition in a few years to a place where before we even got to that competition, Xywav had replaced Xyrem as our largest product, and then factoring in the diversification of our top line with successful launches also of Zepzelca and Rylaze and the addition of Epidiolex and other blockbuster product with long-term growth potential. And then factoring in our pipeline, which people are starting to pay more attention to, and I'm excited for that, puts us in position, I think, not only to achieve Vision 2025, but really to have sustainable growth thereafter. And I think that's pretty attractive.
Great. Thanks for the discussion.
Yeah, thanks everyone.