Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q3 2023 Earnings Call Transcript

Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q3 2023 Earnings Call Transcript November 8, 2023

Avadel Pharmaceuticals plc misses on earnings expectations. Reported EPS is $-0.41 EPS, expectations were $-0.35.

Operator: Greetings, and welcome to the Avadel Pharmaceuticals Third Quarter 2023 Earnings Call. [Operator Instructions]. It is now my pleasure to introduce Austin Murtagh with Stern Investor Relations. You may begin.

Austin Murtagh: Good morning, and thank you for joining us on our conference call to discuss Avadel’s Third Quarter 2023 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, 2022, which was filed on March 29, 2023, and subsequent SEC filings. Except as required by law, Aveda 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. Dr. Jennifer Goodman, Senior Vice President of Medical and Clinical Affairs, will join us for Q&A. 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 Avadel’s third quarter 2023 results. We’re excited to share the progress we have made with the launch of LUMRYZ. Following my opening remarks, Richard will provide an update on our launch progress. Tom will provide a review of our Q3 financial results, and we will conclude with a question-and-answer session. The third quarter was transformational for Avadel as we fully transition to a commercial-stage company and are very pleased with the robust early demand generated and important emerging launch trends we are seeing. There is a tremendous opportunity for LUMRYZ and Avadel that lies ahead as we execute our launch. We believe the foundation we are building during these early months positions us incredibly well for continued success building on the momentum built during this first full quarter of launch.

During Q3, this momentum resulted in growth across all key launch metrics, representing strong demand across all 3 patient segments of the eligible narcolepsy patient population and generated $7 million in LUMRYZ net revenue. There’s no better evidence of this than the early launch KPIs we announced this morning: Greater than 1,000 patients enrolled in RYZUP, and more than 400 patients who initiated therapy during the quarter, the majority of which are fully reimbursed. Expanded LUMRYZ payer coverage with key health plans, representing approximately 60% of all commercial lives, and this progress on the payer front continues to create even greater access for the 600 patients enrolled in our RYZUP patient services program and in process of obtaining coverage and getting on LUMRYZ as of September 30.

Additionally, there are nearly 1,400 health care providers who have now completed the LUMRYZ REM certification process, including providers who have never previously prescribed an oxybate. We’re very encouraged by these early KPIs and believe there are indicators of the strong interest and profit engagement we have had with all stakeholders as we’ve advanced the launch of LUMRYZ. Furthermore, to support the robust clinical data at LUMRYZ, our team recently attended World Sleep in Rio de Janeiro, Brazil, where we shared 15 poster presentations and 2 oral presentations detailing new and encore data, further demonstrating the clinical profile and clear benefit of LUMRYZ for potential eligible patients. And looking forward to the future, our team is also advancing our life cycle management opportunities as we believe this has the potential to expand the patient population who could benefit from LUMRYZ and provide long-term value to the company and our stakeholders.

We are pleased to announce that yesterday, we submitted a supplemental new drug application to the FDA for LUMRYZ in the pediatric narcolepsy population for the treatment of cataplexy or EDS, and currently expect an approval decision in the second half of 2024. Comprising approximately 4% to 5% of the current total oxybated treated narcolepsy population expanding availability into the pediatric population, not only increases the total addressable market for LUMRYZ, but also has the potential to greatly alleviate the burden on families and caregivers who support children living with narcolepsy. We believe these families and caregivers will welcome a once-at-bedtime oxybate treatment option as the twice-nightly dosing regimen of first-generation oxybate inevitably requires potentially multiple people in the household to chronically wake up night after night to administer the second dose for their children.

Additionally, we’re making progress with our clinical planning to initiate a multicenter randomized controlled trial for idiopathic hypersomnia, or IH. And we believe, based upon our interactions with key opinion leaders, that the value proposition once-at-bedtime LUMRYZ could be very compelling for those suffering from the deep sleep inertia associated with IH. And last thing on the life cycle management front, we are continuing our preclinical development of our potential no or low sodium once-in-time oxybate formulation for the small subset of sodium-sensitive oxybate-eligible patients. As always, we intend to provide updates on these programs as appropriate. With a strong balance sheet to support ongoing operations and the significant progress achieved in the initial months of the launch, we remain hyper-focused on the LUMRYZ launch and expanding our reach and our impact.

We are committed to and remain relentless in delivering on the promise of LUMRYZ for all stakeholders. And with this positive momentum coming out of Q3, we believe we are on track to command a meaningful share of the multibillion-dollar oxybate market and maintain our view that New right is a greater than $1 billion annual revenue opportunity. With that, I’ll turn the call over to Richard for details on our recent commercial progress. Richard.

Richard Kim: Thanks, Greg, and good morning, everyone. It’s so great to be on this call today to discuss our first quarter of launch. Let me start by saying it’s a real privilege to bring LUMRYZ to the Northwest community. Since August, our full commercial team has been in the field seeing specialists across the country, and the overall feedback has been extremely positive. We’ve heard for a long time about the impact about a once-at-bedtime oxybate that it could have for people in reps. And now we are out to see that impact iris happening each and every day. We consistently hear from the narcolepsy community that LUMRYZ has the potential to take people at narcolepsy beyond their expectations of other available treatment options.

I’d like to start with one example of the many impressions we’ve had with sleep specialist, and the impact on their life it is having. During a recent field drive, we met with a sleep specialist who enrolled his first person a RYZUP in August. The patient started on LUMRYZ a few weeks later. Now this patient was previously taking the first-generation mix-out product and switched to 7.5 grams of once-at-bedtime LUMRYZ. The patient has remained on 7.5 grams of limit per night is consistently sleeping through the night, and she said, “We more refresh the morning ready to start for day.” LUMRYZ has been an absolute game changer for this patient. While this is just one example of the journey to gain initial hands on clinical experience, the sleep specialists had great initial success with LUMRYZ and subsequently committed 4 or more patient enrollments into RYZUP.

To echo Greg, we are super excited about this strong start we’ve had and believe our progress reflects the clinical benefit of LUMRYZ, our strategic preparation and the hard work and dedication of our team. We’re pleased to share today that through our first full quarter launch, there are greater than 1,000 patient enrollments into RYZUP, our patient support center. From our RYZUP data, enrollment in patients on therapy are coming from all 3 of our target patient segments. Switch patients from first-generation oxybate. Patients who previously tried to discontinuation discontinued first generation oxybate and oxybate-naive patients. Thus far, we are seeing an early trend that the majority are being sourced from first-generation oxybate with slightly more coming from the twice-nightly [indiscernible] product compared to the twice-nightly [indiscernible] oxybate products.

Through the end of September, there were nearly 1,400 HCPs who are REM-certified. As a reminder, our core target HCPs includes the 1,600 high-line oxybate prescribers who make up 80% of the total market prescription volume. The greatest penetration of REM-certified HCPs has come from these high-volume oxybate prescribers, and they account for about 3/4 of all rise enrollments thus far. Although the trends from RYZUP are early, with patients coming from previously distant first-generation oxybate patients also oxalate patients and prescribers who have previously never prescribed an oxybate. Our early data set for assume LUMRYZ growing the market beyond the limitations of our first-generation twice-nightly oxybates were used. Supported by the increasing number of RYZUP enrollments.

Today, we also announced in the third quarter, we had greater than 400 patients who initiated treatment on LUMRYZ. We saw the network pacing rights to grow within the quarter as more payer coverage begins to come online. The majority of patients initiated with LUMRYZ are commercially reimbursed. Additionally, and although early in launch, we’re seeing discontinuation trends that are lower than the 25% discontinuation rate at 1 month from first generation oxybates. When we think about all the time it takes to the fill enrollment and debt arise, there are generally 2 main segments that are emerging. First, those who have coverage a prior authorization criteria. These patients can be processed and ship products on average in about a month. As our coverage of payers expand, this segment of patients will continue to grow.

Now for patients going from medical necessity without a formal coverage policy decision. This generally consists of pair denials and HCP appeal, a process that could take longer. More like a couple of months on average with some occurring a bit sooner and setting even a bit longer. This segment is getting smaller as our coverage grows. However, and very importantly, despite these cases taking longer to fulfill, we also see very few people dropping out of the RYZUP process. At the end of September, approximately 600 patients were in the RYZUP of process still, going through the benefits investigation or pending a first shipment. Based on early loss trends through Q3, we currently anticipate that the majority of these patients will convert on to LUMRYZ as they complete their RYZUP process.

Product fulfillment is very dynamic. And we are in a fundamentally stronger place with the use of RYZUP and services than we were just a couple of months ago. More important is that sleep specialist offices are getting increased experience with the enrollment process and are beginning to spend additional patients to RYZUP. Now that’s a nice segue to transition to payers, where we continue to make strong progress in securing broad coverage for the mine. Currently, BMS coverage policies were over 100 million insured lives representing approximately 60% of the totally commercially covered lives. We recently added coverage with policies in place with key national insurers, like Aetna and Cigna, in addition to several regional and state plans. We also completed the zinc GPO contract where importantly, LUMRYZ will be moved to a preferred status within CVS commercial formularies effective January 1, 2024.

Currently, LUMRYZ is in nonpreferred position. We are very pleased with our payer progress. And importantly, feedback with sleep specialist offices has generally been very positive for the early success rate from reimbursement they’ve been seeing. These first events have set a great foundation for our launch. As we see the demand from LUMRYZ continue to grow, offices and our teams improving the efficiency for getting patients started and staying on LUMRYZ and more covered lives with payers. We could not be prouder of the collective work of our team in bringing LUMRYZ to the narcoleptic committee, along with the progress and trends we’ve seen to date. We look forward to providing more updates on future calls. And now I will turn the call over to Tom to discuss our financials.

Tom?

Thomas McHugh: Thank you, Richard. I’ll note that full financial results are available in the press release and the 10-Q. We’re pleased to report that we generated $7 million in net revenue for the third quarter ending September 30, 2023, and $8.5 million in total revenue since our launch began in June of 2023. We’re continuously monitoring inventory levels in the channel. And during the course of the third quarter, we estimated that it was consistently between 3 to 4 weeks of demand, including as we exited the quarter. Turning to operating expenses. We reported a total of $42 million of GAAP operating expenses during the quarter ended September 30, 2023, which includes $39.2 million of SG&A costs and $2.8 million of R&D costs.

Operating expenses includes $4.6 million of noncash charges for stock-based compensation and depreciation and amortization. After adjusting for these items, cash operating expenses were $37.4 million for the quarter. And we are currently expecting cash operating expenses in the fourth quarter to be in the range of $38 million to $40 million. With respect to the balance sheet, we exited Q3 in a strong position. As of September 30, 2023, we had $153.2 million of cash, cash equivalents and marketable securities, which includes $30 million received in August from the first tranche of the $75 million royalty financing commitment we secured earlier this year. A second tranche of $45 million is available if we achieved $25 million of quarterly net revenue by June 30, 2024.

And as a reminder, while the $45 million could be available, we are not required to draw the second tranche. As we look ahead, we believe, based on current plans and expectations that we can achieve cash flow breakeven from operations when there are approximately 1,300 to 1,500 reimbursed patients being treated with LUMRYZ. Our expectation is taking into account a number of assumptions, including capital resources currently available to us, patient demand, net pricing of LUMRYZ and ongoing cost structure to support the launch of LUMRYZ. Actual results versus these assumptions, in addition to ongoing planning for growth initiatives, such as an IH study, could impact our expectations regarding future capital requirements. And on a final note, at September 30, we had approximately $21 million of convertible notes shown as debt on the balance sheet.

This last remaining tranche of debt was settled in cash at the beginning of October. And effective with that paydown, the balance sheet is now completely free of convertible debt. And I’ll now turn the call back to Greg for closing remarks.

Gregory Divis: Thank you, Tom. We believe our strong foundation has supported our successful initial launch of LUMRYZ, and we are laser-focused on continuing to execute on all our priorities. Our goal since the inception of Avadel has been to provide treatments that can transform the lives of those living with narcolepsy, and we believe we’ve made significant progress in this area and look forward to our continued launch execution and positively impacting even more patients. We thank you for your support and look forward to providing future updates on our progress. And with that, we will open the call for questions. Operator?

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from Ami Fadia from Needham.

Ami Fadia: Congrats on the nice update on the launch. I have 1 or 2 quick questions. Firstly, can you talk about the rate at which you’re seeing enrollment in RYZUP? And maybe give us some more color on where these patients are coming from in terms of whether they’re coming from or new patients? If you can give us some more color there?

Gregory Divis: Yes. Thanks, Ami. Richard, do you want to…

Richard Kim: Yes. Thanks, Ami. Yes, it’s really been fantastic to see the interest that [indiscernible] arrived. And we’re super pleased that when we gave our first update about 2 months into launch, there are about 400 patients rolled into RYZUP. And then in the next 2 months, about an actual 600 pieces have come on board. So really good momentum. Maybe holistically, as we start to think about the launch, the first thing we sort of say is when we see sleep specialists, we have really yet to see one who haven’t seen the clinical value proposition of their rights. And when we think about the trends going forward, we haven’t really sort of seen what I would be described as bolus as many offices, but really more of a sort of an influx of patients being seen in the regular course of follow-up, which is about every 3 to 9 months.

So when we start to think about sort of going forward, we just continue to sort of see continued steady demand for their rights. We also know that the holidays are coming up sort of as we get into November, December, so it’s just something to account for. But our focus remains very much on the launch execution and obviously, patient activation. I will also say, in the future, we do think things we’ve seen when coverage policy changes have occurred, they can act as catalysts as we sought for CVS earlier, that going to preferred should help us as we go to January. And also, we continue to work that we have with our MSR GPO contract as well. Now speaking to the types of patients, we consistently sort of see sourcing from policy patient segments, which discontinued previously in naive.

And thus far through the launch, we’re seeing the majority coming from previously experienced — or currently oxybated patients with more tending towards coming from the mix up in the twice-nightly oxybates as well. So it does their army, it’s real. It’s been awesome to be in the deal for all of us. There’s always more that we can do, but we’re super pleased with the progress we’ve made so far.

Ami Fadia: Great. And maybe just on the payer coverage front, you talked about currently having over 100 million insured lives. How should we think about the remaining? And then when — give us some sense of the time frame into 2024 where we could see coverage expand.

Richard Kim: Yes, sure. We’re pretty selfish. We want as many covered lives as we possibly can get because that’s really the gateway to getting patients onto therapy. So the general process is you get — you get the GPO contracts signed, then we have to pull through with major PBMs underneath that. So we’ve been doing that under both the intent or the ESA [indiscernible] contract, now the zinc CBS contract as well. The third one is the MSR sort of Optum United lives. It always takes a long goods. But we’ve made very good progress there. And we fully anticipate growing our covered lives as we go forward here as well. So I mean, to be where we are sort of through our first full quarter launch and how this coverage has been pretty impressive.

And I think what will be played out in the marketplace is the general feedback we hear from providers being maybe pleasantly surprised with the reimbursement rate that they’re seeing. So sort of like many of our metrics, we’re looking sort of upward and to the right to grow our covered lives going forward.

Operator: [Operator Instructions]. Our next question comes from Andrew Sai with Jefferies.

Unidentified Analyst: Just wanted to say congrats myself as well. It’s really great to see the launch going very well. So first question on the conversion rate, it looks like you got 1,000 sign-ups in the quarter, 400 essentially getting treatment. So loosely speaking, it seems like a 40% conversion rate, give or take. And I think you said in the prepared remarks, the majority will convert from RYZUP. So is it fair to assume that 40% conversion rate moves up meaningfully going forward? And then secondly, if you were to take another cut of the KPIs as of today, November 8, how would those leading indicators look? Just want to make sure these numbers are not a onetime bolus, that you’re seeing even more patients signed up and treated, things are moving up and to the right.

Gregory Divis: Yes. Thanks, Andrew. Here’s how I can answer those questions. First off, in terms of your 40%, it’s really apples to oranges a little bit. and the 40% is certainly not the majority, and our commentary is what we’ve seen for patients who have been in the system for at least some period of time that our conversion rates to on therapy is certainly the majority of patients. So we would expect 40% not as the right proxy currently in terms of what we’re seeing early on in the launch. And obviously, that’s a number we want to continue to improve on and payer coverage decisions and whatnot are really important advances. But the progress made on the payer front has certainly been beneficial to us in seeing a majority of patients converting on to therapy and the majority of those converting on to reimbursed drug.

Secondly, to your comment about whether the — how does the early part of Q4 look. Again, I think we’ve seen — we continue to see more enrollments and more people go on therapy and growth continue. So yes, I mean, I think we feel really good where we sit and the progress we’re making across all fronts. And knowing that there’s a whole lot more to do, but we’re really pleased where we sit today.

Operator: Our next question comes from Marc Goodman with Leerink Partners.

Rudy Li: This is Rudy on the line for Marc. So I have a question regarding your patient dynamic here. So you mentioned that most of patients reaching from first-gen activate products. Just curious what are the feedbacks you’ve been hearing from these patients, especially those who switch from Ziva? What are your strategy to penetrate patients who are oxybate-naive and who previously treated and discontinue?

Richard Kim: Yes. Thanks for the question. Yes, as we talked about in our prepared remarks, when we think about the source of patients thus far, the majority are from those first-generation oxybate. The patient narratives that I gave early on was one that represents many of the conversations we’ve had about patient switching from sideways. And one of the insights we had from that, even a couple of years ago, where a lot of the patients who — we’ve gone on to the mid-afternoon early on. They tend to be early adopters of product. They tend to be diagnosed for a shorter period of time, switching, looking for more new for their treatment. So we haven’t seen a surprise, the fact that we’ve had Mixall patients coming on to the rate that we have thus far.