Avadel Pharmaceuticals plc (AVDL) Earnings Call Transcript & Summary

Welcome to the H.C. Wainwright 2021 BioConnect Conference. My name is Oren Livnat, the spec pharma analyst here at H.C. Wainwright. It's my pleasure to welcome our presenter, Avadel. And with us today is CEO, Greg Divis. Welcome, Greg.

Thank you, Oren, a pleasure to be here, appreciate the opportunity.

No problem.

So we spoke a few months ago, and did one of these fireside chats. And since then, you guys have come through and filed the on-time the NDA for FT218, your once-nightly sodium oxybate for narcolepsy, which for those who don't know, is essentially a new and improved version of Jazz Pharma's $1.8 billion, twice-nightly Xyrem product, right? So now we're in the countdown to a potential approval this year. So big year for you.

Definitely.

So before we get into the data and the product profile and the commercial prospects of this product, I'd love to get out of the way with what I think as maybe our least favored topic, but I continually hear from investors that the only thing really holding them back, and I think what's reflected in your maybe $300 million market enterprise value, which is very modest compared to the opportunity near term is that there's concerns about potential delays of your approval because potentially the need to certify against Xyrem Orange Book-listed patents and subsequent litigation. So can you confirm, first of all, one, does your NDA not have any certifications? And why do you believe that you don't need to certify any of those patents?

Yes. So thanks, Oren. I think, first of all, I wouldn't say it's my least favorite topic, although it is the most discussed topic, as you noted. So just to confirm and to answer your question explicitly, our NDA does not include a Paragraph IV certification against any Orange Book-listed patent. As our REMS approach and our data package really allows us to, if you will, carve around those patents, right? And again, the reason for that is, as a different drug product, although the same drug substance, and as an NDA, we really have the freedom to craft our label in such a manner that is really supported by our data and the data we've generated. So that's the approach we've taken, and that's what we've shared with the FDA already, and it's really why we continue to believe our NDA strategy avoids the need for a Paragraph IV certification.

Okay. So I've been convinced. And -- but what I tell investors is, look, I don't think, and I could be wrong here, that you're going to have to necessarily wait too long to at least start to get some confidence on this front because it's my understanding, while you guys are making no promises clearly, and I think you've been pretty clear that you're not going to tell us one way or another until this stuff is approved. But my impression is, by this day 74 letter from the FDA, which should come by the beginning of March that if we don't hear anything, then our NDA is accepted. In my mind, that's a major tip, that perhaps you're good to go, and you're not going to need to certify do you agree with that?

Well, I think from our perspective, there's a lot of discussions we've had on this topic, in particular, right? And as we like to think about it as it relates to this matter, we like to say no news is good news. And we say that because this is part of a review process, and it's uncommon from our experience that during that review process, the agency will ever give us some official confirmation on just a portion of the NDA. So we believe from our experience is that the agency asks questions until they're satisfied, then they move on to the next subject or the next set of questions on the next topic. So what we expect to receive in writing is a final decision. So from our viewpoint, although we don't anticipate to say anything publicly to be affirmative in that regard until the agency actually does. Now to your point about whether or not day 60, day 74 letter means that we've successfully carved out from the patent certification, that may very well be correct, and there are people who speculate that, that is the case. From our perspective, given the fact that we generated data to support our carve-out strategy, and given the fact that the first 60-day review period is really a review of completeness and not one of substance, we tend to believe the substantive review, which occurs after day 60 or the day 74 letter is when we'll really get to the meat of this matter with the agency. So although I think it is still important to say that even if it is arbitrated at day 60, from our perspective, we'll only speak to this publicly if, for some reason, the agency goes contrary to our strategy. Because if we are notified that we do have to certify, we then will certainly immediately notify the investor community. So I think in short, the longer it goes without us saying anything, it goes back to the old adage, in this case, perhaps, no news is good news.

Okay. And then just so I'm clear, we can speculate as to whether Jazz would file as its [ petitioner ], what they would try to slow you down, But they have no access to anything in your NDA, right? Whatever your strategy is with regards to carving out the label, they can't say, hey, FDA what did Avadel put in their NDAs to give them some arguments to make, correct?

Yes. I think, first and foremost, we see no reason why any part of it would want to challenge or have a basis to challenge FT218 regulatory, legal-wise or block this important treatment option for patients. But secondly, to answer your question, you're correct. No third parties will be allowed to obtain any of this information from the FDA regarding our pending NDA or anyone else's for that matter.

Okay. And while this is under review, normal course of investment that you would make in building out the infrastructure, pre-commercial activities, is it safe to assume that you're not going to let any potential uncertainty or even perceived uncertainty by the Street on this topic affects your ramp-up?

No. The short answer to that is no, quite frankly. Our plan is very disciplined. It's time-based, based upon key work streams and key milestones that we need to deliver against, and it certainly accelerates and increases over the planning period as we get closer and closer to a PDUFA and an approval. So we'll continue to operate that full speed ahead with our overall objective to get FT218 approved and available to patients and in the marketplace as soon as possible.

All right. So let's go onto the good stuff, which is -- let's assume come October, you're getting a final approval for this product. I mean, just first of all, how long do you think it would take to launch this product? Is there -- obviously, REMS is an important part of this market. How ready do you think you're ready to -- when could you hit the ground running after an approval?

Yes. Again, from our perspective, we have every incentive to launch as quickly as we can, right, from that perspective. There's no reason to think that there's any incentive for us to do anything other than that. So there are certain things we'll have to do post approval. We'll need a final label to finalize our REMS and the completion of that to finalize our secondary packaging and whatnot. So that will take a little bit of time. And again, I don't envision us likely launching a product during the holiday weeks at the end of 2021. So again, I think from our perspective, we haven't boxed in a time frame publicly at this stage, but rest assured for all of our investors that we have every incentive and motivation to do it right and do it fast.

Okay. So let's talk about that launch and the prospects of this product, which I'm sure is what you really like talking about. So what was your latest market research telling you about the profile of the product? I mean, you've now had the data out there for a while. There's Xywav, which is the low-sodium version still twice nightly. Xyrem sort of launching as a switch campaign into the market as we speak. And so I'm just curious, what are you hearing regarding where your data stacks up, where your product profile stacks up? And what that means for new patients, de novo patients, failures on Xyrem and even switches to current users of Xyrem?

Yes, there's a lot to unpack there. So...

Hard question.

Right. So we've done, as you can imagine, as our product profile has become fairly precise. We've done a lot of market research and a lot of commercial assessment, not just about our product profile on its own but our product profile vis-à-vis other formulations of sodium oxybate. These are the other new treatments pending or in the marketplace today. So we've talked to not 1 KOL or 2 KOLs, which we talked to. We've talked to hundreds of physicians, hundreds of patients, a lot of caregivers, spouses, partners, nurses from offices and all the major health insurers, for sure. And I think the findings tell us a number of things. So the first is that this therapeutic category is certainly on the brink of a lot of positive disruption, right? What's been nearly 2 decades of a single product for a chronic condition now certainly is generating more treatment options coming to market, which drives more patients, which is -- and patients are clearly looking for new that innovative solutions like once-nightly FT218. But to get to your question specifically about FT218 in its product profile vis-à-vis other formulations or other competitors. When you talk to physicians, and again, we talked to over 200 of them, it's clear from us, when they look at our product profile, their level of interest is very, very high. And the feedback to us is that 1 site of FT218 has the potential to really be the preferred sodium oxybate formulation in the marketplace, whether that's compared to brand generics, mixed salts or otherwise. The benefits of once-nightly as it relates to our total product profile certainly is very interesting to physicians. Furthermore, when you take that to patients, I think we hear the same thing. When you ask patients even on an unaided basis, what's the most important attribute of sodium oxybate that you would look for you -- in your treatment, once-nightly, far and away, trumps every other reported potential attribute, right, including mixed salts or alternate salts or whatever. So when you take that and then translate that to what does that mean for patients as we segmented patients from currently treated patients who could be switched to previously treated patients who discontinued to market expansion de novo patients, I think the opportunity exists in all of those, clearly, currently treated patients are, if you will, the easiest identifiable for us relative to the current prescribing and treating of those patients. Although I think over time, as we've done this research, we've seen an opportunity emerge that could create new patients and a market expansion opportunity that ultimately, as we reach kind of peak penetration to really represent the largest segment of our business in the future.

Okay. So it sounds like there's a few buckets there. And I guess you don't need any one or all of them to be successful, specifically. It's interesting, though, because it's a pretty concentrated market, right? So you're clearly already talking to physicians who are -- who understand this market really well. So it's about 15,000, 16,000 patients on Xyrem right now. I think you've talked about upwards of 50% in the past failures, right? So there's a lot of past user failures. But what about pent-up demand? When you talk to doctors, do they say, look, I've got 10 patients that absolutely, I think, are good candidates, but I just know they're not going to be compliant with that middle-of-the-night dose or they try it and then it was too much of a hassle. So I mean, do you think there's already a warehouse population for this product right out the gate?

Yes. I don't know if I'd call warehouse per se in terms of how we would describe it. But nonetheless, I think all of our insights very recently as we completed this large commercial assessment and market assessment towards the kind of Q4 of last year of 2020, we've learned quite a bit, right? So when talking to current treaters -- and you're right, it's highly concentrated. There's 1,600 physicians that make up 80% of this marketplace. They're well familiar with the molecule. They're used to all the nuances around the molecule and are excited about the prospects of FT218. But what they told us is that for every 10 patients that walk in the door, who they would deem as the sodium oxybate eligible patient, and most of them have gone through myriad of other sorts of treatments before they put them on sodium oxybate. They'll tell you that 4 out of those 10, they're treating today, 6 out of the 10, they're not, and they're not for a handful of reasons. The most prominent reason really relates to dosing compliance and the middle-of-the-night dosing challenges where they believe -- or that patient has reported that they're not going to be able to tolerate that sort of dosing regimen or schedule. There's other reasons that show up as well. Some of those are insurance-related. Some of those are comorbidity-related conditions, right, from that standpoint. But I think when you try to put a finer point on that, if 15,000-or-so patients a year represent 4 out of 10, there's more patients not being treated than there are and whatever the size of that market expansion pool is, it's a highly valuable potential market expansion opportunity for us that we think can be meaningfully beneficial to patients, but create significant value for our shareholders.

Okay. And I guess to stick on the switching topic, an angle I don't really hear too much, and I don't know how much you can talk about it, but you are doing an ongoing like a long-term safety extension of your prior Phase III. But it also, I believe, includes new patients into the pool that were even prior or current stable twice-nightly Xyrem users. So you are essentially already recruiting patients who, in my mind, are potential FT218 patients as soon as this product is approved. Am I reading that the right way?

Yes.

And are you having success recruiting current stable Xyrem patients into that setting?

Yes. So when you -- this is what we call the RESTORE study. It started as an open-label extension, really as an opportunity to provide previously REST-ON patients the chance to stay on therapy. But it really is designed as we started that to really not only give us longer-term use data, but we saw patients who had switched to the twice-nightly product, and then that created the opportunity for us to open it up to any stable twice-nightly patient who's within the centers where we're doing the research to potentially participate in the study as well. So what we have seen to date is most of the patients, nearly all of them, the major majority of them are patients who are switches. Their switches from they were on our study. They went to it twice-nightly and they're now switching back or some are just de novo switches, who are coming in and want an opportunity to experience a once-nightly product. So we expect this no trial, if you will, to continue to enroll all the way through to an approval until we launch, for sure. And the data we expect to get out of it really is designed to help really inform the clinical community, in particular, around what does long-term use of FT218 look like? What does the titration scheme for switches look like? And what dose are patients being stabilized on once-nightly versus the dose they were stabilized on the twice-nightly, and there'll also be some patient-reported information, preference data and whatnot. So we think it's really good information to help inform the community in terms of FT218, in particular, on the switch side, but I think it's important to note 2 things. One is that none of this data is required for our NDA. So -- and although the FDA has helped us to find the output of the study, it's not required for the NDA whatsoever. And I think secondly is that by the time we launch, we would expect to have 250 patients in the study as kind of where we start relative to our commercial launch.

Yes. I think people don't think about that in this space. I mean you see that a lot in oncology with the sort of capacity use programs. You get an approval, you flip a switch and there's revenue on day 1 essentially. And I know you're not going to make any promises on that front, but I think that might be an underappreciated aspect of this program.

Clinically, it's an important work for us to do to generate that data, and we're excited to keep executing it. And we're still in ramp-up mode for sure, but we're adding more sites and clearly navigating the pandemic. But all of that, I think both -- all the information we're seeing to date, certainly, we're excited about and interested to keep going all the way through launch.

And to be clear, this is not an approvability issue, right? We don't need any data regarding titration switching for a label for this approval, correct?

That's correct. The only obligation we have with regards to the agency in that regard is just periodic safety updates as it relates to this ongoing open-label extension study.

Okay. Okay. When you launch this product, whether it's the end of this year or in this time next year, how big a commercial infrastructure? You mentioned it's a really concentrated market. Of course, yes, Jazz has spent hundreds and hundreds of millions of dollars developing this space. But given that now, the market is very well aware of the molecule, how big an infrastructure do you need to take your slice, whether it's through market growth or switching some patients?

I think first and foremost, we certainly believe that our focus initially coming out of the box needs to be where the molecule is well established. The patient population is well understood and well entrenched. Either of those that are on treatment, those have previously been treated or those that are -- have declined to go on treatment. And that really centers around what we would describe as under 4,000 physicians that we think represent about 90% of that market opportunity. And then so when you start doing the math and say to yourself, how many reps does it take to surround that business, right? It becomes a fairly efficient call point and a fairly efficient footprint relatively speaking, right, because we're not looking to try to build new treaters or expand the treater base. We really want to establish FT218 as the preferred sodium oxybate in the current treater's mind and within their practices today. So that could be 50 to 60 reps. I think we're not -- we haven't finalized that number yet. There's certainly pandemic-related considerations in terms of being able to be fairly precise with this small number of targets. That allows us to really understand how they want to be engaged by industry, and then determining is that virtual? Is it in person? Is it a combination of the 2? And how does that impact our total footprint? But from today, I would expect, when you think about adding medical affairs, adding national accounts, adding some marketing resources and the sales force that we've just described, you're probably in the neighborhood of 70 to 80 people in total that we'll bring on to the company either as full-time employees or consultants or contractors to help really support the commercialization.

All right. How do you build awareness? I mean, maybe you don't need to because, again, it's a concentrated market. And then it sounds like dosing is a top of mind with a lot of these physicians already. But how do you build awareness before you actually launch it and overall and already just be waiting for this stuff when it's approved?

Yes. It's really important, right? I mean, building awareness as a company who's new to the space is very important and really externalizing our data is really important for us. So we've got a lot of work to do in that regard. And we've begun that effort. We -- in December, we hired a new Head of Medical and Clinical affairs. Dr. Jen Gudeman, who's already making an impact. But really, it's an important aspect for us. But I think really what's encouraging to us is that despite having really only begun that sort of awareness and scientific planning and communication that we started now, all of the feedback from physicians is very, very favorable. So from our perspective, as we improve awareness, we believe the opportunity for 218 can only get better in that regard. So it is important, and it's a critical work stream for us in 2021, and you'll see that manifest itself in publication of data during the first half of this year at key congresses, and then, of course, manuscripts and peer-reviewed journals in the back half of the year.

All right. And obviously, another big piece of the puzzle is managed care, of course. I mean this is not -- it's an orphan space, so maybe it's not as difficult as some other crowded areas. But in your initial conversations, which I assume many more to come in the next 10 months, are you hearing anything about the competition, any pushback maybe with some authorized generics, and we'll touch on that again in a minute, coming in a couple of years for Xyrem or the low-sodium product that's just launched. Do any of those present hurdles for you to get coverage?

Well, I think from our perspective, we've done the initial work that people would expect us to be doing to introduce the company, to introduce the product. Now that we're filed -- we're not -- we've had our data readout. We filed with the NDA. I think when you think about payers in general, they prefer more competition is better than less competition. I think they're generally pleased to see another one coming to the marketplace. And we certainly, as a small company who's new to the space, aren't having any challenge is getting meetings, right, from that standpoint. So granted they're all virtual these days. But nonetheless, the interest to want to hear about our product and to initiate the discussions with us, I think those indications are very favorable for us, and we're excited to continue to proceed that as we go forward.

Okay. And since -- I did mention these authorized generics. And for those of you know, in 2023, we're expecting some limited, maybe volume-constrained entry of generics, authorized generics in the legacy Xyrem, right? I don't think anyone knows what the market is going to look like even just 2 years out because of your launch and Xyrem launching -- as Jazz launching a low-sodium version. But assuming they come and you've got a legacy authorized generics, a low-sodium products in the market. What does that mean for your opportunity to get market share beyond your first year launch ahead of that? Do you think that's going to slow you down?

Well, I think from a go-to-market strategy perspective, at the end of the day, it's still all twice-nightly administered treatment. So our market assessment that we've recently completed with these physicians and patients and whatnot contemplates generics, it contemplates mixed salts, it contemplates other formulations. And we're still faring very well relative to the view of our product. I think on top of that, probably the most important consideration around the AG is what impact do we think that will have around market access-related challenges and will their pricing or the fact that it's an AG, be a barrier to access or require an additional step for us, right, from that perspective. I think, first, in that regard, we've done a lot of research with payers from that standpoint. And I think when the innovator product describes keeping the majority of the margin of the AG, the current expectation is that at kind of worth the AG pricing is likely going to be kind of typical in AG nature. And if that's the case, per our discussions with payers, likely to be treated as an extension to the brand, likely to have the same kind of similar access and restriction coverage policies as well as utilization management tools. So from our viewpoint, as we think about the AG today, we don't view it materially impacting our ability to launch, our ability to gain share and/or expand the treated patient population.

Right. I guess if you're dealing with already patients, many of whom will have been whether failures or otherwise is satisfied with the twice-nightly. I guess, it doesn't matter if it's the brand twice-nightly or the generic twice-nightly, right?

Correct.

Okay. I mean, we're basically out of time. I mean I could go all day on this market. You never did tell us what your market research said to your peak market share would be. Did I miss that?

You did. But listen, as a company with -- as you noted, with a disconnect in value, it doesn't take a lot of percentage of market share at kind of the value of the market today to create a very meaningful product opportunity for patients and for our shareholders with gross margins plus 90%. So we're very bullish about the opportunity and what it can mean for patients and what it can mean for our shareholders, and we're excited to get through this next kind of stage of the climb, and we're going to continue to execute like we have for the last 2 years.

All right. Well, I think that is our time. Greg, I appreciate you spending it with us. Hopefully, this time next year, we're having a really exciting launch conversation.

Thanks, Oren. Appreciate the opportunity.

All right. Take care.

You, too. Bye-bye.