Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Q3 2023 Earnings Call Transcript

Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Q3 2023 Earnings Call Transcript November 8, 2023

Jazz Pharmaceuticals plc misses on earnings expectations. Reported EPS is $4.84 EPS, expectations were $4.9.

Operator: Good afternoon. My name is Krista, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Jazz Pharmaceuticals Third Quarter 2023 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Andrea Flynn, Vice President, Head of Investor Relations. You may begin.

Andrea Flynn: Thank you, operator, and good afternoon, everyone. Today, Jazz Pharmaceuticals reported its third quarter 2023 financial results. The slide presentation accompanying this webcast is available on the Investors section of our website. Investors may also refer to the press release we issued earlier today, which is also posted to our website. On the call today are Bruce Cozadd, Chairman and Chief Executive Officer; Renee Gala, President and Chief Operating Officer; and Rob Iannone, Executive Vice President, Global Head of R&D; Kim Sablich, Executive Vice President and General Manager, United States, will join the team for Q&A. On Slide 2, I’d like to remind you that today’s webcast includes forward-looking statements, such as those related to our future financial and operating results, growth potential and anticipated development and commercialization milestones and goals, which involve risks and uncertainties that could cause actual events, performance and results to differ materially from those contained in these forward-looking statements.

We encourage you to review the statements contained in today’s press release, in our slide deck and in our latest SEC disclosure documents, which identify certain factors that may cause the company’s actual events, performance and results to differ materially from those contained in the forward-looking statements made on today’s webcast. We undertake no duty or obligation to update our forward-looking statements. Turning to Slide 3. On this webcast, we’ll discuss non-GAAP financial measures. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release and the slide presentation available on the Investors section of our website. I’ll now turn the call over to Bruce.

Bruce Cozadd: Thanks, Andrea. Good afternoon, everyone, and thank you for joining us today. I’ll start on Slide 5. In the third quarter of 2023, we delivered strong commercial results, advanced multiple late-stage programs within our pipeline and maintained our focus on driving operational excellence. Our results for the quarter exemplified the successful execution that has led to an exciting transformation and diversification of our business across our commercial portfolio and R&D pipeline, and we remain well positioned to achieve Vision 2025. As we highlighted in today’s press release, we’ve updated our 2023 guidance, raising our full year total revenue and oncology revenue guidance at the midpoint. And as our pipeline continues to advance, we are increasing our R&D guidance, primarily driven by investments in Zanidatamab development across multiple HER2-expressing cancers that we believe will allow us to deliver an important new therapeutic option with the potential to raise the standard of care for patients and create long-term value for Jazz.

It’s important to note that our disciplined approach to capital allocation has allowed us to invest in R&D as well as key commercial franchises, while remaining on track to deliver on our full year GAAP net income and non-GAAP adjusted net income guidance. With regard to our commercial business, we are seeing strong momentum across all 3 key growth drivers: Xywav, Epidiolex and Rylaze. Combined revenue from these products grew 24% in the third quarter compared to the same period last year. We remain confident in the durability of our oxybate franchise and the growth of Xywav in both narcolepsy and idiopathic hypersomnia, or IH, even as high sodium branded and authorized generic competition has entered the narcolepsy market. Xywav is annualizing at $1.3 billion in revenue, remains the oxybate of choice and is the only approved treatment for IH.

Underlying demand continues to drive Epidiolex growth. We remain confident in its potential to reach blockbuster status and contribute more than $1 billion in revenue to our Vision 2025 revenue target. Outside the U.S., we expect additional launches and indication expansions through 2024. In oncology, Rylaze has continued to grow in the U.S., supported by strong demand from pediatric patients and our increasing emphasis on the adolescent and young adult market. In addition, we recently received marketing authorization for the product in Europe under the trade name and Rylaze. The performance of these products, together with Zepzelca revenues is fueling the ongoing diversification of our commercial business. More than half of net product revenue this quarter came from Epidiolex and our oncology products combined, and Xywav represented more than 2/3 of our oxybate revenue.

This marks a significant shift from just a few years ago when Xyrem represented 3/4 of total revenue. This diversified revenue stream is a direct result of our outstanding commercial execution along with successful corporate development and internal R&D efforts. Moving to our pipeline. We now expect up to 5 late-stage readouts through the end of 2024. Rob will cover our R&D progress in more detail later in the call, but I want to highlight that we view Zanidatamab as the most derisked and highest priority program in our pipeline. We plan to initiate a rolling biologics license application or BLA submission this year for accelerated approval of Zanidatamab for second-line treatment of biliary tract cancers or BTC. This is an important step in delivering Zanidatamab to patients with BTC and other HER2-expressing cancers with limited treatment options.

Given the strength of clinical data to date and its promise in multiple indications, we believe Zani has the potential to deliver more than $2 billion in peak revenues. On the operational front, our commercial execution, along with attention to operational excellence has put us in strong financial position. We continue to generate significant cash flow from operations, which combined with our strong balance sheet gives us the capacity to invest in the products, pipeline programs and corporate development opportunities with the highest potential to deliver sustainable growth and enhance value. Turning to Slide 6. We are very pleased with our progress in the third quarter and believe it has advanced us towards achieving all 3 components of Vision 2025 as we continue our transformation into a high-growth global biopharma leader.

I’ll now turn the call over to Renee to review our commercial performance, after which Rob will share an update on our R&D progress. I’ll provide a financial overview, and then we’ll open the call to Q&A. Renee?

Renee Gala: Thanks, Bruce. It’s been an exciting few weeks as I’d assumed my new role. And while I’m working across a different part of the organization, my focus remains the same: driving the continued growth and transformation of our business. Starting on Slide 8. Our confidence in the durability of our oxybate franchise has only increased as we gained more visibility into how market dynamics are evolving with the availability of branded and AG high sodium oxybate. Total oxybate revenue, which includes Xywav and Xyrem revenues, together with royalties from Xyrem authorized generics is annualizing at $1.9 billion, and we are well positioned to achieve our stated goal of $2 billion in oxybate revenues as part of Vision 2025.

Xywav revenue was approximately $332 million for the third quarter of 2023, representing growth of 30% compared to the same period in 2022, driven by continued adoption in both narcolepsy and IH. Exiting the third quarter, there were approximately 9,500 narcolepsy patients taking Xywav. Our focus on educating patients and prescribers about the benefits of reducing sodium intake continues to drive growth. And we recently launched a new campaign to support these initiatives. Importantly, we are seeing adoption from both high sodium oxybate and oxybate naive patients. In IH, we see continued growth of new prescribers and exiting the third quarter, there were approximately 2,550 active IH patients on Xywav. Xywav is uniquely positioned to address the multiple symptoms of IH, including sleep inertia, excessive daytime sleepiness and cognitive impairment, all of which have a significant impact on patients’ quality of life and daily function.

Based on the opportunity to improve the lives of people living with IH and our confidence that the IH indication represents a durable growth driver for Xywav, we are increasing our investment to further build the market. This will include educational initiatives and expanding our field team to include members specifically focused on IH to increase the breadth of prescribers. Slide 9 highlights our latest educational campaign for narcolepsy treaters “Less Is More”, which reinforces the compelling low sodium health benefits of Xywav. Narcolepsy is a debilitating chronic condition, and we have focused our educational efforts around the lifelong burden of high sodium intake for narcolepsy patients who live with a 2 to 3x higher risk than the general population of cardiovascular comorbidities such as stroke and heart failure.

Xywav is the only approved low sodium oxybate containing 92% less sodium than high sodium oxybate and importantly, is the only oxybate without a labeled warning about high sodium intake. You’ve heard us use a number of comparisons for the sodium load of high sodium oxybate versus Xywav, including eating 4 large orders of fast food french fries or 5 large bags of potato chips every night before bed, or that it would take 12 years of treatment with Xywav to equal the sodium intake of 1 year of high sodium oxybate treatment. Regardless of the parallels we draw, the bottom line is clear. The sodium reduction offered by Xywav had significant potential health benefits, including lower blood pressure and improved cardiovascular health. We recently presented data at the World Sleep Meeting that built on our body of research demonstrating the clear relationship between sleep disorders and increased cardiovascular risk, as well as the meaningful improvements possible with treatment plans that consider a patient’s holistic health, such as reducing sodium intake.

And earlier this year, we shared data at the American Academy of Neurology meeting that showed narcolepsy patients treated with high sodium oxybate had a higher risk of new onset hypertension diagnosis or anti-hypertensive medication initiation within 180 days of starting therapy when compared to a match control group of narcolepsy patients not being treated with high sodium oxybate. The risk of those taking high sodium oxybate was approximately twice that of the control group. We believe that the majority of patients and health care providers will continue to prioritize long-term health, when evaluating oxybate therapy, and we are finding the direct competitive messaging In The Less Is More campaign to be effective. Additionally, since we know this disease and its treatment are complex, the campaign also highlights the advantages of individualized dosing regimens for Xywav patients and the support services that Jazz makes available for HCPs and their office staff to have Xywav prescriptions approved, reimbursed and delivered to patients.

We also offer a range of patient services that include co-pay assistance and disease education. Turning to Slide 10, an Epidiolex. We achieved another quarter of growth with net product sales increasing 9% year-over-year to approximately $214 million driven by underlying demand in both our U.S. and European markets. Key drivers of this demand growth include Epidiolex’ strong product profile including data around benefits beyond seizure control, increased penetration in the long-term care setting and strong uptake in key European markets, all of which provide us with continued confidence in a blockbuster potential of the product. Turning to Slide 11. We are focused on multiple opportunities to drive Epidiolex to blockbuster status including continued data generation and we expect to present several data sets at the upcoming American Epilepsy Society meeting in December.

Our educational efforts around caregiver reported outcomes beyond seizure control from the BECOME survey have been especially impactful, further differentiating Epidiolex from other antiseizure medicines. To accompany this caregiver reported data on improvements in cognition, behavior and other non-seizure benefits in LGS and DS, we have initiated the post-marketing EpiCom trial in TSC. EpiCom was designed in collaboration with HCPs and patient advisory groups to evaluate the impact of Epidiolex on behavioral and cognitive functioning and outcomes using a range of validated scales. Our commercial team also has an enhanced focus on dosing optimization, further penetration in the adult setting and continued growth outside the U.S. Turning to Slide 12 and our oncology franchise.

Net product sales for Rylaze were approximately $105 million for the third quarter, a 43% increase year-over-year. Demand for Rylaze remains strong, and we see a number of factors that are driving what we believe is sustainable growth. First, health care providers have indicated that they are returning to best clinical practice and switching therapy at the first signs of hypersensitivity, which was often not possible under the supply limitations with Erwinaze. Second, while Rylaze has been almost universally adopted in pediatric oncology protocols, we are now also seeing increased pediatric usage in several other areas. These areas include physicians switching patients from E.coli-based asparaginase due to other treatment-related issues that arise as well as some use of Rylaze in first-line treatment based on its advantages of a short-acting profile relative to current first-line asparaginase therapies.

Third, we continue to see increased adoption of the Monday, Wednesday, Friday, 25-25-50 milligrams per meter squared dosing, which is more in line with preferred clinical practice and allows for a dosing schedule that ensures sustained asparaginase levels through the course of treatment which is essential to improved outcomes for patients. Fourth, we are seeing increased use of Rylaze in the treatment of adolescents and young adults or the AYA market, and we expect continued growth in this segment. Our field teams have been expanding their educational efforts to AYA treaters this year with a focus on physicians who have previously used asparaginase therapy. Outside the U.S., we recently received European Commission approval under the trade name in Rylaze and are planning to begin a rolling launch later this year.

With respect to the market opportunity, the commercial landscape in Europe has a number of differences compared to the U.S., including competition and market access dynamics. Turning to Slide 13. Zepzelca remains the treatment of choice in second-line small cell lung cancer and has generated more than $800 million of revenue since launch, proving to be a highly accretive and well-executed corporate development transaction for Jazz. Net product sales for the third quarter increased 11% year-over-year to $78 million driven by an increase in underlying demand. A portion of this demand relates to the continued shortage of platinum chemotherapy, which has led to oncologists choosing Zepzelca for some patients, they may have historically rechallenged with platinum therapy.

Although this dynamic may be temporary in nature, it is currently resulting in greater use of Zepzelca, particularly in the community setting, where its clinical profile and ease of administration have been well received. While we have achieved significant penetration in the second line setting, there remains an important unmet need for patients diagnosed with small cell lung cancer. We expect top line PFS data from our pivotal Phase III trial of Zepzelca in combination with Tecentriq in first-line small cell lung cancer at the end of 2024 or early 2025. A positive outcome in this trial would provide a further opportunity to both improve patient lives and outcomes as well as drive future growth in our oncology franchise. With that, I’ll turn it over to Rob for an update on our pipeline and upcoming milestones.

Rob?

Robert Iannone: Thank you, Renee. Slide 15 provides an overview of our robust diversified pipeline that includes neuroscience and oncology programs across all phases of development. Consistent with our mission and strategy, these programs are focused on advancing the treatment of serious diseases for which there are limited or no options. Moving to Slide 16. This is an exciting time for our organization as we approach multiple catalysts across the pipeline. We now expect up to 5 late-stage data readouts through 2024, with all 5 addressing areas of significant unmet need. Starting with neuroscience, recruitment in our Phase III trial of Epidiolex in Japan is progressing well, and we now expect top line data in the second half of 2024.

We are pleased to announce that we have completed enrollment in our ongoing Phase II trial of JZP-150 and PTSD. Based on timing of the last patient last visit, we are updating the anticipated timing of our top line data readout to January 2024. We also have ongoing trials for suvecaltamide, or JZP-385, in both essential tremor and Parkinson’s disease tremor with top line data from the ET trial expected in the first half of 2024. If results are positive, we believe this trial could serve as part of a pivotal package. In addition, we anticipate initial proof-of-concept in healthy volunteers later this year for JZP-441, our Orexin 2 receptor agonist. Moving to oncology and Zanidatamab. We expect to report top line data from the ongoing Phase III frontline gastroesophageal adenocarcinoma trial next year.

Later in the call, I’ll provide an overview of our regulatory strategy for Zanidatamab, including an update on BTC. As Renee just mentioned, top line progression-free survival data in Zepzelca in combination with Tecentriq as first-line maintenance therapy for extensive stage small cell lung cancer is expected at the end of 2024 or early 2025. I’ll now discuss some of our key programs in detail. Starting on Slide 17, with Zanidatamab, our highest priority pipeline asset. Given its potential across multiple HER2-positive tumor types, we are expanding and accelerating our development plans for this exciting molecule. Zanidatamab is a novel bispecific antibody that can simultaneously bind 2 nonoverlapping epitopes of HER2, known as biparatopic binding.

This unique design results in multiple mechanisms of action, including dual HER2 signal blockade, receptor clustering on the cancer cell surface, leading to internalization by a biparatopic binding and potent immune activation, including antibody-dependent cellular cytotoxicity, antibody-dependent cellular phagocytosis and complement-dependent cytotoxicity, leading to encouraging antitumor activity in patients. Additionally, Zanidatamab can prevent HER2 from combining with other HER2 proteins and with ERBB receptor family members like HER3, which can further block growth signaling. Zanidatamab has shown compelling activity across a broad range of HER2-expressing tumors. And we presented promising efficacy and early survival data at ASCO in BTC and ASCO GI and GEA earlier this year.

Most recently, BeiGene, which has development rights in some Asia Pacific markets outside of Japan, reported results at this year’s ESMO meeting from a Phase II trial of Zanidatamab in combination with chemotherapy, atezolizumab, BeiGene’s anti-PD-1 antibody in first-line gastric and gastroesophageal junction cancers. Data included an overall response rate of 76%, with a median duration of response of 22.8 months and a median progression-free survival of 16.7 months at the time of the cut-off. These data, along with our own GEA program, are building a body of evidence supporting the potential of Zanidatamab in treating first-line GEA. Based on compelling Phase II data, we plan to initiate a rolling BLA submission this year for accelerated approval of Zanidatamab for second-line treatment of biliary tract cancer.

We expect to complete the submission in the first half of 2024 and anticipate that our confirmatory trial in first-line BTC will be open and enrolling patients prior to the completion of the rolling BLA submission. Turning to Slide 18. BTC and GEA are the first of multiple indications we plan to pursue for Zanidatamab. We believe Zanidatamab has the potential to raise the standard of care for some of the most difficult-to-treat HER2-expressing cancers, including breast cancer, where we see a significant potential to help patients in both early and late-stage disease. We are executing a comprehensive development plan and are excited about delivering this innovative therapy to patients. If approved, we expect to initially enter the market in second-line BTC where physicians would gain important experience with Zanidatamab.

Following BTC, we expect to have a path to approval in first-line GEA with a supplemental BLA submission, which provides a more streamlined approval process compared to a full BLA. We strongly believe that a substantial opportunity remains to address the unmet patient need in first-line GEA, including in the HER2-positive PD-L1 negative patient population where the care remains trastuzumab plus chemotherapy. For patients who are PD-L1 positive, we believe that Zanidatamab has the potential to be the HER2-targeted treatment of choice, while also combining with a PD-1 inhibitor in order to treat those patients with GEA whose tumors expressed PD-L1. There also makes an opportunity to move into earlier stages of GEA where we see the potential to help those patients in the neoadjuvant and adjuvant settings.

GEA represents a significantly larger patient opportunity compared to BTC. And a prior approval in BTC may accelerate adoption into GEA treatment time lines and protocols. We look forward to data from the ongoing pivotal Phase III GEA trial expected in 2024, which may support U.S. and global regulatory submissions. Breast cancer also represents a considerable opportunity, supported by promising early data for Zanidatamab as monotherapy in multiple combinations and across stages of disease and lines of therapy. Based on the efficacy and safety seen in studies to date, we believe Zanidatamab is well suited for early-stage disease including potential use as neoadjuvant and adjuvant therapy. Zanidatamab has also shown promise in HER2-positive and hormone receptor positive breast cancer as part of a novel combination.

Based on these encouraging signs of activity, we have ongoing trials in neoadjuvant breast cancer, including an arm in the I-SPY platform trial, which is studying Zanidatamab for the neoadjuvant treatment for locally-advanced breast cancer. We are also evaluating the opportunity to expand into both combination regimens and later lines of therapy in HER2-positive and HER2 HR-positive breast cancer. Finally, we are also evaluating Zanidatamab in multiple early phase trials in other tumor types, where a few HER2-targeted treatment options are available. We are impressed with the strength of data and clinical activity Zanidatamab has shown across a diverse set of HER2-expressing indications such as colorectal cancer, non-small cell lung cancer and multiple other cancers where there continues to be a need for safe and effective targeted treatment options for patients.

In summary, committed to rapidly advancing and expanding our development program for a molecule that has the potential to transform the current standard of care in multiple HER2-expressing cancers. Turning to Slide 19, JZP-150 is our novel, highly selective fatty acid amide hydrolase, or FAAH inhibitor. We are developing JZP-150 as a once-daily oral medication with the potential to impact the pathophysiology and symptoms of PTSD. By addressing the underlying cause of PTSD, impairment of fear extinction and its consolidation, JZP-150 has the potential to improve patients’ associated symptoms such as anxiety, insomnia and nightmares. Preclinical and early clinical data showed activity on fear extinction and stress response. JZP-150 has a novel and promising mechanism of action, providing irreversible inhibition of FAAH, which we believe may have advantages over reversible FAAH inhibitors in development, and we anticipate top line data readout in January 2024.

On Slide 20, I’ll highlight JZP-441, a potent highly selective orexin-2 receptor agonist designed to activate and restore impaired orexin signal. Through this mechanism of action, JZP-441 has the potential to exert pronounced weight-promoting effects in people with sleep disorders. Orexins are excitatory neuropeptides that play an important role in the regulation of sleep and wakefulness. Patients with type 1 narcolepsy have a loss of orexin-producing neurons with impaired orexin signaling. And clinically, these patients often present with chronic disabling symptoms that significantly impact patients’ ability to function normally during the day. Slide 21 illustrates the design of our Phase I program, evaluating safety, tolerability, pharmacokinetics and pharmacodynamics of JZP-441 in healthy volunteers.

Our single ascending dose study is being conducted in sleep-deprived healthy volunteers and includes an evaluation of the weight-promoting effects of JZP-441 using the maintenance of wakefulness test, or MWT. This is a recognized disease model that historically has translated to patient efficacy. We also have an ongoing study evaluating multiple sending daytime doses in healthy volunteers intended to provide safety of chronic dosing in support of a multiple dose study in patients. Importantly, we have structured the program to maximize our learnings at this stage, including identifying appropriate dose ranges, which we believe will accelerate later development in patients. We’re excited about the potential of JZP-441 and look forward to updating you on our progress later this year.

Turning to Slide 22. Our team is advancing multiple preclinical compounds to a clinical stage development. JZP-815, a molecule that has emerged from our collaboration with RedX is one of our most recently initiated Phase I trials. JZP-815 is a highly selective potent pan-RAF inhibitor with a differentiated mechanism of action. It targets specific components of the mitogen-activated protein-kinase pathway that are known oncogenic drivers, active against multiple ARAF, BRAF and CRAF mutants and a spectrum of BRAF fusions. Activity against ARAF mutants may be an important point of differentiation as recent data suggests the importance of ARAF in the context of mutant RAS activation. JZP-815 also potently inhibits both monomer and dimer driven RAF signaling and prevents paradoxical pathway activation induced by BRAF selective inhibition.

Slide 23 illustrates the design of the ongoing JZP-815 Phase I trial, evaluating the safety, dosing, pharmacokinetics, pharmacodynamics and initial antitumor activity of JZP-815 in participants with advanced or metastatic solid tumors harboring mutations in the MAP kinase pathway. It consists of 2 parts. Part A will characterize the safety and tolerability of JZP-815, determining a maximum tolerated dose and PK profile and determine a recommended Phase II dose to be further investigated and the expansion phase or Part B. Part B will investigate the antitumor activity at the recommended Phase II dose in various tumor types based on mutation status. Overall, our R&D team has been advancing multiple programs from our neuroscience and oncology pipeline, and we have multiple upcoming catalysts and near-term data readouts.

Now I will turn the call over to Bruce for a financial update. Bruce?

Bruce Cozadd: Thanks, Rob. I’ll start with our top and bottom line results on Slide 25. As a reminder, our full financial results are available in our press release and 10-Q. In the third quarter of 2023, we achieved $972 million in total revenues, driven by continued growth of our key products in both neuroscience and oncology. We’re pleased with the continued trajectory of Xywav during a period when high sodium oxybate competition has been introduced into the market. Coupled with Epidiolex momentum, the strong growth of Rylaze and solid performance of Zepzelca, total revenue increased 3% compared to the third quarter of 2022. Our adjusted net income for the quarter was $340 million, and we reported adjusted EPS of $4.84. The decreases in ANI and EPS this quarter compared to the same period last year were driven primarily by an increase in R&D investment, partially offset by higher revenues and lower effective tax rate.

The majority of our R&D increase this quarter is related to Zanidatamab. Our adjusted EPS also reflects a lower number of diluted shares outstanding compared to the same period last year. We continue to generate significant cash from our business. We recorded $307 million of cash from operations in the quarter and $925 million through the first 3 quarters of the year. Our strong overall financial position means we have significant flexibility to invest in priority commercial and R&D programs as well as corporate development opportunities. Turning to Slide 26. We have raised the midpoint of our full year 2023 revenue guidance to a range of $3.75 billion to $3.875 billion. As a reminder, we raised revenue guidance last quarter and have continued our strong commercial execution on key growth drives: Xywav, Epidiolex and Rylaze.

Our guidance represents year-over-year total revenue growth even as we faced the headwind of oxybate competition. Our 2023 neuroscience guidance remains unchanged and reflects expectations of continued growth of Xywav and Epidiolex, offset by the expected decline in Xyrem with a revenue range of $2.715 billion to $2.825 billion. With regard to high sodium authorized generics, royalties from high sodium oxybate AGs were $29 million in the third quarter of ’23, which reflect a significant increase over the first half as we move to a 6-month fixed rate royalty per the AG agreement with Hikma. The royalty rate will increase again after this 6-month period, at which point, it will remain fixed for the duration of this agreement. AG Royalties are included in our neuroscience guidance.

We have raised the midpoint of our 2023 Oncology revenue guidance to a range of $975 million to $1.05 billion, which reflects 16% growth at the midpoint. I would like to draw your attention to several items on Slide 27. Our strong cash generation, combined with our disciplined capital allocation provides us with flexibility to make strategic investments in our business. This includes an increase to our R&D guidance and an increase to the midpoint of our SG&A guidance while remaining on track to deliver ANI growth in 2023 compared to 2022. Our updated guidance midpoint, equate to an adjusted operating margin of approximately 44%. While margins will vary over time, we believe we are well positioned to achieve our Vision 2025 goal of driving a 5% improvement from 2021 to 2025.

One note regarding ANI as we look to the future. In the third quarter, we benefited from a lower effective tax rate partly driven by tax benefits derived from our increased R&D expenditure, expiration of statutes of limitation and changes in product mix. We expect that our ETR will increase next year as global tax rates are harmonized. Consistent with our capital allocation strategy, our enhanced investment in R&D is a direct result of our success in diversifying and advancing our pipeline. We have increased our R&D guidance for 2023 to a range of $780 million to $820 million, reflecting our confidence in our pipeline programs. In particular, we are making substantial investments in Zanidatamab to more aggressively pursue development opportunities that we believe will benefit patients and create long-term value for Jazz.

Looking at SG&A, we are updating our guidance to the range of $1.065 billion to $1.105 billion as we invest in a disciplined manner to drive further growth in key brands. We believe there is tremendous unrecognized value potential in our stock. We, therefore, continued share repurchases under our existing repurchase program. In the third quarter, we completed approximately $75 million of share repurchases. At the end of the third quarter, approximately $261 million remained available for share repurchases under our current plan. Importantly, given our strong overall financial position, we are able to include share repurchases in our capital allocation strategy without compromising our ability to execute business development opportunities and invest in our innovative R&D program.

Additionally, we are reiterating our adjusted EPS guidance of $18.15 to $19. I’ll conclude our prepared remarks on Slide 29. Our top line performance this quarter was driven by focused execution and strong commercial results, evidenced by the durability of our oxybate franchise, continued growth of Epidiolex and strength of our oncology business. We continue to advance our pipeline, invest in long-term growth, and we expect up to 5 late-stage data readouts through 2024 that have the potential to further diversify and transform our business. We remain focused on strategic capital allocation. With our strategic investments, expanding product portfolio, R&D progress and focus on operational excellence, we believe we are well positioned to achieve Vision 2025 and deliver further diversification, sustainable growth and enhanced value to patients and shareholders.

That concludes our prepared remarks. I’d now like to turn the call over to the operator to open the line for Q&A.

Operator: [Operator Instructions]. Your first question comes from the line of Jessica Fye from JPMorgan.

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Q&A Session

Jessica Fye: This might be a little tricky to respond to, but recently there were some headlines stating that Jazz might be exploring various strategic options, including breaking up the company or a sale of a business unit. I generally think of Jazz is more likely to buy a business than sell a business. But is there anything you want to clarify for folks with respect to how you’re thinking about business development and the strategy.

Bruce Cozadd: Jess, welcome back. Good to hear your voice. So I’ll point out that Jazz made no such announcement. There were a story in one place with unnamed sources. I’ll also remind you, as an Irish takeover panel company that we can be forced to clarify publicly if there’s something actually going on in pretty short order and that did not happen. We remain very focused on corporate development as a way to grow our business. Well, that’s been part of our strategy historically. It specifically called out as part of Vision 2025. And we think the strong financial position of the company ending the quarter with $1.6 billion in cash, a strong cash flow of $925 million over the first 3 quarters, the substantial continued deleveraging of the company, put us in a really good position to continue to put cash to work to grow our business.

Operator: Your next question comes from the line of Jason Gerberry from Bank of America.

Jason Gerberry: I guess mine will be around the evolving competitive landscape in the oxybate space with LUMRYZ and they had an update this morning about 1,000 patient enrollment forms. Just curious, your guidance suggests that nothing has really changed relative to your assumptions regarding competition from the start of the year until now. But just curious if you would — if you’re seeing anything in the marketplace worth noting? Or if you think that ultimately, maybe the competitor is just getting more of its business from either naives or patients who have discontinued Xywav historically? That would be helpful.

Bruce Cozadd: Yes, Jason, thanks for the question. And before I turn it over to Kim for a little more color, I’ll just say in your comments, you’re exactly right that we foresaw competition in the oxybate space this year, both from authorized generics of Xyrem and the branded fixed dose high-sodium product and built that into our guidance. We’ve actually raised our neuroscience guidance last quarter and continue to perform in line with our guidance. But Kim, maybe you could give a little more color on the oxybate landscape.

Kim Sablich: Yes, sure. So yes, Xywav is still growing in narcolepsy. We’re pleased to see despite the additional competition from the high-sodium oxybate were introduced this year. Yes, our growth in narcolepsy has slowed in line with our expectations in our own forecast as there remain fewer available patients to transition from Xyrem given our early success with Xywav and some patients have decided to go ahead and give FT218 a try. But generally, in terms of what we’re hearing from health care providers right now is that they’re still telling us that they place a high value on both the low sodium value proposition of Xywav as well as on the fact they’ve gotten used to being able to individualize or customize the dosing regimen for individual patients depending on their needs.

Many HCPs have expressed an interest in gaining eventually some experience with the new fixed dose, high-sodium oxybate product and where they’re typically doing that, they’re telling us is among those patients that have come in have really insisted on giving it a try. So overall, we remain very confident in the strength and durability of our oxybate franchise. We do see Xywav continuing to be the activated choice now and in the future, and it is still the only one approved to — for treatment of idiopathic hypersomnia. And lastly, when we continue to look at our data in terms of those portion of patients who are naive to oxybate treatment, they’re being started on their first oxybate treatment. The vast majority of these patients continue to be being initiated on Xywav.

So we think that’s very strong evidence that overall overwhelmingly physicians still feel it’s most important to focus on the patient’s long-term health.

Operator: Your next question comes from the line of Ami Fadia from Needham & Company.

Ami Fadia: Mine is on JZP-150. Can you talk about sort of mechanistically why you think that JZP-150’s mechanism is perhaps differentiated than a reversible FAAH inhibition. And with regards to your ongoing trial with regards to the CAPS-5 endpoint, what would you say — what would you consider as a clinically meaningful change that you would like to see? And with regards to your trial, can you talk about powering, should we expect to see a statistically meaningful result? And if you could go back and explain why the lower dose — why you have 2 doses in the trial and not just the higher dose?

Bruce Cozadd: Rob?

Robert Iannone: Yes. Thanks, Bruce. Thank you for the question, Ami. So starting with the first part of that around why the mechanism is differentiated. I would first say that we think we’re interested in JZP-150 because of FAAH as an underlying part of the pathophysiology potentially. So we know that PTSD patients have low levels of anandamide and by inhibiting FAAH, you can raise those levels. So we think this is one of the mechanisms that potentially directly addresses the underlying pathophysiology. We think we’re differentiated in being irreversible, as you mentioned, because you can create a more sustained FAAH inhibition. In other words, you ultimately have to resynthesize FAAH in order to get back to baseline levels.

So it just allows for consistent inhibition of FAAH which we think is — which we think is more important. In terms of clinically meaningful effect sizes, we haven’t said what we’re necessarily striving for in this, but you could certainly look across different mechanisms and see what has been achieved in terms of the CAPS-5. In our trial, we think we’re certainly well powered for a clinic meaningful effect given the 270 patients that we’ve enrolled across those 3 arms. And to your point about a low dose and a high dose, in this trial, we included 2 dose levels, because we wanted to evaluate what we felt was based on prior receptor occupancy data, full constant inhibition of FAAH versus a lower dose that would be just under that full inhibition.

And that sort of bracket the range of exposures that you might want to see allows us to collect safety data in that range and then would put us in a better position to select doses for a pivotal trial, if and when we move forward with that.

Operator: Your next question comes from the line of Marc Goodman from Leerink Partners.

Marc Goodman: Yes. I was hoping you could give us a little flavor on what’s going on with Zepzelca. It seems to finally have grown after many quarters. It’s just seeming flat. So if you can just give us a little color there. And then could you just give us the total oxybate patient number for us, please?

Bruce Cozadd: Yes, I’ll take the second part of the question first. And then, Kim, maybe you could jump in on Zepzelca growth, which I agree look really nice this quarter. On total oxybate patients, we’ve stopped giving that number. As you noticed in the royalty revenue off the AG of $29 million during the quarter, that has jumped up significantly, and that revenue, of course, is derived from patients that would not be included across Xywav and Xyrem. So essentially, total patients doesn’t track to our revenues anymore because that Xyrem plus Xyrem royalty is a little bit distinct. We’ve continued to give patient numbers in narcolepsy and idiopathic hypersomnia as we exit a quarter, to give you a sense of growth of the Xywav asset, but I’ll just point out total revenues and total patients don’t track the way they have historically for Jazz until this quarter.

In the first half of the year at the much lower royalty rate on the AG and earlier at the AG launch, the difference wasn’t significant. It is significant now and will only continue to be. On Zepzelca, I’ll just point out, we’re really happy with this deal when I talked about why we do corporate development and add assets to the company. I think Zepzelca having generated over $800 million in revenue since launch, has shown that to be a deal that was highly accretive and continues to reward our investors. So Kim, do you want to talk about dynamics there?