Avadel Pharmaceuticals plc (AVDL) Earnings Call Transcript & Summary

Welcome back, everybody, to the next session at the SVB Leerink Healthcare Conference, I'm Marc Goodman, one of the biopharma analysts. And we're lucky enough to have Avadel join us. And we have their CEO, Greg Divis, who's been CEO for the past few years. And obviously, this is a company where -- they have one product that is at FDA and everybody is eagerly waiting for this approval or to hear what's going on. And so, Greg, I guess you got to start with that. So I'll give you some time for opening comments, but you got to tell us where we are and what's happening.

Yes. Thanks, Marc. First of all, thanks for the opportunity to be here and to update everybody on where we are today and really -- and all the exciting opportunities that we see in front of us as we continue this transformation of Avadel we've been on for the last few years here. As it relates to the NDA, there's been a number of things that we can update on, and there's been a lot of action taken over the last number of weeks. And maybe I'd just spend a few minutes catching everyone up to date on kind of where things sit at this point. And not to belabor the past too much, but I think as many are aware, who follow us, our PDUFA date was October 15. Just prior to that date, we were notified by the FDA that there were no issues in the NDA cited, but that they weren't finished with the review and they needed more time. And that time carried us through the balance of, really, Q4 of last year, where we had some questions we continue to respond to, and we worked quite a bit on, I would say, matters that are typically addressed in the later stages of an NDA review process. So as we exited 2021 and into last month and into January, we firmly believe that the substantive nature of the review was complete from our perspective. And provided earlier in January some -- what we believe some -- what we thought were final minor edits to the label as that had continued to progress from that standpoint. And at that point in time, back in January, we reached back out to the review division and to the office of orphan drugs to really seek clarity as to whether there was any additional questions pending, any other information or data needed to support a decision. And if not, can we get any clarity on timing? And although they did tell us there were no additional questions or information needed, they couldn't give us any more clarity on timing at that point in time. So at that point, we made the decision to escalate the situation to higher up within the agency, which is what we did last month. In an attempt to gain clarity and, most importantly, bring the FT218 NDA to what we hope to be a decision. And quite frankly, we were pleased with both the responsiveness of the nature of our outreach and the request we had to engage with those principals, both in the review team and above the review team, to really understand the situation at hand. And what I would say is that we've been pleased with the responsiveness, with their level of engagement. We are very confident that the FDA understands the situation we're in now and is committed to completing this review. We took the opportunity in these discussions, in this exchange, to really probe deeply into just about every opportunity or potential matter that relates to our NDA, whether it's clinical-related or CMC-related or Orphan Drug matters or whatnot to really understand what, if anything, is pending. And throughout the course of those discussions, it was made very clear to us there's no outstanding issues, there's no outstanding questions, there's nothing they need to us, but was described to us as -- what's left -- remained was described as internal and administrative in nature within the agency. And I think what's important to share with everyone is that as we've had these deep discussions, we felt as productive and responsive engagements with the agency, we did not learn anything in those discussions or those exchanges that compromises our belief in the approvability of FT218. And I'm sure everybody wants to understand what does that mean from a time line standpoint and when do we think that's going to occur. And that's clearly something we would have asked and we did ask to try to frame that out. What we can say to you is that if we thought that this was going to be months and months longer, like if that was the indication we were receiving that this was going to be a substantially additional and longer delay, we would certainly be compelled to one that contextualize that with all stakeholders and shareholders. And that's just not the case. That's not the intent we believe we understood from the FDA. We believe that they've -- the resources are shepherded to get -- continue to move this forward. And we believe they're fully committed to completing the review. And as such, we continue to move forward with all of our commercial launch preparation, the conditional hiring of the majority of our commercial team, including our sales force. We just announced we added a very experienced neurosciences Chief Medical Officer just this week. So we're very focused on getting FT218 approved. We're pleased with the responsiveness of the FDA. We believe in the approvability and look forward to sharing additional news as soon as we're able to. And with that, I'll conclude those opening remarks there and answer any questions you have, Marc, or let you guide the rest of the discussion.

Yes. I guess, First of all, when you elevated it up to higher levels at the FDA, did you hear anything different from them than you were hearing from the lower people that were day-to-day?

Well, I feel like we were able to gain some additional -- we were given an opportunity to really probe deeper into areas and ask very specific questions in a forum that allowed us to gain what we thought was some additional perspective and insight. But what I would say is that there is a clear understanding of the challenges that the delay has created for us, and that there was a certain, from our perspective, a commitment to wanting to get this completed, and that there were certainly no indications of any issues or concerns or anything needed from us to help them to complete those -- to complete their work.

So just to be clear, because you mentioned a few of these but I still want to kind of go through it, you asked if there were any clinical matters left and they specifically said no.

No, not at this moment. No.

You said are there any CMC sections and they said no.

Correct.

Right. And everything obviously is at this moment. Obviously, anything can change. But I mean, like I'm just -- okay. You said are there any safety issues and they said, no. Okay. So those are kind of the 3 biggies, right? For now, we would move on to -- you mentioned Orphan, so did you specifically say is there any reason to believe that we're being blocked by Orphan or something like that? Did they say no, you're not? Or did they respond to you on that or Orphan issue?

Yes. We asked a few different questions in this regard, and without getting into the specifics in that regard, it was made clear to us that there isn't any questions pending or any information needed to help them continue to move forward with the review at large or finish it. And then again, what was described to us as to what's remaining was described as internal and administrative. So that...

Wait, but I don't know whether orphan designation blocked me, is that administrative? Like I don't know if that falls into that or -- because one of the things that investors have been kind of bringing up is, oh, they're probably fine except for one big problem. They're going to be blocked by Orphan Drug, like maybe that's it. Maybe that's the problem.

No, we didn't learn anything, Marc, in this conversation, that question -- that made us question the -- our belief in the approvability of FT218, many of those matters, period.

Right. It came up. It came up and they didn't give you any reason to believe that there's going to be an issue there. Okay. Then what about...

No, [ in our view, it's correct ].

Yes. And then what about the whole idea of having to certify against any of the patents. I mean I want to talk about the whole litigation process in a second, but did that come up in the conversation and FDA said, no, no, that's not an issue here? Or where are we there?

Yes. Again, we probed in all the different areas, and I'll just stick with the kind of our blanket statement that we didn't learn anything that makes us question our regulatory filing strategy or our belief in the approvability of FT218 through all of this interaction at this stage. And again, was described to us that there's -- this final remaining item was described as much more administrative and internal. I don't want to speak for them. I can tell you how we interpreted the discussion, and we don't believe there's anything that questions our belief in the approvability. We've always said that if we learned something that would question that belief, we would disclose it. And what I'm telling you is we didn't learn anything that will require that disclosure.

And just to give everyone a sense of the last time that you had some type of substantive interaction that you're basing your previous comments on, was this a week ago? Was this 3 weeks ago? Just a month ago?

Yes, I would certainly say it's certainly after the turn of the calendar year and probably fair to characterize it within the last 30 days or less.

Okay. Fair enough. So this is very recent. And your conclusion from that conversation, which we'll just say it was a month ago, whatever, just probably let's say, was, "Okay, team," internally at your firm, "We need to be thinking that this could get approved soon in the next month or so," right? I mean that's kind of how you -- that's your takeaway, although you don't really know.

Yes. Until we have a piece of paper, we don't have a decision, right, from that standpoint. But nothing has stopped us from continuing to -- we've always been very disciplined in our launch readiness work in terms of when we pull the trigger on what relative to the work that has to be done and the expansion of the organization that needs to be complete with some of that triggered around the final approval from that standpoint. But all of that has continued to go forward from our standpoint.

Yes. Could you just go through that a little bit, Greg? Where were you at the end of the year with respect to your commercialization infrastructure? And what changed over the past month? And what are we still waiting on for the final approval? Just so we understand the different kind of ways this will...

Yes, I think the best way to simply characterize it is, when you think about major work streams in terms of launch readiness and being ready to launch, whether it's your medical communications and the externalization of our data, that's been going on for the better part of 15 or 18 months and continue -- we'll have more data generated and presented at World Sleep coming up in March. You've got your -- all of your commercial kind of leadership and operational roles have been in place leading the execution of respective functions, whether that's marketing, sales operations, sales force size and structure, market access, payers, hub and patient services, REMS build, those REMS partnerships and those sorts of things. All of that has continued, including the necessary internal teams to be able to manage that. The biggest piece -- and that includes engaging with payers, with our market access team and whatnot. The biggest piece that I'll just characterize as conditional, so to speak, is really the deployment of a larger cohort of our customer-facing roles, predominantly our sales force. That's where the biggest group of new colleagues join us. And we've done a lot of work leading into the end of last year and has continued through the first 1.5 months of this year, which is a lot of interviewing, identifying candidates, making offers to them that are conditional to the final approval, but being able to find the right candidate, making a commitment to them and getting their agreement to join us upon an approval from that standpoint has also progressed. So through the balance of the end of last year, we were probably at around 50% to 55% of our sales force hired in that regard. Now we're upwards of 80% of that, at least conditionally hired. And then as those folks come on board and some additional kind of field-based customer-facing roles, we'll obviously begin to add some additional internal folks to help kind of manage the onboarding of those additional head count. But that's the biggest piece at this point that -- where we sit today.

And Greg, just to be clear, everything that you just mentioned, we're at 55% at year-end, we're 80% recently, those are conditional for the reps, though. It's still all conditional. You just you found people that you want to hire, you made them offers. As soon as we get approved, you've got a full offer. And how many...

Yes. [ They're adamant ] they'd find it. They've committed to us and there's...

Just give us a little more sense of how many reps are you thinking of doing?

Right now, the target is 50, to start with 50 reps to launch with. And that really gives us a footprint to cover the 4,000 positions that make up 100% of the oxybate business. And I know we'll talk commercial here in a little bit, but very concentrated marketplace and we believe that, that gets us there.

And just so we're clear, the other parts of the infrastructure that have actually been hired, how many people have actually been hired just in total? I mean 10, 20, 30 or...

Well -- yes, the best way for me to describe it is a year ago, we had -- a little less than a year ago, we had 25 to 30 people in the organization. Now we're at 66 or 67. The near majority of those are all commercially related.

Yes, yes, yes. That's close enough. We're just trying to...

Yes.

Terrific. Okay. So talk a little bit about what you're seeing in the oxybate market for a second. Just broadly, right, I mean, what is Jazz doing? What are you seeing them do well? What are you seeing as opportunities that are more or less for you? Has anything changed in your view of the message? Just in general, what's going on.

Yes. I think as we went through all of 2021 and as we enter this year on the back of doing extensive research and landscape assessment and understanding what's important to clinicians, what's important to patients, how does the dynamic narcolepsy market that was really static for nearly 20 years, that's had a bit of turn now with some new product entrants, including the mixed-salt formulation, I think the headline statement I would make is that the opportunity for us, in our view, only continues to get bigger. And in many ways, I think to a certain extent, it's either not appreciated or fully understood. Because the one thing we've learned, we've been talking to hundreds and hundreds of patients and hundreds of hundreds of physicians, is that the most important attribute of any oxybate therapy is once nightly dosing. If they can get the same clinical benefit and eliminate the middle of the night dosing and all the consequences or complications associated therein, it's highly, highly attractive to them. So that doesn't matter if they're on a mixed-salt product, an original product, an AG in the future, it's still twice nightly. So those 16,000 patients are opportunities to -- for once at bedtime FT218 should it be approved. But what we've learned additionally to that is that the actual market for us isn't just those 16,000. We've identified thousands of potential patients who have previously been on twice nightly and discontinued, right, for reasons some of which are dosing related, some of which are adversely [ net ] related, both of which perhaps we can help improve their treatment experience in that regard. We've also uncovered an equally as large patient population of patients who have said no to the oxybates, who have decided not to go on it for a variety of reasons, some of which are dose-related. So when you think about that and you think about 16,000 patients is a $1.8 billion market in today's pricing, and you increase that by a magnitude of previously treated and untreated, that potentially could be market expansion opportunities almost exclusively to our benefit, we get more excited about the opportunity to help a lot of patients with a molecule that's been relatively flat in terms of patient growth generally over the last 5 years. And an opportunity to bring more patients in, while also benefit patients who are looking to improve their -- potentially improve their treatment experience like many we have heard from who switched from the twice-nightly in our switch study and have gone on to once at bedtime FT218 and have reported back to us anecdotally just how good they feel being able to sleep through the night or how their day is different because they can do things differently now. But at the end of the day, I think the message we've learned is we haven't gotten any less bullish, we've only gotten more bullish on the market. We believe it's a multibillion dollar opportunity for us. And at a price point in the marketplace today that -- and I'm not saying this is what our price will be, but every 1,000 patients produces $100 million roughly probably free cash flow for a $370 million market cap company. You don't need a lot of share to create a very meaningful opportunity. And most importantly, in addition to that, we've got a treatment that patients really want. They're really excited about it. And a day -- almost the day doesn't go by that we don't hear from one who asks when are you get approved? When are you coming in the market? We're so interested in what this could potentially do for them.

And one of the questions that we always get is, well, once these patients switch from Xyrem to Xywav, what's the likelihood that they're going to want to switch back to a high sodium? Even though it's once versus the twice nightly, like will they do that? And so what's your view?

Well, we've done a lot of patient segmentation work in this regard. A lot of research to understand motivations for switch from that standpoint. And in our view, this patient population who are moving from the original to the mixed-salt product, are they moving because they think it's going to improve their treatment experience? Are they moving because they have cardiovascular risk? Clearly, the data doesn't support -- the other company's own data doesn't support an increase in cardiovascular risk as late as relates to sodium intake. From our standpoint and our research with these patients, we believe that these patients are actually a very typical narcolepsy patient in a world of polypharmacy, in the therapeutic area of polypharmacy, are actually -- although they feel better on therapy are actually in search of trying to improve their treatment experience. We're not convinced that keeping it twice nightly is necessarily has the potential to improve their treatment experience from a narcolepsy standpoint. And therefore, our research would tell us that patients who have switched to the mixed-salt product are every bit as potential candidates to switch to once nightly FT218. And the fact of the matter is we've seen it happen in our switch study already.

Right. And what are your thoughts about the idiopathic hypersomnia indication? Or does that do anything for what you're working on?

Well, that gets you to the question of kind of what's next and where else do we go beyond narcolepsy and the opportunity to really fulfill the promise of a once at bedtime oxybate treatment that all patients who have -- who could benefit from that treatment should have the opportunity to benefit from it. Idiopathic hypersomnia, we've talked -- we've done a bit of research in this area to understand that opportunity. We've talked to a lot of KOLs who firmly believe a true once-nightly treatment could be really significant for IH patients because it really will give them the full night's benefit of how the dose -- of how our treatment works. So the short answer is yes, it's an interesting opportunity for us. It's something that's clearly on our radar screen. We -- I go back to a number of years ago where the company got itself sideways a bit because it was trying to do too much. We've been very focused on 218 and narcolepsy. There's a tremendous opportunity here and the opportunity in and of itself, IH just bolters even -- bolsters even more of that to benefit even more patients from that standpoint. And as we go forward and advance our life cycle management strategy, which goes beyond other indications, it talks -- it also includes work we've started already on alternate formulations and our own version to bring treatment options to other patient populations who could benefit from a once-nightly treatment as well, all of that bodes well for what the future could look like beyond FT218 in a very large valuable market for a patient population who for 20 years has -- whose conditions have been hallmarked by disturbed nocturnal sleep, have been forced to wake up in the middle of the night. And we're proud of the fact that we're the first to really create an innovation that takes that issue away.

So conclusion there, IH is a real market. You believe in it. It's certainly worthy of our time to get an additional indication. But at this point, we certainly would love to get approved for this product. Now we're going to have a nice cash flow, then we can spend our money on other areas. Is that kind of a fair way of saying what you're saying?

Yes. I think we've got to stay -- we've got to do the planning that we've done already. We've begun to do our -- have gone quite a bit on in terms of what the what's next looks like. We've done some work already in certain areas of our life cycle management, in particular on the formulation side, we've done some work in that regard that continues to progress. But I -- and we're excited about what that could mean for patients, for sure, from that standpoint. But we do -- it's important for us to not lose focus on the approval and the execution of the launch. That's the catalyst and the value creation in the near term that allows us to fuel the midterm and the long term.

And just so we understand, what's the purpose of a new formulation? What kind of goals would you be trying to achieve there?

Well, I mean, the obvious one is something that works with the sodium content for those patients who truly have a cardiovascular risk situation and need to modify their treatment or can't go on treatment at all. We've done a lot of market research in understanding the untreated patient population in this category, and we have uncovered a cohort of patients who are on the sideline because of true cardiovascular risk or renal risk or whatnot. And again, whether it's those patients or any other patient who would like to try to move to it, we believe we've got the technology and the capability to deliver that in a once-nightly formulation, and we think that's meaningful as well for sure.

Yes, yes. Okay. That makes sense. Talk a little bit about litigation. Just give us a sense of where we are. I know that there's been a lot of back and forth, and then it just kind of went away in our minds. But just help us understand the progression here. Where are we?

Yes. It hasn't gone away in our minds, and it's a cost of doing business in our industry that these sorts of things are going to come up for sure. The court has laid out their schedule for the underlying patent case, right? There is a time line for the trial to be heard, which is at the end of October of 2023. There's a series of schedule, if you will, hearings that will occur up until that point in time that will all be part of that overarching process. So I would say it's on its path, the underlying trial is on its path at this stage, and we'll continue to advance as we go forward and adhere to the court schedule accordingly. We're very proud of the fact that we're the first company to really deliver a clinically proven extended release GHB formulation that can be taken once at bedtime, right? And we're going to defend it. We've protected it extensively. And we're going to aggressively defend it, as you can expect we will. And although this litigation is something we have to deal with, we don't see it as a barrier should we get approved to be able to come to market and, most importantly, to help the patients who are looking for a once-nightly oxybate treatment.

Well, can you just expand a little bit? Like what are you hearing about this case? I mean what are the lawyers saying? Like I don't understand like where we are, like what's next? We're going to have hearings on what and...

Yes. Well, in the underlying case, in the underlying trial, the next set of hearings, I believe, is the claim construction hearing in August. The question would be, post an approval, is there a preliminary injunction filed? There hasn't been one filed yet. There was a window to file one in November, but it wasn't -- there was no approval, so there wasn't one filed. If there is an approval, there could potentially be a PI hearing in between approval and our launch, the court is already...

How soon after -- Greg, how soon after an approval do you expect -- I mean, the PI will come very quickly, right? So -- and then let's just presume for a second that maybe you are blocked, right? The PI judge says, "You know what, we're going to deal with this very quickly." How quickly will the judge deal with this? Is this a matter of weeks? Or are we going to have to wait longer?

Are you -- I just want to make sure I understand your question, Marc, are you asking when do we think the timing of the PI will be?

Yes, well, I'm assuming that the Jazz would file as soon as the approval comes, right? They'll file that night.

Okay. And then when the...

And then what?

Yes. So again, I think the best analog we have at this stage, pending the court schedule availability, is what we know about the PI, is the judge has -- the court has limited the basis of the PI to one claim from one patent, right? You get one claim from one patent they can assert, and we get on invalidity defense and our non-infringement defense, right? So it's a very narrowed-scope PI, right? So if you look at the way the court had scheduled it previously in advance of our October 15 PDUFA date, the court had said that within -- basically within 5 weeks or so that they were going to hear that PI such that it didn't drag on and create issues down the road or games are played to delay it, right? From that standpoint, we have no reason to believe that, pending the court schedule, that it's not going to be acted on relatively soon. We certainly have every incentive to want it, have it be acted on. But we also believe that it will be heard and dealt with in the window of the time for which we're building our REMS program and finishing all the rest of our commercial prep work, such that we don't believe, again, it will be a barrier to us coming to market.

Right. Okay. So that make sense. Five -- you're kind of assuming PI is filed. Hopefully, you hear this within 5 weeks, we win and we can launch the next day, so to speak, kind of thing. The judge should rule pretty quickly, I would think, right?

Yes. I don't want to speculate on that, but...

They usually do.

It's one claim from one patent.

Yes, they usually move pretty quickly on that. And so I guess the next thing is, okay, so we have -- we've been through that. You've hired your reps with the approval, you're obviously waiting around for the PI to be resolved. If there is one, we all presume that Jazz will probably try to delay this a little bit. You launch. Then you will have the salespeople that you mentioned. So you've got that planned. Then that would all of a sudden trigger a much, I guess, stronger confidence in the cash flows that are going to be coming. And then you could start to work on these formulations that you were mentioning, a low-salt formulation a little bit more. You can start to work on idiopathic hypersomnia as an additional indication. And in addition, and stop me if I'm wrong, where do you see another product, a second product coming in?

Yes. I think if you think about the 3 legs of the stool of our kind of what's next strategy, you've got the life cycle management, which work has begun, let me be clear, whether that's planning to figure out what we want to do next or an actual work being done on formulation work to begin to look at ways to apply our technology and our innovation to serve that patient population. Like that work has already begun from that standpoint. So the bigger aspects of that would actually occur down the road for sure. But I want to be clear, like we're not waiting for that to happen. And bringing Doug Williamson as our CMO is going to be a key contributor to kind of our what's next strategy. A second leg of the stool, as you noticed, really how do you leverage the infrastructure that we have as an organization, and that could be business development. There's other companies in the narcolepsy space, but they all have another narcolepsy drug with a different mechanism of action than oxybate. We don't, right? Those who have products in development, that's a different mechanism of action could be potential partners if those sort of assets can mature. And then the third leg of the stool is really how do we apply our technology to other molecules and find the next FT218. I think that likely takes us out of sleep, so it becomes less synergistic. But nonetheless, it is a capability we have and what -- we've built a team that has a distinct skill set to be able to evaluate those opportunities and see where we go next. But make no mistake about it, most importantly, is the approval and the execution of the launch.

Yes. One of the questions that I got, which I guess I didn't really ask before, but I guess you kind of alluded to it, is have you officially started labeling negotiations? Do you feel like you're well into them? Do you feel like you've concluded them? Usually, everybody kind of feels like that's the last thing and then you're done.

Well, to answer that question, we did that before PDUFA started. So before PDUFA. So yes, we had -- that had initially started already prior to PDUFA. And so again, is it finished? We think the review is finished. It's never finished until you get your piece of paper, right? So...

Thank you. Well, we're out of time. We appreciate you joining us. Thank you. Good luck. I mean we're all kind of wondering where is it. I know you are, too. So I guess it could happen tomorrow, right? I mean, you know.

Appreciate the opportunity to be here. Thanks, Marc.

Thanks, Greg. Take care.