Welcome to the Jazz Pharmaceuticals second quarter 2013 earnings conference call. Following an introduction from the company, we will open the call to questions. I will now turn the call over to Kathee Littrell, Vice President of Investor Relations at Jazz Pharmaceuticals.
Thank you, Catherine. Thank you for joining the Jazz Pharmaceuticals plc investor conference call. Today, we reported our second quarter 2013 financial results and provided an update to 2013 financial guidance in a press release. The release is available in the News and Events section of the company's website. With me for today's call are Bruce Cozadd, Chairman and CEO, Kathryn Falberg, CFO, Russell Cox, Chief Commercial Officer, and Jeffrey Tobias, Head of R&D and Chief Medical Officer. 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, and are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995.
References to what we expect, believe, intend to, or will do, plan, estimate, or other statements referring to future events or results are intended to identify these statements as forward-looking. These statements include expectations and projections relating to financial, commercial, development, regulatory, and intellectual property matters, including our 2013 financial guidance, growth prospects for our products, and the availability of sufficient supply of our products to meet demand. Statements that are not historical facts are forward-looking. These forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are identified and described in our press release, the investor presentation accompanying this call, and under Risk Factors in the Form 10-Q for the quarter ended March 31, 2013. We expect to file our 10-Q for the second quarter 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 included, including adjusted net income, adjusted combined SG&A and R&D expenses, adjusted earnings per share, 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 GAAP measures. Reconciliations of GAAP to adjusted financial measures are included in our press release issued earlier today, which is available on our website. I'm now going to turn the call over to Bruce.
Thanks, Kathee, and thank you all for joining us today. We're pleased with the significant growth of the top and bottom line during the first half of 2013. In the second quarter, we saw continued record sales for Xyrem and Erwinaze. Our total revenues increased 68% to $208 million compared to the second quarter of 2012. We realized adjusted net income of $88 million in the second quarter of 2013, reflecting the significant top-line growth and attractive margins in our business. GAAP net income for the quarter was $42 million. We remain committed to creating shareholder value. We're focused on continued solid commercial execution, and we're making targeted investments to continue to drive growth of our core products. We're making R&D investments in lifecycle management for our current growth products, as well as development of new molecules in our pipeline.
As part of our ongoing growth strategy, we are actively engaged in evaluating corporate development opportunities that could add to our commercial products or pipeline. To further these objectives, we are adding key people to our worldwide organization to further strengthen our capabilities and ensure that we have a scalable infrastructure to support our plans for future growth. I'll update you now on three products in our current portfolio that we believe have the highest growth potential, Xyrem, Erwinaze, and Prialt, and provide an update on key commercial and clinical development progress during the quarter. Kathryn Falberg will then review our results for the second quarter and provide updates to our financial guidance. Xyrem. Xyrem remains a key driver of our growth. In the second quarter of 2013, we were pleased to achieve 12% volume growth compared to the same period of 2012.
The average number of active Xyrem patients grew to approximately 10,700 this quarter, compared to 9,850 in the same period of 2012. Our efforts last year to expand our prescriber universe have contributed to continued growth during 2013. During the quarter, we continued to see prescription growth from the mid and low decile physicians, and we added approximately 2,500 physicians to our call universe. We believe this expansion of our call universe is important to our objective to sustain strong growth of Xyrem. During the second quarter, we supported ongoing education efforts to raise awareness of the diagnosis and treatment of narcolepsy patients through comprehensive disease state education such as Narcolepsy Link and our continuing medical education event at the June SLEEP Meeting, which had more than 500 attendees.
We've invested in select research and development initiatives, including supporting eight abstracts presented during the recent SLEEP meeting, many of which highlighted the increased burden of illness in patients with narcolepsy, including comorbidities and significantly higher cost of healthcare and drug utilization. We continue our efforts to strengthen and broaden our intellectual property related to Xyrem. Two new patents issued in June. This gives us 13 U.S. patents related to Xyrem's stable and microbially resistant formulation, its manufacturing process, and its method of use, including its restricted distribution system. Additional patent applications are pending, including applications we filed around new discoveries related to Xyrem, which, if issued, could extend our patent estate beyond the life of the current patents. We are pleased to report that earlier this month, we received a closeout letter from the FDA with respect to the October 2011 warning letter issued to the company.
As you may recall, the warning letter was related to certain aspects of our adverse event reporting system for Xyrem and drug safety procedures. We responded to FDA with a comprehensive review of our activities to strengthen our policies, procedures, personnel, and systems. For background, the FDA issues a closeout letter once they've completed an evaluation of corrective actions undertaken in response to a warning letter and conclude based on their evaluation that corrective actions have addressed the violations contained in the warning letter. We believe that this marks the completion of the FDA's review of our systems and procedures related to the October 2011 warning letter and associated Form 483s. We continue to invest in life cycle management for Xyrem, as well as development of new potential products that may improve upon Xyrem.
Our preclinical efforts on JZP-386, the deuterium-modified sodium oxybate licensed from Concert, are ongoing. We plan to submit a regulatory filing by year-end to support a first-in-human trial. Now let's turn to Erwinaze, which continues to perform very well. We are pleased with the strong growth of this product as we continue to add new accounts and see consistent reordering patterns. We believe that our efforts to educate healthcare providers on identifying hypersensitivity reactions to E. coli-derived asparaginase in acute lymphoblastic leukemia patients, and to reinforce the importance of continued asparaginase therapy, have supported greater utilization of Erwinaze.
We believe that our short-term growth will be driven by these efforts, while for longer-term growth, we believe that the evaluation and adoption of an asparaginase activity assay into ALL protocols as part of a therapeutic drug monitoring process will be important, as well as increased utilization in the adolescent and young adult population. In May, we advised investors that our most recent batch of Erwinaze was out of specification and that we were working to avoid supply disruption. We are pleased that we received approval from the Medicines and Healthcare Products Regulatory Agency in the U.K. for a batch-specific variation, which means that this batch is approved for use in the U.K., other markets that accept the U.K.-approved packaging, and markets where Erwinaze is provided on a named patient basis. The FDA has also allowed the distribution of this batch in the U.S.
We anticipate that these regulatory approvals will prevent the potential supply disruption this year that was of concern at the time of our May investor call, and we continue to carefully manage available supply to meet patient demand. We are also working with the manufacturer of Erwinaze to evaluate potential steps to increase the supply of Erwinaze over the longer term to address expected growing worldwide demand. We are also pursuing R&D initiatives to support our oncology franchise. We've completed patient enrollment in our ongoing trial evaluating the intravenous mode of administration for Erwinaze and anticipate data in the fourth quarter. We are also working with hematologists and oncologists to design a study in adolescent and young adult patients and are targeting the start of this study for late this year.
Finally, we're pleased to announce that we received Fast Track designation from the FDA for Asparec, a pegylated recombinant Erwinia-derived asparaginase molecule to treat patients with acute lymphoblastic leukemia. Based on data from our ongoing phase I study in adults in Europe, we are working with potential investigators to start our next study in children as quickly as possible. Next, I'd like to comment on Prialt, our non-opioid intrathecally administered drug for adults with severe chronic pain. Our Navigator Program provides integrated pharmacy and reimbursement services, including patient-specific reimbursement assessment and enhanced pharmacy services, as well as access to our specialty pharmacy. Enrollment into this program is progressing with over 90% of accounts enrolled.
While we've seen growth in the number of accounts enrolled thus far, we recognize this is a time of transition, and sales in the second quarter were impacted by the transition to an exclusive specialty pharmacy. The reimbursement services have been well-received by patients and their physicians. Beyond the Navigator Program, we're pleased to announce further collaboration with Medtronic, the market leader in intrathecal pumps. In May, we announced our initial collaboration with Medtronic, which was focused on implementing joint speaker, physician education, and training programs. We anticipate hosting around 50 joint speaker programs in 2013. During the second quarter, we expanded our partnership to include a sales force collaboration that leverages the strengths of Medtronic's drug delivery sales representatives and our Prialt specialty sales consultants to target opportunities to meet the needs of customers and their patients.
Our sales consultants will promote the general positioning of the SynchroMed II infusion system, and Medtronic representatives will promote the general positioning of Prialt. We also launched our Prialt registry known as PRISM, or Patient Registry of Intrathecal Ziconotide Management, to evaluate the effectiveness of Prialt therapy for the management of severe chronic pain through the reporting of patient outcomes. We plan to enroll approximately 140 patients in this observational study in the United States. The first investigator site was initiated in June. Although we are early in the implementation of these initiatives, we believe that they position Prialt for future growth. Kate, let me now turn the call over to you.
Thanks, Bruce, and good afternoon, everyone. Beginning with the top line, total revenues for the quarter were $208 million, compared to $124 million in the same period last year. This increase was primarily driven by inclusion of revenues from the acquired EUSA Pharma business and increased sales of Xyrem. We expect strong top line growth to continue and are raising our guidance today to reflect total revenues in the range of $860 million-$880 million, up 47%-50% on an actual basis and 29%-32% on a pro forma basis from 2012. Net sales of Xyrem for the quarter were $134 million, compared to $89 million in the second quarter last year.
We were pleased with year-over-year volume growth of 13.5% for the first half of 2013, reflecting solid growth in the active patient pool. We continue to see higher utilization of our coupon program since we made the program more favorable to patients last summer. This has resulted in higher gross to net deductions, which are likely to continue to impact year-over-year net sales comparisons this year. We implemented a 14% price increase on July 15th. Based on the new price and our expectation of low double-digit volume growth for the year, we are raising our Xyrem net sales guidance for 2013 by $20 million on the lower end and $15 million on the upper end to a new range of $560 million-$570 million. This range represents year-over-year growth of 48%-50% in 2013.
Turning to Erwinaze, second quarter worldwide net sales were $45 million, up 36% from pro forma net sales of $33 million in last year's second quarter. We are pleased with the strong demand that we have observed, particularly in the U.S. Because we are now more confident about our ability to supply the market this year, we're raising our guidance for worldwide Erwinaze sales by $20 million on the lower end and by $5 million on the upper end to a new range of $170 million-$180 million. This range represents pro forma year-over-year growth of 29%-36% in 2013. Net sales of Prialt were $5 million in the quarter. On a pro forma basis, net sales were $6 million for the same period in 2012.
As Bruce said, net sales were impacted by the transition to an exclusive specialty pharmacy, part of the Navigator Program for Prialt that became effective during the quarter. We mentioned on last quarter's call that we expected to make our annual shipment of Prialt to Eisai for the European market in mid-2013, and we made that shipment in July, and this will be reflected in third quarter net sales. As a reminder, sales of Prialt have a high after-tax margin. Net sales of our psychiatry products were $12 million in the second quarter, down from pro forma net sales of $20 million for the same period last year. Second quarter 2013 net sales were impacted by continued generic competition for Luvox CR and low-dose FazaClo.
We have an update on Versacloz, our new product for treatment of patients with treatment-resistant schizophrenia and for reducing the risk of recurrent suicidal behavior in patients with schizophrenia or schizoaffective disorder. We currently anticipate launching the product in the first quarter next year, which is when we now expect to have received launch quantities from the third-party manufacturer who licenses Versacloz to us. Combined SG&A and R&D expenses for the quarter totaled $87 million, compared to $60 million for the same period last year. Adjusted combined SG&A and R&D expenses for the quarter were $771 million or 34% of revenues, compared to $44 million or 35% of revenues in the second quarter last year. Note that operating expenses in the second quarter last year included only about two weeks of expenses from EUSA Pharma, which impacts the year-over-year comparisons.
On a sequential basis, adjusted combined SG&A and R&D expenses increased by $8 million over the first quarter of 2013 as we geared up a number of investment initiatives across the company, including investments in Xyrem awareness and professional education initiatives, medical education, sales and promotional expenses, R&D investment, primarily relating to clinical studies, corporate development evaluations, and integration preparedness. Worldwide headcount increased to approximately 660 as of June 30 compared to 605 at the beginning of the year, as we are expanding our operations this year to enable continued growth of our business. As a result of our plans to continue to make appropriate investments, we are increasing our guidance for adjusted combined SG&A and R&D expenses to a total of $280 million-$290 million or 32%-34% of revenues.
Turning to taxes, our adjusted effective tax rate for the second quarter was 18%. We continue to expect our 2013 adjusted effective tax rate to be in the high teens. The GAAP effective tax rate for 2013, which is impacted by various non-cash items, is expected to be approximately 36%. We reported adjusted net income of $88 million or $1.43 per share for the quarter, compared to $66 million or $1.09 per share for the second quarter a year ago. In 2013, we continue to expect substantial growth in the bottom line as reflected in our guidance of $381 million-$393 million of adjusted net income. We're increasing our guidance for adjusted EPS to a range of $6.20-$6.40, which represents growth of 29%-33% in 2013.
Our liquidity position remains strong as we ended June with $504 million in cash, plus an undrawn $200 million revolver. I'll note that net working capital has increased significantly this year, due largely to growth in accounts receivable, primarily related to a change in payment terms with a large customer in connection with the elimination of a prompt pay discount, as well as the timing of income tax payments. In June, we amended our credit agreement and repriced our term loans and revolver at attractive interest rates. The interest rate on our term loans is currently 3.5% compared to 5.25% previously. We also were able to secure more favorable covenants and other terms in the amended agreements.
We expect to generate significant cash from operations over the balance of the year and intend to use a portion of that cash to continue with our previously announced $200 million share repurchase program. We began our share repurchase program in May, and as of June 30th, we had acquired approximately 846,000 shar es for $54 million at an average price of $63. In closing, we are very pleased with the strong results for the first half of this year, the momentum in our business and our preparedness for potential new corporate development transactions. Thank you for joining us on the call today. I'll now ask the operator to open the line for your questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touchtone telephone.
If your question has been answered or you wish to withdraw your question, press star followed by two. Press one to begin, and please stand by for your first question, which is from the line of Louise Chen from Guggenheim. Please go ahead.
Hi. Thanks for taking the questions. First one I had was on business development. Sounds like you're increasingly positive on the prospects for doing a deal. You mentioned it a couple of times, and I noticed some language in the press release. So I was just curious, you know, first of all, how should we think about the access to capital you have for M&A and business development? And then are you seeing better opportunities in pipeline drugs or commercial products? You know, where's your focus here? And the second question I had was on Erwinaze. You know, in speaking with you all, it seems like the sustainability of those sales and the product opportunity may be underappreciated. So just curious if you'd comment more on that and also the market opportunity for Xyrem. Thank you.
Okay, Louise, thanks for those questions. Let's start with the business development question, and maybe I'll ask Kate to comment on access to capital and a little bit about where our current focus is. Yeah.
Thanks, Bruce. I would say that we've got excellent access to capital. I commented that our cash balance is north of $500 million, and we have a $200 million undrawn revolver. We also have, as you can see from our profit figures, you can see that our leverage ratio is very manageable. I think today we've got very good access to attractively priced capital, you know, to finance good transactions.
In terms of where are we seeing good opportunities, pipeline versus commercial, we've said all along, and we continue to say that our first priority is looking at products that are currently on the market or near to market. As we orient our BD activities, that's where we're spending most of our time. That said, we do also look at development stage assets that could be complementary to existing products. You know, I would say across the board, we do see a number of opportunities that could be interesting, and we remain optimistic, you know, as you pointed out. We've done a lot of preparedness work so far this year to make sure that when we execute that next transaction, we're ready.
Louise, on your question about Erwinaze being underappreciated, your word, not mine, although I like that word. You know, we're really thrilled with how we've performed in our first 12 months post the Azur acquisition, which closed last June. I think we're seeing really good momentum in Erwinaze if you look at what's happened in the fourth quarter, first quarter and second quarter. I think we've got the team together that's gonna continue to execute on that opportunity. As I said, I think we're making the right investments to continue that momentum, you know, even looking beyond the place we're spending all of our time right now, which is just making sure people recognize, appropriately recognize hypersensitivity reactions to the E. coli asparaginase.
In terms of the market opportunity for Xyrem, you know, I think we've mentioned there are a couple advantages to that product as we move it through development and hopefully onto the market.
One of those advantages being the pegylation, which offers the opportunity for a reduced dosing frequency, which would clearly be a positive in treaters and patients. Obviously, it has some other advantages to us, too, including the production technology. We also have, we think, a potentially better margin on that product long term. You know, even if it only replaced the current market, it would be a big plus, but I think it has the potential to be a better product on a couple different dimensions.
Thank you.
Thank you, Louise. The next question comes from the line of Michael Schmidt from Leerink Swann. Please go ahead.
for taking my questions. I had a follow-up on business development. I was wondering what your most recent thoughts are on divestiture of the psychiatry business and whether, if you choose to do that, whether that would change or affect your tax rate in any way. My second question is on Xyrem. I was wondering if there are any updates on the legal process with Roxane and whether you could provide some more color on growth for Xyrem. It sounds like you may increase your call universe, if I understood that correctly in your prepared remarks, over the rest of the year. Thank you.
Yeah. Michael, I think I'll no comment on the first question. You know, we are actively promoting FazaClo HD. You know, we also have good continuing sales of FazaClo LD. As Kate said, we're frankly gearing up for a product launch coming up. Probably not the right time to talk about you know, a divestiture of that business. I'll punt on your second part of that question, what it would do to tax rate for the same reason. On the Xyrem legal process, not a lot of update. You know, we continue to be involved in ongoing litigation with the two ANDA filers. You know, we're still a ways away from critical dates, as we've laid out before in those matters.
You know, we did obviously announce a receipt of a couple more patents recently, and you know, I made some comments about our continued effort on that front. Frankly, not a lot of new developments, I would say, since our last call. Russ, maybe I'll ask you to address Xyrem growth prospects and call universe.
Yeah. We're currently seeing nice growth with Xyrem from the lower deciles. As we've looked for potential opportunities to grow Xyrem, we see that through different methods of triangulation and buying data, we've learned that there is about another 2,500 physicians that we potentially could add to our call universe. We have effectively done that, but we're now calling out to see what percentage of that is actually real and meaningful. We'll report on that in the quarters ahead, but we're certainly looking at what the potential could be there.
Okay, great. Thank you.
Thank you. The next question is from Douglas Tsao from Barclays. Please go ahead.
Hi. Good afternoon. Thanks for the questions. Just following up on that last question, perhaps, Russ, what types of physicians would these be expanded? You know, just perhaps a little bit more color in terms of what kinds of doctors these are and generally who they're treating and why you think they might be good targets for Xyrem.
Well, if you look at the 2,500, about 500 of those are deemed board-certified sleep physicians, and we believe those 500 potentially have the most upside for us. Given that the balance of them is an amalgamation of pulmonologists, neurologists, psychiatrists, handful of GPs, FPs. To get into the profiling process will take a little bit of time for us to understand how much is really there. That 500 that we see as BCS board-certified sleep medicine certainly potentially have some upside.
You know, Bruce, in terms of the manufacturing issues, for Erwinaze, obviously it's good to hear that you are actually gonna be able to sell that lot. I was curious if you were able to determine what exactly went wrong to create this variance and whether this has been addressed.
Yeah, good question, Doug. You know, I think as I've said at least preliminarily around the time of last call and what I can say with a little more oomph now is, you know, we do believe we understand what happened and that what happened was sort of a batch-specific issue as opposed to an ongoing general process problem or uncertainty for production on an ongoing basis. You know, that gives us comfort that we don't have a continuing problem. You know, we have cautioned people, and you'll see in our risk factor language in the 10-Q that, you know, we're operating without as much excess capacity as we'd like.
What that translates into in practical terms is we can't build up the kinda safety stock we'd love to have for a product that's as important to these patients as Erwinaze is. Therefore, while that one issue, in my mind, doesn't go into the continuing bucket. It's still important that we don't have any other issues that we continue to manage production with our partner very well. That we continue our efforts, as we said, we are continuing our efforts to look for ways to continue to expand that available capacity so that we do have more comfort going forward that we won't run into a similar issue in the future. I think it's good news, certainly with respect to this one batch.
We don't see it as a continuing problem, but it's also incumbent on us to do a really good job managing our supply situation so that we can continue to see the kind of growth we've seen with the product and, you know, ultimately our ability to treat more patients with ALL.
Okay. Then just one final question. Kate, in terms of the guidance on spending, we've obviously saw higher spend this quarter, and, you know, you seem to be guiding for higher spend for the rest of the year in terms of both SG&A and R&D, or certainly on a consolidated level. I was just wondering if you could provide a little color in terms of what drove the spend this quarter and sort of how we should think about it in the balance of the year, in particular for the respective third quarter and fourth quarter, any trends that we should be calculating it up when we're modeling. Thank you.
Doug, in my prepared remarks, I listed a number of investment initiatives that we're making to support near term and longer term growth of the business, investments in support of Xyrem, Erwinaze, the clinical trial activities associated with the pipeline, medical affairs, spending. I also highlighted that we've undertaken an initiative across the company to do some appropriate beefing up of some functions to make sure that when we do identify that next BD transaction, that we've got the you know all the back office systems and processes that we need. We're intentionally investing to be ready. I would say that another thing I highlighted is the growth in headcount. It's up about 10% year to date.
As we've got more people on board, you know, more people are able to help us continue to invest more. I think what we're trying to signal with the increased expense guidance is that, you know, people should not be expecting operating expenses to go down in the second half of the year, as you know, we likely expect them to trend up a bit.
I think, Doug, one of the things you're seeing is some of the leverage in our model that we're increasing expenses but not decreasing our margins. That's a great thing when you've got the kind of top line revenue growth we've got. As we sit here and manage the company and make short-term decisions about what we're gonna spend this year, we think it's the right and smart thing to do for us to make some of those investments that we think will have payoffs, not just in this year, but in years to come. We're confident we're doing that.
Bruce, just a quick follow-up. We should interpret this as a signal that you're sort of taking the luxury of higher sales to reinvest in the business?
I wouldn't phrase it exactly that way, Doug. I'd you know the key when we make an investment is that we're confident we get a good return on that investment. You know, the fact that we do have more sort of available room to invest is part of the equation, but it's not the whole equation.
Okay, great.
If we weren't confident that some of the investments we're making would continue to drive growth, then it wouldn't be a good idea to make them. You know, we'd have to go through it product by product. It's really a bullish line, I think, for where we see these franchises going.
Okay, great. Thank you.
Thank you. The next question comes from the line of William Tanner from Lazard Capital Markets. Please go ahead.
Thanks for taking the questions. I have a few. Kate, just back on your comments, as it relates to where the company is investing, I'm wondering, I don't know if you'd care to provide any more color as to how much of that incremental investment, either percentage or dollar-wise, is being directed towards sort of the core business or the base business, and how much of that is being directed towards prepping for future business opportunities.
Well, I think that the only directional guidance I could point you to is you can see the breakout between R&D and SG&A in our financials. You can see that R&D did tick up second quarter over first quarter. We mentioned today, you know, the various trials that are underway and planned. I think, you know, you can expect over time, as we've always said, you know, some increased R&D spend. But as far as trying to, you know, give you some breakout any further of the SG&A spend, I don't think that's something that we're prepared to do today.
Okay. Maybe a question for Russ, or a couple of questions for Russ. Just curious if there's any change in the Xyrem calling effort that's been made. I think, as I recall, there were 85 or so sales reps, and it sounds like with the an incremental 2,500 physicians that could be targeted, that seems like something that's reasonable to contemplate. Just curious if anything has been done or what's the anticipation for potentially, I guess, putting more feet out there?
Yeah, Bill, as you know, we've been adding physicians to our universe for some time now. With that, we've, you know, continued to see that those physicians that we've added, a percentage of them actually have been bearing fruit. We did add a handful of reps actually during the course of the last six months just to see if there was some incremental benefit. We're gonna look at this next 2,500 and see what's there. If we think that there's more there, we could, you know, consider doing more. At this, you know, point in time, we really wanna make sure we understand exactly what's there.
I appreciate the fact that it's relatively soon after the recent price increase, would just be interested in any reaction that you've seen in the market. As to whether or not there's been a change in the trend in prior auth, it seems like, as I recall in the past, maybe the rate of prior auth has gone up, but the ultimate approval for on-label has not really changed.
Yeah, Bill, it's been a short period of time, so a little too early to call. Having said that, we continue to see a prior auth go up about a point a month, and that's been pretty consistent for some time now, and we haven't seen any overall changes.
Okay. I guess the last question, maybe Bruce, just on, you mentioned that you closed out the warning letter. Anything noteworthy in that other than it's been closed out?
I think I'll stick with it's been closed out, which we're thrilled about. You know, we know FDA is always balancing a ton of priorities at any moment in time. You know, we frankly had some uncertainty, which we shared with all of you about what the ultimate timing of that would be, given our early in the year request to get to close out. I'm frankly impressed they got to it on this timeframe. I'm appreciative they got to it on this timeframe. You know, this reflected a lot of hard work on the parts of many people in our company and collaboratively with our central pharmacy, which does a great job for us with this drug.
You know, I think this recognizes changes we made quite some time ago and, you know, our job is to make sure we continue to do a great job with that, going forward and to make sure that as we look at not only our existing franchises, but our expansion opportunities through corporate development, that we're well-positioned to do a good job on this across our portfolio.
Okay, great. Thanks very much.
Thank you. The next question comes from the line of David Amsellem from Piper Jaffray. Please go ahead.
Thanks. I had a question on Prialt. How do you get sales moving? Do you think it's just a function of more promotion and the initiatives you're talking about, you talked about earlier in your prepared remarks, or are you encountering some real deep-seated biases, that stem from the product's checkered history? How should we think about that?
Yeah, I'll start and then I'll let Russ fill in. We identified an action plan for Prialt quite some time ago, which had a number of components we felt we needed to execute on. One was making sure we addressed concerns we saw raised in our market research on the reimbursement side to make sure we were doing all we could to make sure that perceived reimbursement difficulties, even more than actual reimbursement difficulties, didn't dissuade doctors from using Prialt where it would be a good alternative for their appropriate patients.
We've done a lot in that regard, and much of that we put under the banner of the Navigator, a system that we've rolled out, and which at this point is essentially fully rolled out, although that's a fairly recent phenomenon. We also said we needed to give physicians experience using this drug, to make sure they understand how you bring new patients on, how you titrate patients, you know, particularly those physicians who have little experience or frankly had a negative experience quite some time ago on the initial launch of the product.
Getting that registry trial open, which it now is, I think gives some of those physicians an opportunity to not only get experience with the product, but frankly, to collect data as part of that, share that data amongst that group and ultimately publicly, so that people have a better understanding of current use of the product. You know, the newest piece of the puzzle, which was only announced in May and we sort of expanded later in the second quarter, is the collaboration with Medtronic. You know, honestly, while we're early in that, we're pretty excited to be working together with Medtronic on this.
You know, I think both companies have an interest in making sure that these patients who really are in need of the best possible therapy understand that they and their treaters understand there's an alternative to the traditional approach of using opioids, and that for some patients, Prialt's gonna be a great answer. If you combine all these efforts, which, you know, we just went exclusive on the specialty pharmacy in the second quarter. We just initiated our first site for the registry in the second quarter. We just kicked off the Medtronic collaboration in the second quarter. Yeah, we're pretty excited about where we can go from here.
You know, all of those initiatives required a lot of work to get them to the point where they were, you know, operational. We've had people working on these initiatives, in some cases more than a year. Now is our opportunity to see what we can do, having done the experiment we wanted to do, which is addressing those things that we thought were limiting the current use of the product, unnecessarily.
Okay, very helpful. Just switching gears to the deuterated Xyrem and development with Concert. I know you mentioned the IND filing. I guess the question is, you know, what's the earliest we could potentially see the first look at some PK data from the product and just give us a sense of what the next steps are after the IND. Thanks.
Yeah. David, let me have Jeff address that one.
David, actually, we're looking at a couple of different regulatory paths. Given the fact that what we're calling JZP-386, the deuterated Xyrem, is a Schedule I drug. There are certain DEA regulations, et cetera, that apply to sites in the U.S. so that an IND is not really the gating factor here in the U.S. We're also looking at other regulatory territories such as Europe and whether or not we can do it a little bit faster going there. That's ongoing, and we're gonna be seeing how that plays out over the next several months. As far as when you're gonna see data, you know, it really is very dependent on which path ends up being the most fruitful. But don't start looking for data well into next year, I think.
Yeah. Thank you.
Yep.
Thank you. The next question comes from the line of Ami Fadia from UBS. Please go ahead.
Hi. Good evening. A couple of questions. Firstly on Xyrem. You talked about some couponing programs that are impacting the gross to net. Could you elaborate a little bit more around what's that impact maybe as a % of sales? Secondly, on the patent, the additional patents that have currently been applied for, and then you kind of indicated on the call that you expect those patents to take Xyrem's life beyond the existing patents. If you could care to elaborate on what type of patents those are. And then lastly, if you can give us an update on the FDA discussion, the discussion with the FDA on the REMS program for Xyrem.
Okay. Let me ask Kate to take the first one on the gross to nets for Xyrem.
It's the comment that we made was that the fact that we made our coupon program more generous to patients last summer has resulted, as you would expect, in increased utilization of the coupons. We record that expense in our gross to net, so as a deduction from net sales, and a deduction to arrive at net sales, I should say. The impact has been a slight uptick. I don't think I wanna quantify it exactly for you, but a modest uptick in our overall gross to nets for Xyrem. We've said historically that Xyrem gross to nets were tended to be in the low double digits. It's up just slightly from that.
On your question on additional patents, where we filed, that have the potential for a patent life beyond the life of already issued patents, I think I'll decline to specify at this point what types of patents those are. You know, if and when those move not to be patent applications, but actual patents, we'll have something to talk about. The point I was trying to make by bringing that up is not every one of our additional patent applications necessarily is in the families of the patents that have already been issued, where we tend to get more patents with the same expiration dates.
You can imagine if we're talking about ongoing work we're doing now or recently, you know, potentially you've got, very, very significant new patent life, but that obviously depends on what happens at the PTO. On your question about where we are with FDA on REMS, really no additional update at this point. Conversations continue. You know, I think we said at the time of the last call, we were in discussions. We couldn't really predict when those would get all the way to completion, which would be, you know, ultimately reflected in, you know, all of you seeing updated, label and REMS, to reflect that final agreement. We're obviously not there yet, and there isn't a hard and fast timeline I could give you for when we'll get there. We're interested in finishing that process.
You know, need to work closely with FDA to make sure we do that in the best way.
Great. Thank you. Just a separate question was on corporate development. What is your philosophy in terms of what types of products you might like to bring in? Is there any therapeutic focus or would you look for some type of an opportunity to leverage the existing sales force or not? Just lastly, is it possible to give us a split of the U.S. or ex-U.S. sales for Erwinaze? That's all. Thanks.
Yeah, I'll take the first one and maybe ask Kate to take the second one. On the first one, in terms of what types of products are of most interest to us, you know, we've tried to be clear in helping people understand how we look at our business model, and what we think we're good at and where we think we can add real value. That's really in the area of highly specialized products that would be sold to a fairly narrow audience of physicians, where we can take a relatively small but highly trained sales force, and go into a specialist physician population, and really get a good outcome for patients with a differentiated product.
You know, in the case of Erwinaze, which absolutely fits that model beautifully, it didn't happen to be in a therapeutic category we were already in, and so you could argue that it didn't leverage an existing sales force. That's true. We effectively brought in a new sales force, but that sales force consisted of slightly over 20 people. While at the same time, I would say we did leverage many other parts of our organization, in terms of the types of expertise we bring to a specialty sale, and I don't just mean commercial resources, but resources across the company. That continues to be true as we look at new products. We will look at new therapeutic categories that fit that model.
No doubt, if we could find products that also happen to fit our existing therapeutic expertise and would leverage existing commercial sales forces, that would be great. We're not against that, but we're not limiting ourselves to that. Kate, why don't you take the Erwinaze question?
We have commented in the past that U.S. Erwinaze sales were more than three-quarters of worldwide sales. We've also noted that the growth rate of sales is higher in the U.S. than ex-U.S. We would expect, you know, somewhat of a trend upwards in that U.S. mix.
Okay, thank you.
Thank you. The next question comes from the line of Annabel Samimy from Stifel. Please go ahead.
Hi. Thanks for taking my question. Just on the Erwinaze topic again. Have you in the past given any granularity on the number of patients that are on Erwinaze right now the same way you give for Xyrem? Separately, could you you had some nice traction this quarter in terms of volumes. Can you characterize where the growth is coming from? Is it from just increased education of the nurses in recognizing hypersensitivity, or is it increases in you know, or changes in oncology protocols in terms of incorporating grade two hypersensitivity reactions into the protocol and treating earlier? Thanks.
We have never given any detailed information in terms of patient numbers, and the reason for that is just tremendous variability in terms of numbers of doses that patients receive. What I can tell you is the growth is actually coming from a number of places. I will first say the sales team has really executed well, and they're fully resourced at a point where they're maximizing the opportunity. If you look at exactly where it's coming from, you're seeing clearly an increased recognition of hypersensitivity, so doing a really nice job in education and training. Also they're adding new accounts, and we've consistently seen new accounts come on board every quarter. Some of the additional growth is coming from there as well. Pretty pleased with the first half of this year with Erwinaze.
Okay, thank you.
Thank you. The next question comes from Gene Mack from Brean Capital. Please go ahead.
Yeah. Can you guys hear me?
We sure can, Gene.
Thanks. Wanted to just follow up on an earlier question about the deuterated three eight six. I'm just wondering, do you have any additional clarity at this point on how many pivotal trials and what sort of patient populations you might need to include for three eight six? Was that really gonna be driven off of the PK data, or will you even know and is it just completely kind of a decision that the FDA is gonna kind of come up with without being really well informed from the PK data and just saying, "Well, this is what it is.
In other words, will that pivotal program be sort of done in a vacuum, black box FDA decision-wise, or is there anything about the PK data that will drive it, and can you talk about what you might think it would look like at this point?
I'll make some background comments, and then I'm gonna ask Jeff to comment a little bit further. You know, my background comments would be, if you look at the Xyrem development path, Xyrem showed strong efficacy with great statistical significance in relatively small numbers of patients. If you're imagining that JZP-386 could have the potential to also be a very effective treatment for narcolepsy patients, you know, I think, and we don't know yet because we don't have the data, but if that were to be the thesis, the assumption would be that from an efficacy standpoint, you wouldn't be looking at huge trials. Safety experience, you obviously want in a broader group of people, as would be true of any program.
In terms of how FDA and Jazz would use data or not to inform that decision, let me turn that over to Jeff.
Sure. Not dissimilar from any other development program, you wanna have good communications with FDA as you go along in the program. You know, discussions held during a pre-IND meeting helps inform you as to how they're thinking and what type of studies you need to do. You are absolutely right. Much of it's gonna depend on the data that we come out of that first PK study. And that will drive how extensively you can leverage the Xyrem data to provide, you know, that basic information on efficacy and safety, where you might be able to have a more streamlined approach to be able to confirm that with some additional trials. Again, it's difficult to say without those data.
We do hope that we can leverage the Xyrem data to make this a more efficient development path.
Okay. Just for Russ, I'm wondering if you can give us any sort of color on how the AIB iotech assay is tracking. Have you been able to get anything anecdotal from the field on how adoption of that assay is tracking? Maybe have you guys been able to identify any other sorts of new approaches to educating physicians on hypersensitivity and catching it early, the silent hypersensitivity as well?
Let me take the first part of the question, and I'll turn it over to Russ. On the AIB iotech assay, I think the important thing to remember is that treatment of pediatric ALL patients is highly protocolized. You know, we think significant impact of the availability of that assay over time would probably come from adoption of protocols that include use of that assay. You know, having the assay become available in the first quarter of this year was a necessary precondition for that, and certainly enables people to think about moving in that direction. I don't think we'll see significant commercial impact really until it becomes part of an overall treatment approach across institutions. Russ, you wanna talk about the hypersensitivity identification?
Yeah. I would just say that, you know, therapeutic drug monitoring is something that is done in Europe. Clearly, we're starting to see, you know, small number of, you know, physicians embrace that. I think that goes hand in hand with the assay over time. I think that it's very early days, but there's potential there. I think that overall hypersensitivity identification is really just a matter of really hand-to-hand combat in the field and our people training and identifying and looking for and getting more comfortable with, and I think that we've done a very nice job with that. We continue to see some growth there.
Okay. Thank you.
Thank you. The next question is from the line of Ken
Ken, I think you asked that in a perfectly artful way. You know, there certainly has been some more attention, if you mean attention like media articles and other things. You know, having a competitive corporate tax rate and platform, we think is critically important to us. We thought that when we originally combined with Azur. We've thought that as we've continued to grow as a company, and it's certainly part of our ongoing strategy for creating value. We think it makes us a competitive bidder for other assets and really allows us to maximize our investment in things that we think drive return for our shareholders and benefit patients.
It has enormous value to us as we think about where we are today and where we can go as a company, and we like our strategy for creating value. Could it also unlock value in other ways, by being useful to someone else who wanted to, you know, combine forces with us? Absolutely. I think our strategy is a good one for driving a lot of growth, top line, bottom line and ultimately to shareholder value. That's the plan we're executing on. Beyond that, probably not for me to comment.
Great. Thank you. Thank you, Ken. We're just going to take one further question, which is from the line of Gregory Gilbert from Merrill Lynch. Please go ahead.
Thanks. Maybe a little different twist on that. Bruce, I'm guessing you would acknowledge that we're in a unique time in the industry in terms of consolidation and how tax structure fits into that and maybe how investors are rewarding that theme. I'm curious to know if you agree, A. B, if that's shaping the kinds of deals you're considering now versus what you would have looked at a year or two ago. My other question is about Asparec and when is the soonest you could file that. Recognizing you're not gonna predict that as the base case, what is the fastest you could get that filed. Thanks.
Let me take the last part first and ask Jeff to comment a little bit on Asparec timeline, although you're gonna be disappointed in his answer because we really haven't said anything beyond what we're doing right now. With that, Jeff, why don't you take that?
Right. Just to set the context for you know, with the initial data that we've had from the phase one study in Europe, we're able to now begin discussions with the physicians here in the U.S., talking about a study in pediatric in the target population. We are in the middle of those discussions and negotiations, so I can't really tell you how that's gonna come out as far as the structure and design of the trial. You know, certainly, they are moving forward. We are encouraged by that and think that we should be able to talk about some of the more specific issues related to that trial, fairly soon.
It's, you know, I hesitate here only because, you know, when we're dealing with these type of groups, there's a lot of bureaucracy involved and things tend to move at quite a snail's pace.
Greg, on your other questions, is this a unique time with respect to industry consolidation? Well, since I was on Wall Street in the eighties, I'm told every couple of years it's a unique time for consolidation. You know, everybody wants to diversify, and then everyone wants to undiversify, and then people wanna go in a specialty direction, and then they wanna go in a primary care direction, and then they wanna go international, and then they wanna be domestic. Sure, it's a unique time for consolidation.
In the grand scheme of things, I don't think it changes what makes companies successful in this industry, which is ultimately having products that they bring to market through their own initiative or through deals that really meet a patient need, are differentiated, can be commercialized efficiently, which we focus on a lot through our model. Maybe there's a current wave of interest in one type of deal, but I don't think it changes the long game of what makes companies successful. Has the types of deals we can look at changed over time? Absolutely, in a great way.
You know, the addition of new capabilities to our company through the deals we've done, the expanded top line, the expanded margins, the very helpful cash flow, the strengthening of the management team, I think have all put us in a position where we really can consider a broader set of opportunities today than we ever could have in the company's past. Now, we still have to use some good discipline to choose the right opportunities from among that expanded set, but I really do think it puts us in great position. You know, I you know, maybe tax rate is one small piece of that equation, but it's not all of it. The expertise we've shown in our strategy, I think is a big piece of that.
I think, you know, we talked about all the investments we're making in pre-op, where we think that can go. I think that's gonna be a great story for people to watch. I think people have already seen what we can do with Xyrem, and they've seen what we can do with Erwinaze. I think, you know, in addition to being smart in terms of what deals we do choose to pursue, we have a great story to tell potential partners in terms of how we can execute, once we do complete a transaction. I think that's important too.
Thanks a lot.
Thank you, Greg. I would now like to turn the call over to Kathee Littrell for closing remarks.
All right. Well, thank you everyone for joining us today. We look forward to hearing from you, if you have any further questions. Again, thanks for joining. Have a great evening. Bye-bye.
Thank you for joining in today's conference. This concludes the presentation. You are now disconnected, and have a very good day.