Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q4 2022 Earnings Call Transcript

Avadel Pharmaceuticals plc (NASDAQ:AVDL) Q4 2022 Earnings Call Transcript March 31, 2023

Operator: Greetings, and welcome to Avadel Pharmaceuticals Fourth Quarter and Full Year 2022 Earnings Call. 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 fourth quarter 2022 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 include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market entry and acceptance of products and the impact of competitive products and pricing.

These and other risks are described more fully 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, 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; Jennifer Gudeman, Senior Vice President of Medical and Clinical Affairs; Richard Kim, Chief Commercial Officer; and Tom McHugh, Chief Financial Officer. At this time, I’ll turn the call over to Greg.

Greg Divis: Thank you, Austin. Good morning everyone, and thank you for joining us for a company update and to review our fourth quarter and full year 2022 results. 2023 is proving as we expect it to be a pivotal year for Avadel. We have already executed on a number of significant milestones, including the recent completion of multiple, strategic financings that pave the way for growth and value creation as we enter the final stages to bring LUMRYZ, our investigational, once-at-bedtime, oxybate therapy, for the treatment of cataplexy or excessive daytime sleepiness in adults with narcolepsy to the market. Within oxybate, eligible patient community of 30,000 to 35,000 strong and the opportunity to address the most important unmet need, which requires patients to forcibly awaken in the middle of the night during a precise 90-minute window, LUMRYZ offers the potential to provide oxybate patients the opportunity to have an uninterrupted night sleep while commanding a meaningful share of the estimated $3 billion to $3.5 billion once-at-bedtime oxybate market.

I am proud of all that our team has recently accomplished, which has put us in a very strong position ahead of a potential final approval and the commercial launch of LUMRYZ. As announced yesterday, significant progress has been made in strengthening the company’s balance sheet, providing us with the financial flexibility and a clean 10-K ahead of the potential launch of LUMRYZ to the execution of a series of strategic financings, which in total provides the company with approximately $200 million of committed capital to support a potential LUMRYZ launch and a new April, 2027 maturity date for $96.2 million of our convertible notes. The total capital includes $125 million from an equity raise and up to an additional $75 million in royalty financings with RTW Investments.

RTW, our largest equity holder, continues to be incredibly supportive of Avadel and LUMRYZ and this additional royalty financing, along with the convert exchange and equity raise, provides us with the necessary resources and balance sheet to fully support the commercialization of LUMRYZ for people living with narcolepsy. Tom will provide further details a little later in this call, but it is important to state emphatically that the completion of these financing actions puts us in a strong financial position to execute on our launch priorities and deliver on our mission to transform Avadel into a commercial organization and a major player in the narcolepsy space. I want to thank everyone, and especially all of our investors, who have supported us during this process and your continued belief in the promise and future of Avadel and LUMRYZ.

Turning to our progress on the regulatory front, earlier this month we submitted a minor amendment to our LUMRYZ NDA requesting final FDA approval. This came shortly after the REMS Patent was delisted from the FDA’s Orange Book in response to the unanimous three to zero panel decision of the United States Court of Appeals for the Federal Circuit on February 24, affirming the previous district court ruling ordering that delisting. Based on recent interactions with the FDA and the March 1 submission date for our minor amendment requesting final approval, FDA guidance to us would suggest timing to a decision could be around two months or approximately early May. Please note actual timing is not in our control, however, we remain committed to continuing to do all we can to try to accelerate this.

If or when we learn anything more specific, we will certainly share that information as appropriate. We also recently announced that the FDA approved our Pre-Launch Activities Importation Requests or PLAIR for LUMRYZ. This has allowed us to import LUMRYZ into the U.S. ahead of a final approval decision and puts us in a position to potentially shorten the time to product availability. With this, we expect to be in a position to have LUMRYZ available in about four weeks after a potential final approval. With a near term final approval decision and the potential for product availability shortly thereafter, we have been focused on building and preparing our organization for the potential launch of LUMRYZ. Richard will join us shortly to provide a further update on our launch preparations in progress.

And lastly and certainly not least, we continue to expand the patent exclusivity for LUMRYZ, as we have recently been granted five additional U.S. patents for a current total of 13. These 13 U.S. patents provide Orange Book-listable patent protection into early 2042 with many more applications pending at the U.S. Patent Office. We have a lot to cover today, so with that, I will turn the call over to Jennifer for details on our recent scientific data presentations. Jennifer?

Jennifer Gudeman: Thanks, Greg. And good morning. It’s an exciting time for us. We closed out last year by presenting a total of seven posters between the American Neurological Association and the CHEST meeting. I will briefly highlight two of the posters. First, a real-world study with the Mayo Clinic to understand the top 20 comorbidities increased in people with narcolepsy compared to a matched cohort. The top 20 did not include cardiovascular disease. And second, a discrete choice experiment where among 100 clinicians and 125 patients, the most important driver of oxybate treatment choice was a single dose. Whether it is medical congresses or individual KOL meetings, our experienced NFL team are having, we consistently see unsolicited excitement and enthusiasm for the unmet need that LUMRYZ will fulfill if approved.

The robust clinical study data of LUMRYZ and the clinical value proposition of avoiding middle-of-the-night dosing is well understood. Regarding the benefit of eliminating the middle-of-the-night dose, we supported research that was conducted by TREND Community to better understand the patient experience with twice-nightly oxybate. TREND Community submitted these data, which were accepted as a late-breaking abstract to the advances in Sleep and Circadian Science meetings held in February. I will share a few highlights, TREND presented from their sample of 85 respondents with narcolepsy who have currently or previously taken twice-nightly oxybate therapy. Approximately 75% of the patients surveyed reported missing the second dose. Of that group, 65% shared that this happens at least monthly.

Further, 32% reported suffering injuries when waking to take a second dose of therapy. Of that group, one third said, this occurs at least monthly. These new TREND data, which are consistent with what we have learned in our RESTORE study via patients switching from twice-nightly, highlight the potential positive impacts that once-nightly dosing will have on people living with narcolepsy. Let’s turn now to the published data reporting additional safety concerns with currently available treatment regimens. In January, we published our findings in the journal, Drugs – Real World Outcomes from the FDA Adverse Event Reporting System or FAERS of reports that show patients are inadvertently taking their second dose of sodium oxybate less than 2.5 hours after their first, which can be associated with serious adverse events.

It’s relevant to consider what prompted this research. We have heard time and time again from people taking twice nightly oxybates that this happens and when it does, it can be a harrowing experience as the publication underscores. The other consistent theme we hear is that patients don’t report this to their doctors, the FDA or the REMS program because they are fearful if they did that their therapy would no longer be accessible. It’s well recognized that adverse event reporting is the tip of the iceberg. Reporting is voluntary for both patients and healthcare providers, and it is estimated that only about 10% of adverse events are reported. Without any other option, the reticence of patients to share these safety concerns and of clinicians to ask about potential safety concerns is not surprising.

Yet, the risks are relevant, among this sample 27% of reports where dosing was less than 2.5 hours after the first resulted in hospitalizations with another 22% associated with the use of emergency services. We look forward to providing a treatment option, we believe will mitigate this serious safety risk of taking a CNS depressants earlier than is advisable, as well as overcoming the challenges of missing the second dose and/or taking it too late. I will now turn the call over to Richard to provide an update on the commercial opportunity and Avadel’s preparations for launch. Richard?

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Richard Kim: Thanks, Jennifer, and good morning, everyone. It’s a great progress that Greg covered has allowed us to finalize our pre-commercialization activities. And today, I will share some additional market research that continues to support why we believe LUMRYZ can have a major impact in the narcolepsy market. In addition, I’ll provide further updates on our significant launch readiness progress. With the submission of the amendment for LUMRYZ to the FDA, the imminent decision for final approval and rapidly approaching potential product availability, our commercial have progressed in fairly, as we continue to progress spring once-at-bedtime LUMRYZ to the narcolepsy community. We’ve been working diligently over the past few months to shorten window to drug availability, follow potential final approval, and this was further confirmed with the FDA recently granting our player.

In this regard, we currently expect depending on the potential final approval timing to have product available in the market in approximately four weeks post-approval. Now, in addition to the player approval, we’ve made significant progress with our REMS and patient services center, which will both be operational in advance of a final approval and our supply distribution network, which will be fully operational when the product is available. Earlier this year, we performed new market research, which included sleep specialists with varying amounts of oxybate utilization. Here’s a few key takeaways. First, when shown the LUMRYZ product profile sleep specialists give LUMRYZ the highest oxybate market share. Now receiving the highest overall market share from this research is horribly consistent with three previous demand studies we have conducted, representing insights from hundreds of sleep specialists.

Supporting this with the vast majority of sleep specialists stated that they were either likely or highly likely to prescribe LUMRYZ. Second, with the introduction of LUMRYZ over time oxybate usage in narcolepsy patients is expected to grow by at least 50%. This is very consistent with previous research where with the introduction of once-at-bedtime LUMRYZ sleep specialty more of their patients becoming eligible and being treated with oxybate therapy. And third, sleep specialty utilization for LUMRYZ coming from switch patients currently taking twice nightly oxybates as well as those who are unable to stay on twice nightly therapy. Further, our research suggests LUMRYZ will become the first choice oxybate for previously untreated oxybate eligible patients.

We continue to see the consistency from our market research above the impact that LUMRYZ can have in addressing the unmet need for people with narcolepsy and the significant interest from sleep specialists that can make LUMRYZ the preferred treatment in a growing oxybate narcolepsy market. Now, I’ll provide an update on our readiness efforts, as we have significantly expanded the scope of our execution against our launch plans. First, we have packaged a significant amount of commercial supply for LUMRYZ in its primary daily packets. For product fulfillment, we have completed the REMS programming and along with our patient services center, both teams have been actively ramping up their hiring and should be fully staffed in the next couple of weeks.

We’ve also signed contracts with our full specialty pharmacy network. On the payer front, our team has several key meetings with decision makers at the GPOs and PBMs that manage over 85% of the commercially insured lives. With the favorable decision in the Federal Court, this REMS patent delisting and our REMS, our LUMRYZ amendment submitted, our conversation with payers have accelerated around contracts and coverage for LUMRYZ and the feedback continues to be positive. We’ve also been focusing on building an exceptional team to support LUMRYZ. We have hired the majority of non-customer facing roles across the team and have made offers to the majority of our territory business managers or sales representatives and our field reimbursement team for them to start in the next couple of weeks.

For our sales team, we have prioritized hiring people with rare disease experience, previous sleep experience, or experience with our target prescriber base, as well as their ability to deliver in highly competitive markets. Now, of course, like the rest of our team being aligned to our core values and always putting patients first is a must. The energy and excitement from our current Avadel team and our new colleagues joining us is helpful. And our goal is to ensure everyone on our team is singularly focused on how to improve the lives of people with narcolepsy. We look forward to providing more updates on future calls. And with that, I will now turn the call over to Tom for an update on the company’s financials. Tom?

Tom McHugh: Thank you, Richard. I’ll note that full financial results are available in the press release and the 10-K and details of our recently completed financing transactions are in the 8-Ks we filed. I’ll start with comments about our recent financing announcements. I am pleased to report that we executed the financing strategy that we’ve been communicating for the past several months and accomplished two critical goals. One, secured $200 million of funding for the anticipated launch of LUMRYZ in the form of committed capital from a $75 million royalty financing and immediately available capital from $125 million equity offering. Two, we addressed the maturity of the convertible notes, which strengthen our balance sheet, and provides financial flexibility to focus on our launch priorities.

Our financing strategy consists of three major components. First, we complete an exchange of $96.2 million of the convertible notes, and importantly extended the maturity out to April 2027. This eliminates or would’ve potentially been a significant use of cash later this year and moving this debt to a long-term obligation significantly improves our balance sheet and financial flexibility. Second, we secured committed capital in the form of a $75 million royalty financing from RTW Investments. The funding will be available to Avadel in two tranches of $30 million and $45 million upon meeting certain regulatory and financial milestones, and we expect the first tranche will be available following the launch of LUMRYZ. The second tranche of $45 million is available to draw at our option upon achieving a revenue milestone should we choose to do so.

This component of our strategy provides us with the security of a future funding commitment and with favorable terms such as a royalty rate of 3.75% and lack of financial covenants. We sincerely appreciate the support of RTW and the confidence they placed in Avadel to deliver the value we believe LUMRYZ promises. Third, we completed an equity raise, which generated gross proceeds of $125 million. This component of our financing strategy provides the immediate capital needed to fund the launch of LUMRYZ. The significant support that our shareholders demonstrated through their participation in the equity offering speaks to the confidence they have in the potential value of LUMRYZ. As our previously stated, we are pleased with the results of financing strategy the state’s investors have placed in the company and their confidence in the opportunity that lies ahead for LUMRYZ.

On a final note, we reported $96.5 million of cash, cash equivalents and marketable securities as of December 31, 2022. For additional detail on our 2022 financial results, please refer to the press release issued earlier this morning or the 10-K filed yesterday. The combination of cash on hand, the maturity extension of the convertible notes and the capital we secured allowed us to file a clean 10-K with a strong balance sheet. The actions we took last year resulted in closing out 2022 with over $95 million of cash, and that in addition to the financing stretch we completed put the company in a strong financial position as we get ready for our anticipated launch of LUMRYZ. I’ll now turn the call back to Greg for closing remarks.

Greg Divis: Thank you, Tom. From where we sit today, we are operating from a position of strength across our organization. On the cusp of a pivotal moment for the company as we transition to a commercial company poised for significant growth and rapidly approach the opportunity to make a meaningful and positive impact for patients and the narcolepsy community at large. The significant milestones we have recently achieved including submitting our amendment to the LUMRYZ NDA along with executing multiple strategic financings are critical steps toward our mission, built on the foundation of a clear value proposition of LUMRYZ, which has been recognized by our key stakeholders, including patients, sleep specialists and shareholders.

With the work our team has done over the past few months from a legal, regulatory, financial and organizational readiness perspective, we are in an excellent position to take our next step to bring LUMRYZ to the narcolepsy community. We are ready to deliver on the promise of LUMRYZ to transform the market and the lives of people with narcolepsy. We thank you for your support. We look forward to providing future updates on our progress. And with that, operator, we’ll open up the call for questions.

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Q&A Session

Operator: Our first question comes from the line of Chris Howerton with Jefferies.

Chris Howerton: Great. Thank you so much for taking the questions and just wanted to offer my congratulations on all the financing and the updates. I guess, two questions from me. One would be in terms of kind of the pricing strategy that you’re expecting to use. Maybe you could give us a little more color on kind of how you’re considering pricing of LUMRYZ in this market and maybe is a little corollary there. In those discussions, do the payers have the generic twice nightly oxybate on their radar as part of that discussion? And then a second one would be just kind of, are you anticipating a bolus of launch or a bolus of patients expecting to get on LUMRYZ at launch or should this be more of a gradual thing? Great, thanks.

Greg Divis: Yes. Thanks, Chris. Richard, maybe you can start with the pricing in commentary and then €“ and certainly I can comment on the how we’re thinking about forecast.

Richard Kim: Yes, sure. Hey, thanks for the question, Chris. So, yes, as far as our pricing is concerned, I mean, our overall strategy based on the value proposition of LUMRYZ has been €“ we’re going to win with patients, win with providers and in essence, really a draw with payers really more from a parity perspective. So we’ve been very consistent in our messaging that our target price for LUMRYZ is going to be more in the parody range with the branded oxybates. And as far as the AGs are concerned, yes, we’ve definitely had a chance to speak to all the payers thus far. And I think the general feedback on the AG is it is being treated like a brand expansion. It is from what we see now, it is beginning to get coverage, but we haven’t seen any movement of force movement from a branded twice like oxybate to the AG at this stage.

So we’ve built our whole strategy knowing that the AG will be in the marketplace. So the fact that it’s here is really very much in line with our plans and so far our conversations with the payers have been really, really positive as well. So and Greg, I’ll pass the next question to you then.

Greg Divis: Yes. I think, Chris, as it relates to how we think about the early months of launch, we certainly don’t intend to guide with any specificity from that standpoint. We’ll talk more about how we think the market opportunity is and what that looks like as we get through the next number of milestones from an approval and leading into a launch. But I think at the end of the day the team has done a great job to be €“ to think through all the potential things that happen early on in kind of ordinary course of product launches from reimbursement to transition into patient services center to securing coverage and whatnot. So we’re putting in all the necessary capabilities to be able to address those things and we’re pleased with the progress we made and the feedback we’re getting both across the patient community, physician community, and payer community.

Chris Howerton: Okay. Well, that’s awesome. And again, congratulations, both.

Greg Divis: Thanks, Chris.

Operator: Our next question comes from the line of Adam Evertts with LifeSci Capital.

Adam Evertts: Great. Good morning and congrats on all of the great news this quarter as well as strengthening the balance sheet. So I just wanted to ask, make sure I’m clear on what will be in place at the time of full approval, assuming that occurs in early May. I mean, it sounds like the commercial team, including the sales force will be ready, product will be available roughly four weeks later. And then just remind me, I think Richard maybe said it on the REMS program that will also be in place by approval or certainly by launch.