Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q1 2024 Earnings Call Transcript

Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q1 2024 Earnings Call Transcript May 8, 2024

Avadel Pharmaceuticals plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to Avadel Pharmaceuticals First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Austin Murtagh with Stern Investor Relations. Thank you. You may begin.

Austin Murtagh: Good morning, and thank you for joining us on our conference call to discuss Avadel’s first quarter 2024 earnings. As a reminder, before we begin, the following presentation includes several matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks and uncertainties are described in Avadel’s public filings under the Exchange Act included in the Form 10-K for the year ended December 31, 2023, which was filed on February 29, 2024, and subsequent SEC filings.

Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise. On the call today are Greg Divis, Chief Executive Officer; Richard Kim, Chief Commercial Officer; and Tom McHugh, Chief Financial Officer. At this time, I’ll turn the call over to Greg.

Gregory Divis: Thank you, Austin. Good morning, everyone, and thank you for joining us to review our first quarter 2024 results. Following my opening remarks, Richard will provide an update on our launch progress, including our key metrics through March 31. Tom will then review our Q1 financial results, and we will conclude with a question-and-answer session. I’m pleased to report another quarter of strong execution and results of our LUMRYZ launch. We continue to deliver on our ability to reach the narcolepsy community and drive significant quarter-over-quarter growth across our early launch metrics. Metrics we believe are critical to building a strong foundation for LUMRYZ both in the near-term and in the long-term. While our top business priority and focus remain on the launch of LUMRYZ, during Q1, we also made important progress in our efforts to expand our reach into those living with idiopathic hypersomnia, or IH, as well as pediatric patients with narcolepsy, both of whom can possibly benefit from LUMRYZ and if approved for those uses, offers potentially significant incremental value and future growth opportunities for LUMRYZ beyond narcolepsy.

Since launch last summer, our team has begun to deliver on the promise of LUMRYZ in our pursuit of becoming the market leader and achieving preferred oxybate status among patients and providers. Our early robust uptake among patients and physicians provides unequivocal evidence of this progress and of the opportunity based on the clear unmet needs of oxybate eligible patients. Evidence that has been further solidified by the consistent and compelling patient, caregiver and provider feedback we routinely here. As we now approach our first full-year in the market with LUMRYZ, I continue to be impressed by the relentlessness and the results being delivered by the entire Avadel team. It is their collective efforts, contributions and achievements that have established the initial foundation for LUMRYZ, which we believe positions us very well to achieve our future aspiration and expectation of achieving market leadership.

Underscoring the results we announced this morning, since the launch of LUMRYZ, greater than 2,800 patients have enrolled into Avadel’s RYZUP patient support services program and greater than 1,700 cumulative patients have initiated LUMRYZ therapy. In addition, in Q1 of this year, we generated $27.2 million of net revenue. The results we achieved continued to show the strength and the opportunity of LUMRYZs’ position in the evolving narcolepsy treatment landscape. Now as a team, we are laser focused on the launch of LUMRYZ and ensuring we continue to deliver on the promise of LUMRYZ to the narcolepsy community. And we are well positioned to continue advancing the launch and driving growth for LUMRYZ in narcolepsy and beyond. In this regard, our launch focus and priorities are very clear, we are also in parallel beginning to make real progress on specific future growth opportunities we believe can deliver additional long-term value for patients, for the company and our shareholders.

Our first near-term opportunity is our potential expansion into the pediatric narcolepsy population, which represents approximately 5% of all oxybate treated narcolepsy patients. Our supplemental new drug application for LUMRYZ has been accepted by the FDA and a target action date is set for September 7. We believe LUMRYZ if approved for this use has the potential to address both patient and caregivers unmet needs while potentially offering a transformational treatment option for pediatric patients and their families. We look forward to hearing the FDA’s decision later this year. Next, as we have previously shared, we are evaluating LUMRYZ’s use for the treatment of IH. During Q1, we’ve made significant progress on our readiness to initiate a pivotal Phase 3 trial for IH in the second half of this calendar year.

Similar to pediatric narcolepsy, we have heard from many experts in the field that there is a clear and compelling need for once-at-bedtime LUMRYZ for those suffering from IH due to the associated deep sleep inertia, making it extremely difficult for some patients to even wake up for their second dose of an immediate release oxybate. We are currently on track to dose our first patient in the second half of this year and plan to provide additional details at that time. Additionally, we are progressing the preclinical development of a potential no or low sodium once-at-bedtime oxybate formulation with a target product profile that is bioequivalent to LUMRYZ. For this program, we currently expect to provide updates by the end of 2024. In summary, we have a number of opportunities to continue to build our leadership in the sleep space and most importantly, positively impact even more patients.

These opportunities will continue to be supported by our launch execution for LUMRYZ in narcolepsy, which has created a strong foundation for continued growth. And with that, I’ll turn the call over to Richard for details on our commercial progress. Richard?

Richard Kim: Thanks, Greg, and good morning, everyone. As Greg commented, our LUMRYZ launch has been off to a strong start this year. And today, I’m excited to provide some additional context into the encouraging trends we’re seeing. We continue to build on the momentum generated since launching LUMRYZ and have made strong progress during the first quarter. Our team’s commitment to bring our much-needed therapy to the narcolepsy community has allowed us to build a strong foundation, and we believe we are well positioned to see continued growth throughout the year. Now turning to our key launch KPIs. We had more than 2,800 patients enrolled in RYZUP program at the end of March, which demonstrates a nearly 50% increase since the end of December.

Additionally, 1,700 patients initiated therapy as of the end of Q1, representing a greater than 70% increase in cumulative patients who initiated therapy since the end of 2023. Since our launch last June, we continue to build strong and steady positive demand for LUMRYZ. Looking more closely at the patient segment dynamics. We continue to see patients initiating therapy with LUMRYZ from all three patient segments. Now in comparison to last year, where the majority of patients were switched patients, this year, we are seeing — beginning to see a more balanced ratio with roughly 50% coming from switches and the other 50% from discontinued and naive patients. Another differentiator from last quarter is that we’re seeing a growing number of naive patients on therapy, which signals that LUMRYZ’s value proposition is compelling to patients who have not previously been on an oxybate.

Moving to HCPs. More than 2,100 HCPs have completed the REMS certification as of March 31, an increase of more than 300 since the end of December, including those who are experienced oxybate prescribers, and some who previously LUMRYZ had not written for an oxybate. As a reminder, there are more than 4,500 HCPs who make up the entire oxybate prescribing universe. And our field teams have been focusing their initial efforts on the 1,600 high-volume oxybate prescribers who represent 80% of the total prescription volume. For the top 500 prescribers who make up 50% of the total oxybate prescription volume, now 80% of these HCPs have written for LUMRYZ, up from 64% at the end of December. Gaining the use in the highest volume oxybate prescribers has been a key part of our launch strategy, and we are pleased with the progress we are making with these HCPs. Additionally, we reached an important milestone last month when we introduced our first LUMRYZ patient ambassadors to the narcolepsy community.

Katy, Tyler and Wendy, our amazing people with narcolepsy who want to share their personal journeys and how being treated with LUMRYZ has changed their lives. Our market research continues to show the importance of the patient voice in the narcolepsy treatment journey as patients often receive the therapy, they asked their HCP for. With the LUMRYZ patient voice now activated, we are unlocking another opportunity to drive the LUMRYZ conversation in HCP offices. Transitioning to product fulfillment, our overall reimbursement process continues to improve with over 700 new starts in the first quarter. We have seen through a combination of our strong payer coverage and the growing experience with HCP offices that we are getting more patients initiated on therapy, and we continue to see good early signs of persistency with LUMRYZ when compared to twice not the oxybate.

Lastly, on the payer front, we have payer coverage policies in place with the three largest PBM-owned GPOs. Additionally, we recently gained coverage with a large PBM group, Prime Therapeutics taking overall commercially covered lives to about 85%. Overall, we exited Q1 with growing momentum, and we are thrilled to see the results of our team’s relentlessness and dedication to the narcolepsy community, materialize and grow quarter-over-quarter. We believe LUMRYZ is positioned for long-term growth and is on track to becoming the preferred oxybate for the narcolepsy community. And now I’ll turn the call over to Tom to discuss our financials. Tom?

Thomas McHugh: Thank you, Richard. Good morning, everyone. And before I begin, I’ll note that full financial results are available in the press release issued this morning and in the 10-Q. We are pleased to report that we generated $27.2 million net revenue and gross profit of $25.7 million for the quarter ending March 31, 2024. And additionally, as of March 31, there was approximately one month of demand in the channel, which is consistent with prior quarters. Turning to operating expenses. We reported a total of $51.7 million of GAAP operating expenses for the first quarter of 2024 compared to $28.3 million in the prior year. The increase in year-over-year operating expenses is primarily attributable to launch-related costs and higher compensation and legal costs.

GAAP operating expenses in the first quarter of 2024 includes $6.5 million of noncash charges comprised of stock-based compensation of $5.4 million and depreciation and amortization of $1.1 million. After adjusting for these items, cash operating expenses were approximately $45 million for the quarter. This is at the upper end of our previously communicated guidance of $40 million to $45 million of quarterly cash operating expenses and is due primarily to higher legal costs related to the patent trial that took place at the end of February. For the remainder of 2024, we expect that recurring quarterly cash operating expenses will be in the range of $40 million to $45 million, and noncash operating expenses will be in the range of $5 million to $7 million.

We believe that net cash used for operations will be materially lower after taking into account expected cash receipts from continued LUMRYZ sales. With respect to the balance sheet, as of March 31, we had approximately $89 million of cash, cash equivalents and marketable securities compared to $105 million as of December 31, 2023. With our current trends, plans and assumptions, we maintain that we can achieve breakeven when there are approximately 1,300 to 1,500 commercially reimbursed patients and that we can achieve this milestone during 2024. In addition to the number of reimbursed patients on therapy, our expectations regarding the timing of achieving breakeven, taking into account a number of other assumptions, including how quickly patient demand grows, net pricing of LUMRYZ and operating expenses.

Closing out today’s financial updates, we pay close attention to the sell-side estimates and at this time, we are comfortable with consensus of approximately $162 million for the full-year including the possibility that 2024 revenue could be higher if actual results such as the rate of increase in reimbursed patients, the total number of reimbursed patients who are treated with LUMRYZ and net pricing outperform the assumptions currently used by the sell side. With that, I’ll turn the call back to Greg for closing remarks.

Gregory Divis: Thank you, Tom. With our LUMRYZ launch well positioned for continued growth this year and our meaningful expansion opportunities in the sleep space, the value we are creating today is laying a strong foundation for the long-term. We thank you, as always, for your support and look forward to providing future updates on our progress. And with that, we will open the call for questions. I’ll turn it over to the operator.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Andrew Tsai with Jefferies. Your line is open.

Andrew Tsai: Hey, good morning. Congrats on the progress and the slope of the curve and such. My question is around the patient additions in treated patients this quarter, seemingly grew faster than the actual sales number. So can you help us reconcile the reported sales number? Was it driven more by onetime headwinds like higher gross to net or maybe even free drug use? Or was it more driven by “permanent patient discontinuation rates increasing?” Thanks.

Gregory Divis: Richard, do you want to start with that?

Richard Kim: Yes. Hey, thanks for the question, Andrew. Yes. So I think overall, to your point, we’re very pleased with our early launch metrics, having another 900 patient adds in to RYZUP in 700 patient initiations. At this stage of the launch, the most important thing we really focused in on is getting patients on therapy, A, for that patient experience and B, to get ACP offices used to prescribing and hearing those patient experiences as well. So that’s really been our focus. To your point, there are some headwinds that we experienced as an industry in Q1 with higher deductibles and other things that impact our co-pay. So we expect those to have settled down. And maybe one last comment on your discontinuation rates. We’re pleased with our early discontinuation rates that we see.

They are numerically lower than what we see historically with the price net lease. So I’ll turn this around — once again, we’re really pleased with our early launch KPIs and maybe I’ll turn it over to Greg to add some more color.

Gregory Divis: Yes. I think that for us, most important for us is patient initiations and getting and keeping people on therapy. And I think the team has done an excellent job in that regard to the launch. And from a persistency standpoint, I think we remain really bullish on how that will translate to revenue over time.

Andrew Tsai: Thanks, very clear. Congrats again.

Operator: And your next question comes from the line of Francois Brisebois with Oppenheimer. Your line is open.

Francois Brisebois: Thanks for the question. So I was just wondering, in terms of RYZUP, that metric, do you ever see — I know it just for to know exactly how quickly patients move from RYZUP to on therapy. But are there cases where they just — they do not. They enter RYZUP and they never get the therapy? If so, what would be the reason for that?

Richard Kim: Yes, sure. I’ll take that, Greg. Yes. So great question, Frank. Yes, as far as RYZUP is concerned and I would say any new therapy that comes to marketplace. There are patients who “abandoned the process” along so that they do not ever get to initiate therapy. That’s — we’re not immune to that either. That abandonment rate for us is very low and has stayed relatively consistently low throughout our entire launch. So we’ve seen very good stictuitiveness. And Frank, it’s the same reasons for almost any product. Sometimes the patients lose interest, it could be insurance, it could be something that’s come up in their life. We don’t really get all of those details. But once again, our abandonment rate has been relatively low for patients entering RYZUP.

Francois Brisebois: Thank you. And then in terms of the pediatric endpoints, you mentioned 5% of the population, but how often do these patients once they’re on something that seems to work. Obviously, there’s discontinuation. We’re going to follow that with time to see if it’s better with you guys. It seems like it’s trending well. But that 5% pediatric population, do you guys see that as much bigger than 5% kind of as a read-through where if these — obviously, it takes a lot of time to diagnose, but if the diagnosis gets quicker, you get pediatrics and then they probably don’t want to change what they’re on when they become adults. Is there any upside to that 5%?

Gregory Divis: Well, I think we agree with all of your thoughts, Frank, from that perspective. We think that the actual market opportunity is likely from a pediatric perspective is likely materially larger than what’s actually being treated today, predominantly because the condition is really a condition of adolescents, right, where initial symptoms predominantly present earlier in life. Your comment about the time to proper diagnosis is a major challenge and has been for quite some time from that perspective. So we do think the total opportunity is actually larger than what the actual treated pool is today, no different than how we think about adults. So for us, I think the opportunity to bring something new that doesn’t disrupt the entire family, we think offers opportunity both for currently treated and potentially patients who aren’t being treated today.

Francois Brisebois: Okay. Great. And in terms of IH, it seems intuitive if these patients need to sleep and are still restless, are you getting a lot of feedback that waking up in the middle of night is a problem? Or is it not a big deal for these patients?

Gregory Divis: Richard, do you want to comment on that?

Richard Kim: Yes. I think for IH, it really comes down to more of the sleep inertia. A lot of these folks just have inertia, where they’re just unable to wake up during the middle of the night to take a second dose. So that’s really the key area of feedback and research that we hear about is oxybates are very effective. But if you can’t wake up to second dose, you’re getting a subtherapeutic dose.

Francois Brisebois: Thank you.

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