Avadel Pharmaceuticals plc (AVDL) Earnings Call Transcript & Summary

Hello, everybody. My name is Ash Verma, I'm with SMID Cap Biotech and Spec Pharma Analyst at UBS. And our next company here at UBS CNS Day is Avadel. And with me today, we have Greg Divis, our CEO; Richard Kim, our Chief Commercial Officer; and Tom McHugh, Chief Financial Officer. Guys, how are you doing?

Doing great. Thanks, Ash. Thanks for having us.

Excellent. Yes, thanks for taking the time. So this is a fireside chat, and I want to take like 20 minutes of Q&A and open it up for investors to ask some questions at the end. So that's the format.

Maybe, Greg, I think it might be helpful to just give a high-level overview of the company, LUMRYZ, just like spend a minute and sort of provide some context and then we can dive into the questions.

That's great again. We really appreciate the opportunity, Ash, to be here. It's a fairly open-ended question. So there's a lot we can cover, but I'll try to be efficient. The company has really been through quite a bit over the last 5 years, previously a generic injectable company, a pediatric company, but we've really transformed ourselves into a really high-growth biopharmaceutical company really at the -- just on the starting line, if you will, with the launch of LUMRYZ. And for those who aren't aware, LUMRYZ is the first and only once at bedtime oxybate for the treatment of cataplexy or excessive daytime sleepiness in adults with narcolepsy. And LUMRYZ really addresses the most important and significant unmet need for people with narcolepsy who are considering going on an oxybate. And that is being -- having to be forcibly awoken in the middle of the night to take a second dose. And I think it's stated very clearly by the FDA with our -- in our approval letter and their granting of orphan exclusivity that it's just antithetical for patients to be required to be forcibly awaken in the middle of the night to take a second dose for patients who are suffering from a condition, a rare sleep disorder condition, whose therapy or their treatment or their condition is characterized by disturbed or disrupted nocturnal sleep. So we're very proud to be the first and only company to have leverage our own technology to bring this meaningful improvement and we believe our value proposition is quite clear and that our value proposition really not only addresses this unmet need, Ash, but really, we believe over time will demonstrate it has a positive impact on patients' treatment experience and the management of their condition. So we're really proud of where we are. The company has made tremendous progress over the last number of years, and in particular, the last 15 months, where we've gone from 30 people to over 160 people. We've got an approval. We've navigated some legal challenges that I'm sure we'll talk about. We launched in less than a month, under Tom's leadership -- all of that under really Richard's leadership and under Tom's leadership, we've really cleaned up our balance sheet and strengthen ourselves really well to position ourselves to continue to grow as we embark on this journey of building our company. So again, thanks for the opportunity to be here.

Good stuff. Yes. Thanks for that intro. So I mean, I want to talk about like the legal updates for -- because I feel that, that is the most important thing that matters to the stock and the story at this point. And yes, I mean, it was interesting to attend this jury trial in Delaware. I think like kind of eye-opening to see how these things play out in real life. But what I wanted to understand from you is that, I mean, in the sense of like where the royalty for the future LUMRYZ sales shakes out, like how confident are you that it would be at the historical run rate that was determined by the jury? I know this is something that is in the hands of the judge, like, how often do you see judges kind of like giving damages that is in line with the jury determination and anything that you can share on that, like time line, when do we get to know, what is the process, those kind of things would be helpful.

Yes. So Ash, maybe just to recap, 2 weeks ago, we received a split decision. This was related to the patent litigation between us and Jazz Pharmaceuticals. And the net result was a royalty that was determined by the jury, effectively of 0.7%, and what that was for past damages. So Jazz was awarded a royalty for past damages. And what's left to be determined now is what royalty might be applied on a go-forward basis. And that's really in the hands of the judge. We don't have exact time frame. I would just say it's going to be months down the road before the judge issues a final ruling on that. But to your question about how should you think about or how should we think about a royalty on a go-forward basis, I think you would look at it as [ book gains ] at this point. It's 0.7%, perhaps to 3.5%. And the 3.5%, to put a little context behind that, that was the royalty rate that the jury came up with, but it was applied to a percentage of our launch-to-date revenue. So when you apply that, that's why you get to 0.7%. So when I think about the [ book gains ], this's 0.7% to 3.5%. Now of course, the judge has to decide and make the final ruling. But in that docket, the judge, at least what we expect is, it could be 0.7%, it could be 3.5%, perhaps a little more than either one of those. But that's the way we're thinking about it right now.

Yes, yes. And then there's a separate legal matter that is playing out in the Jazz versus the FDA case around the orphan drug exclusivity. If you can talk about that a little bit, like when -- I know this -- the date has been moved around a little bit. So what's the latest on that? And what do you think is the likely outcome of that type of a litigation? It will be good to know from your perspective about how you think about this?

Yes. No, certainly. So originally, that hearing -- this is the APA hearing where Jazz sued FDA. We've intervened in the case on behalf of FDA. Originally that hearing was February 27, that got moved to April 9, is the current date. The reason for the move was really a decision by the judge that -- to move it to that date based on what was on his docket at the time. It's -- I don't really want to give too much of an opinion on potential how the judge might decide. It's strictly an Administrative Procedures Act. The judge will evaluate the evidence, if he will, but it's all what's in the written records. So there's really no new evidence to be introduced in that case. In terms of potential outcomes or timing of potential outcomes, we have developed a view based on this particular judge's track record that he could issue a ruling within 60 days of the hearing. So quite frankly, we'd like to know what that ruling is before we execute too, but that's the timing we're looking at. With respect to potential outcomes, I think it's -- listen, if Jazz prevails, we prevail. It's a pretty binary event is the way I'd like to describe it. We -- of course, I believe in the merits of our case, but ultimately, the judge is going to make a decision.

Yes. Yes. Okay. That's great. I mean it's good to cover the logistics. I think, I mean we've hosted like expert calls. I know you can't comment directly because you're in active litigation. So maybe we can just switch gears and start to talk about a little bit about the launch and the update coming out from the fourth quarter. So I know that you have actually -- kind of, yes, have not given the full year guidance and the launch metrics have been very strong from our perspective. And what you've done here is like just come out in less sell-side consensus, which is around $155 million. Do you think that this is like the base case that you think pretty comfortable that you can get there or do you think there is more upside to this as you make progress moving towards the second half of the year? How confident do you think of the sales ramp for '24?

Yes. We did confirm or made the comment that we were comfortable with consensus -- sell-side consensus of $155 million for 2024. And listen, quite frankly, we see a lot of upside potential to that number. It's the average number of patients you'd have to have on therapy during the year is about 1,300. Richard will certainly of comment on patient progress, but given how we exited 2023 with over 1,000 patients who initiated therapy, that number grew over 1,200 patients who initiated therapy through January 31. So we certainly like the run rate we're on. And we believe that the $155 million is very achievable. And with the potential for upside, given what we're seeing for patient demand, other variables that come into play are net pricing. Of course, the total number of patients on therapy, but we see a fair amount of upside potential to that consensus number.

Yes. Maybe if you -- like either, Tom or Richard, if you can talk a little bit about like the source of the patients. I mean you talked about like 3 different buckets where you have been getting patients from like how do you see for this 2024, like that composition changing or if there's any of those buckets like either the experience or naive patients where you might get more of a traction for 2024.

Yes, sure. Thanks for the question, Ash. So yes, what we've stated thus far is we've seen the majority of our enrollments in patient shipped product being switched patients from the first-generation oxybate, more coming from Xywav that from Xyrem. Part of that is just math. There's more of those patients on those therapies right now. But when it comes to the other 2 segments, the previously discontinued, candidly, we had some people question whether or not that was a real segment. And what we can say is it's a very meaningful segment to us very early on already that there are a number of patients who come forward who stopped the twice-nightly oxybate who have reengaged to start on LUMRYZ again. And maybe an important other component that we saw sort of as far as momentum is concerned, in Q4, we saw new to oxybate patients represent a slightly higher percentage of our overall mix of patients compared to Q3. So I think all 3 segments are going to be very viable for us. Probably we're still going to get most from the switch patients just because there's more of those out there currently today. But I think we're going to see a little bit of flex as far as some of the representation from the other segments as well.

Yes. And so I mean, the patients who have discontinued these -- that were previously on oxybate, they discontinued and you're trying to activate that part of the market, right? What does it take to do that? Because I'm assuming that if these patients were, let's say, on oxybate -- like first-generation oxybate, let's say, a couple of years ago, would they still need to be coming and seeing a doctor for you to be able to like get them to start using LUMRYZ or like there might be some -- or could there be patients that have discontinued or not seeking treatment for whatever reason? Could you tap into that possible pool eye also?

Yes, it's a great question. So what we see from our claims data is from the last 4 years, there's about 10,000 to 15,000 patients who have discontinued first-generation oxybate. 99% of them are still under the active care of a seat provider from what we can see from claims data, right now. So the good news is they're actually -- they're being treated and managed for their condition. And Ash, what we know is the top 2 reasons why patients discontinue taking a first-generation oxybate previously is it didn't work, and I couldn't take the second dose. And those are very interrelated. What we sort of think is a lot of them felt the benefit of an oxybate, but they couldn't get the full benefit with that second dose as well. So that's why we've personally not been surprised that we have seen reactivation. And the good news is they're on the call audience of the oxybate prescribers that we see today as well.

Yes. And then the new patients, so you saw a little bit more mix of that in 4Q. Yes, like, is that because you are growing the overall pie of the market or what is causing more of a new patient adds right now versus in the past, like there hasn't been much of a new patient to come by here.

Yes. I'll summarize this in a story, a conversation I had with the sleep specialist at the end of last year, who just sort of said to me, fundamentally, it's a different conversation with new to oxybate patients. It's not so much of a battle to convince them to finally, I'm going to get this therapy. It's going to help you sleep to function during the day, but I'm going to force you to wake up 2.5 to 4 hours after you take it. So fundamentally, we think for many of these sleep specialists, they're having a different conversation, a more straightforward conversation with their new to oxybate patients. But also at the same time, I think we are -- like we -- it's hard to sort of piece together an entire marketplace ever since the data has become a little bit more fragmented. However, one thing we can say is we added new writers from LUMRYZ who have never written an oxybate before in their lives who have now come in and written for LUMRYZ as well. So we're seeing some of that movement on the news. We're getting more engagement of the previously discontinued. So overtime, we believe we'll be able to show that the marketplace is growing beyond the 16,000 patients who are on first-generation oxybate's before.

And then in terms of like the prescribers, is most of the use coming from physicians who have primarily prescribed Xyrem, Xywav before or like -- I don't know if you can give the metrics around like how much of it is like sleep centers versus stand-alone neurologist or any other physician audience that might be involved in this?

Yes. I mean, right now, our basics are -- there's about 4,500 active writers for oxybate, 1,600 that make up 80% of the volume and under 500 that make up 50% of the volume. We've clearly got most of our usage from those 500 -- less 500 who make up 50% of volume. And Ash, it's coming from all sorts of places, the large academic centers, the private sleep centers here across the board as well, a good mix of people with subspecialties in both neurology and pulmonology and psychiatry and even internal medicine. So I think what's been -- what we've been very pleased to sort of see is it's been a good breadth of usage. It's not just coming from one sort of segment of prescriber as well.

Yes. Yes. Just on the discontinuation rate, I mean, yes, I think the commentary that we've heard from you is that your discontinuation rate on LUMRYZ is running at a significantly lower than the typical like 25% at a 1-month mark, right? And as you get a little bit more longitudinal data on this, like what is -- like where do you think this might shake out? What would be the reason for here to have a lower discontinuation rate versus first-generation patients?

Yes. I think the data that we start to see thus far from claims is on the first-generation oxybate, almost 25% discontinued after 1 month and almost 50% at 12 months. And to your point, we have seen -- what we've stated thus far as we've seen a meaningfully lower rate of discontinuation at all the same time points that we have thus far. And Ash, I think it comes back on the fundamentals of the market research we did prelaunch, which was the fact that patients, I mean, physicians view oxybate as the most effective product but patients struggled to always get their full dose. And when you don't get your full dose, you're not getting -- you may not get the full therapeutic benefit that you have. So we do expect our discontinuation rates to be lower. We're still learning about exactly what they're looking like right now. But thus far, once again, at the same time points, we've seen meaningfully lower discontinuation rates than the first-generation oxybate have had.

Yes. And Tom, maybe I know you briefly mentioned like net pricing dynamics that could impact 2024. I mean to the extent that you can kind of like comment on like what are the push and pull of that? And is there any phasing consideration as we go through the year on where pricing might shakeout to be?

Yes, Ash. So what we believe and what we're targeting is that on average, the net revenue per patient per year is about $120,000. There's a lot of underlying assumptions that go into that, one of which is that we expect that the average strength for patients are using LUMRYZ is 7.5 grams. And we're sort of at that tipping point right now, and that's exactly what we're seeing. So that assumption has certainly played out for us. The dynamics that impact the net revenue, no different than any other company in our industry. We have gross to nets. They're typically higher in the first quarter of the year as patient deductibles reset and we're providing more financial systems to patients to utilize LUMRYZ. But as we're phasing to use your term, we're very quickly, approaching that net revenue per patient per year. And I kind of start using the term we're at this tipping point. And I've always thought about it more in terms of we have more patients utilizing LUMRYZ than new patients coming in. And we crossed that point. So I think we'll very quickly get to that net revenue per patient per year.

Yes. I mean if we look at the historical revenue reported by Jazz, I mean, there was always like going from 1Q to 2Q, there was like a big jump always. And either that's like the delayed benefit of like having less volume coming in, in 1Q that you're seeing like a artificially high 2Q. Is that something that you -- do you expect that type of a dynamic for LUMRYZ also?

Yes. I think that I do believe that net revenue will increase from Q1 into Q2. We're probably true on our launch to really evaluate any type of seasonal impact in our business. But yes, we would expect that in terms of that net revenue would certainly increase as we progress throughout the year and certainly from Q1 into Q2.

Yes. Okay. So maybe just like I think we can we take a pause and just see if there are any questions from investors on the line. If not, then we can come back, and I have a few other follow-ups.

We'll now begin the Q&A session. [Operator Instructions]. At this time, there are no raise hands.

Got it. Okay. So I think maybe, I want to talk about idiopathic hypersomnia because I feel like that's things underappreciated part of the story. So one is -- I mean, yes, if you can provide any color on -- are you seeing any -- I know you're not marketing for IH, but are you seeing any off-label use in IH patients like that are taking LUMRYZ right now?

Yes. Ash, to your point, we clearly do not market for off-label uses. But we have seen claims and requests coming in for off-label uses of LUMRYZ thus far.

And is there like a substantial portion of patients or...

No. I think it's really more of a trickle. And once again, what happens is we -- or rise up first in the right specialty pharmacy. So I think there are always going to be some dabblers in any new product launch, and we're definitely seeing some of those dabblers within the LUMRYZ launch as well.

So one of the things that we've been talking to a lot of the experts and positions is that to understand like for IH patients, what is the rate of discontinuing -- or what is the rate of them not taking the second dose versus the narcolepsy patients, like for the first-generation oxybate. Do you have any credible data on that? I've heard some anecdotal numbers around it, but nothing that's a little bit substantive.

Yes. We're trying -- it's a great point. We hear the exact same anecdotes you do. And we're beginning to ramp up more of our more detailed quantified market research. So probably nothing that we could sort of put in numbers for you today. But similar to what we've done in the past, we are thinking about some of the patient survey work that we've done through other communities to understand this. But what we do hear quite consistently is in IH, or in narcolepsy whereas a massively inconvenient thing to do in IH, there's just a lot of times the physical inability to wake up to take that second dose. So we hear that quite consistently in the marketplace today.

Yes. So if you can talk a little bit about like your Phase III plan for IH it will be helpful, just like how many patients, what type of trial design are you thinking, how long could it take to enroll or run the study, I think, those would be pretty good data point.

Yes. So as we've said previously, we're in advanced stages of our planning to launch our -- and begin enrolling patients in the second half of this year of our Phase III IH trial. So the team has done a great job of getting ourselves ready. As you can imagine, all the work you have to do with the FDA, all the clinical supply, CRO involvement, site identification and whatnot. We haven't guided specifically on exactly when first patient in will be other than second half. And we haven't guided explicitly in terms of timing. I would just characterize a couple of things for yourself, Ash, and those on the call or on the webcast. We obviously have studied what has been done in the space pretty extensively to date, trial designs, sites, enrollment times and whatnot, both for both the Portola study as well as the Maxalt study. So if you look at timing to complete those trials, it really ran for 12 to 15 months. So we do think there are reasonable proxies now, probably upwards of 18 months to complete a trial is how we think about it today, recognizing that as we get through site assessment, and enrollment projections, we may have a more refined number in the future. And if we have a different number, we'll certainly speak to it. Our time frame, we'll certainly share it. In terms of trial design, we haven't said publicly that will eventually become available publicly. But I think it's safe to assume that we've looked at what's been done and the clinical communities and the physician community and the research community's interest in that sort of design because of the limited amount of time a patient may have to be on placebo, coupled with an opportunity to continue in an open-label extension form are, I think, good proxies for us is how we're thinking about what the trial could look like.

Yes. So that includes like the enrollment and the trial conduct like the sort of like the roughly 18 months that you alluded to?

Yes. I mean I think that's -- at least if you look at what's occurred to date on previous trials, I think that's a good kind of benchmark at least currently in terms of what's the art of the possible based upon historical enrollment trends to complete the primary part of the trial. I wouldn't say that includes any sort of open-label extension arm but to get to the primary end points.

Yes. Got it. Okay. And then other question that I get on the story just around your expectations on kind of like going to cash flow positive and where do you -- if there is any sort of like need to access the market at some point of time? Like what are you assuming? What is baked in to your financial projections?

So as we ended 2023 in a really good place. We had $105 million of cash on the balance sheet and really effectively no debt. And what our belief is, at this point, certainly based on the trends we're seeing some other assumptions we're making is that we'll achieve breakeven during 2024. We haven't said specifically when that would occur. I'll use my earlier term, the tipping point. For us, the point where we hit cash flow breakeven is when we're about 1,300 to 1,500 patients on therapy. And again, that refers back to this -- our assumption around average net revenue of $120,000 per year per patient. And we did guide to our expectation for cash operating expenses on our last call for 2024. And our assumption is and our expectation is that cash operating expense is about $40 million to $45 million per quarter. So you can apply the math from there, call it, $160 million to $180 million annualized, and that's where that range of patients of 1,300 to 1,500 on therapy -- reimbursed patients on therapy, that's where you hit the breakeven point.

Yes. Got it. I mean in the last minutes remaining, I know this is a big topic, but just what are your expectations from orexin? I think we are going to get some data from Takeda and Alkermes. And this is just a question on the long-term impact of the narcolepsy market. How do you think this could change as we get clarity on this?

Yes, Ash. I mean obviously, probably a better question to ask some of the companies in development there. But I guess the way we look at it is, first, it's always exciting when more therapies and more mechanisms are coming to the class to serve the narcolepsy community. I think as we think about the orexin, I guess our view would be we're very anxious like a lot of people to learn more about what the actual profile looks like. And we believe we'll see more of that at the Sleep Conference in June in Houston this year. But I think it really is going to come down to like a balance of how much efficacy do you push versus how much -- how many adverse events come in to the mix considering this is chronic therapy. So I think that's what we're sort of looking for. And the lower the dose and potency that people go for. Maybe there's -- as there is today, the room for more combination therapy that is used. Today, almost every patient is a polypharmacy patient in the narcolepsy field today. So -- and I think overall, understanding if things stick in NT1 versus NT2, all we know today is the oxybate marketplace is less than 10% penetrated in the market today. And we see a lot of room for that growth to come with or without orexin in the marketplace in the future as well.

Yes. Yes. Great. All right. We are out of time. Thank you so much for this, and look forward to maintaining the dialogue. So good luck with everything.

Thanks, Ash.

Thanks, Ash.

Thanks, everybody. Bye.