Avadel Pharmaceuticals plc (AVDL) Earnings Call Transcript & Summary

Welcome to the UBS Virtual Event. Ash Verma, you may begin.

Hi, good day, everybody. Welcome to UBS Virtual CNS Day, March '17. So our next company here is Avadel Pharmaceuticals. I'm really excited to host Greg Divis, who is the CEO; and Tom McHugh, who is the CFO. Hey, guys, how are you doing?

Doing well. Thanks. Appreciate the opportunity to be here.

Yes. Thanks for joining us. Yes, I'm really looking forward to this discussion. It's sort of like a 25-minute fireside chat. And for the audience that are listening in, we will have a recording of this available. So if you want to take a look at it later or if you have any questions, as we are going through, feel free to send it my way and I can -- I sort of like weave that into our discussion.

So maybe like with that, I guess, Greg or Tom, if you can just kind of give a bit of a high-level overview of the company, the LUMRYZ product. I mean you recently reported fourth quarter earnings and where you reported the LUMRYZ sales and also provided an outlook for 2025. So if you can just kind of give us a background for the context of the audience and then we can get started.

Certainly, again -- thanks again, Ash. We're certainly delighted to be here and to share our progress we've made with LUMRYZ. For those who aren't aware, it's our once-at-bedtime oxybate therapy, really designed to improve the lives of people living with narcolepsy. Maybe before I get started, just a quick reminder for everyone. Our remarks today may include some forward-looking statements. And to that extent, if that's the case, we'll just refer everyone to our most recent 10-K and our subsequent SEC filings to understand the risks associated with those statements. So Ash, since launching LUMRYZ just over 18 months ago, I would say our team has achieved really a lot and really crossed a number of substantial milestones from navigating the regulatory challenges for the approval, and then in record time, approximately 4 weeks after approval, launching LUMRYZ into the market. And then now as of December 31, having added over 2,500 net new patients on to LUMRYZ as patients on therapy, which for reference sake is nearly 3x that more than our nearest competitor during the same time period. And it's our view and our belief from all of our research and engagement with physicians that this rapid LUMRYZ adoption really is underscored by the strength of its clinical value proposition. Physicians and patients, they consistently highlight the benefits of our once-at-bedtime dosing. And of course, it's a feature the FDA recognized by granting it and determining it to be clinically superior to the first generation twice-nightly oxybate therapies with our orphan drug exclusivity award. As launch has progressed, we've learned a lot. We've continued to refine and enhance our commercial strategy. And we've talked a lot recently about the investments we've increased in patient support, expanding our sales force, enhanced engagement with health care providers. These targeted investments Ash, are really designed to accelerate and improve patient growth and patient adherence. And we're very pleased that already this early in the year, we're seeing actually higher patient demand and improved patient retention, which really confirms our commercial focus is on [ clinic ], and we're really aligned with the market needs. So I would say lastly -- not lastly, but additionally, I would characterize that our experience over the past 18 months has really shown that LUMRYZ is not just competing within the existing oxybate market, it's actually expanding it. So in addition to switch patients, we're successfully reaching oxybate naive patients, we're reaching those who previously discontinued on other oxybates, and we're even drawing in new prescribers who have never written an oxybate before. Specifically, we've had over 200 health care physicians, health care providers new to prescribing oxybates already have chosen LUMRYZ for their patients for the first time ever writing in oxybate, again, highlighting our early success in broadening the market. So based on these early positive trends, we fully expect that these actions and the corresponding results will translate into really sustainable trends and durable revenue growth. And then maybe I'll wrap on a couple of final comments and then get to your questions. Additionally, we have our life cycle management efforts going on, which includes our Phase III REVITALYZ trial, to evaluating LUMRYZ for idiopathic hypersomnia. And we continue to work on our low or no sodium formulation as well, both of which we expect will further strengthen our position in the market. So maybe in summary, LUMRYZ is well positioned not only as a transformative therapy for patients, but also as a catalyst for significant market expansion and we're confident in our differentiated approach, our strategic investments we're making and of course, the unique product profile of LUMRYZ, all of which positions us for sustained growth in 2025 and beyond. So again, thanks for the opportunity to be here and look forward to the discussion.

Yes. That's a great start. I guess maybe just like when we were seeing the early launch, right? I know like some on the investor side were kind of worried that would you have sort of like a fade of efficacy in the -- like the second half of the night, right, with LUMRYZ. So to the extent that -- and now we have seen like pretty decent growth like right out of the gate. So what is like the latest thought process in terms of like the clinical benefit that LUMRYZ is providing to these narcolepsy patients? How does that compare to the standard of care that has been there? And maybe if you can just talk about like some of these worries about like early fade of the efficacy is not really being seen as people had feared?

Yes. I think, again, whether you're looking at our pivotal trial or whether you're looking or listening to patients who we talk to routinely, I just spoke to one just on Friday, a LUMRYZ patient. Their experience as they go on to therapy and titrate up to a stable dose, their experience really is -- has been remarkable, the feedback we received. So clearly, LUMRYZ isn't for everyone, but the patients that we've spoken to and the feedback we've received from both the physician and the patient community who have gone on LUMRYZ, who have transitioned to a stable dose. The benefits of the once-at-bedtime dosing, not forcibly having to awake in the middle of the night, not having to make a decision whether it's too early or too late in the evening to take that second dose or even some of the adverse events that have evolved around the missed timing of the middle of the night dose. You couple that with just how LUMRYZ helps improve the nighttime aspects of narcolepsy, all leading to improvement in the daytime. We're pleased with the clinical experiences that we hear from patients, and we get -- and the feedback we received from physicians. And I think what we've seen in our pivotal Phase III data has replicated itself in the real world.

Got it. Okay. That's great. So maybe just like talking about the 2025 growth dynamics then. So yes, what is the kind of the expectation? How confident are you that you can achieve the guidance that you provided? And if you can just like get into some -- any kind of like nuances around the phasing of revenue. I know like typically, for 1Q is seasonally soft for these therapies. I mean we have a lot of historical data to prove that. But just like beyond that, how do you start to see more of a growth quarter-over-quarter?

Yes. Maybe I'll talk generally and then a little bit more specifically. I would say, given though we're still early on in the launch and early in the year, I think the trends that we've seen based upon these commercial actions that we've executed that really went fully live in January. We expect 2025 to be a year of quarter-over-quarter growth, right? And as such, we're very confident in the guidance we provided, which really represents approximately 50% revenue growth in 2025 versus 2024. And as we think about these investments, and we'll maybe we can comment on Q1 in a minute. But we think about these investments, they have a cumulative benefit throughout the year, right, with the impact really beginning to be seen much more in Q2 and beyond. And that being said, we're very pleased with the positive momentum that we've experienced in our underlying patient demand metrics, especially when you compare them to how we were exiting in Q4 last year across all of these patient metrics and all of which are pacing at or ahead of our internal expectations. So I think in summary, although Q1, like everyone in our industry has some gross to net headwinds and some of those matters which we have to work through, which we're not immune to, and we'll have those as well, we do expect 2025 to be a year of quarter-over-quarter growth and a year in totality of strong -- continued strong growth.

That's great. And then in terms of the commercial efforts where you're expanding. I know you've recently talked about like adding commercial leads, increasing the sales force and the field and nurse support program. If you can expand on those metrics a little bit, just what are some of the steps that you've taken?

Yes. Although just a few months in, I think we're really positive in totality with the momentum that we've seen. And maybe just to level set a minute, as we analyze the trends and what was happening in the back half of last year, we determined that there were clear actions and changes that we needed to make to expand our physician prescribing reach, to accelerate the pace of patient starts and of course, make real progress in helping patients optimize their treatment experience, again, through our nurse and field support programs. So those changes, again, and those investments really went fully live. People are trained and onboard as of January 1. And we've seen really positive signs across all these areas. And maybe I'll give you some very specific commentary around that, right? First, we've seen an expansion of our prescriber base with growth coming from what we would describe as either marginal LUMRYZ prescribers or even those who have not written LUMRYZ in the early part of this year. So we've seen a nice growth from that cohort of prescribers, which is directly as a result of our expanded sales force investments and their reach and their focused execution on a broader prescriber universe. At the same time, we've done that. We've seen patients actually convert more efficiently through our system and processes, which means, in other words, they're getting on LUMRYZ faster, and that is a direct result of our expanded field support team. And then lastly, we've seen an improvement in patient retention, especially early in their treatment experience, right, first 90 days, which is really where we have focused a lot of our investments early in the actions that we've deployed with our additional nurses and our additional field support resources team. So I think we're pleased with what we've seen so far, and the early trends are positive relative to how we exited last year and how we think about it relative to our internal expectations.

Yes. I mean, in terms of like the sales force, right, what gives you confidence that you're at the right level? Would this require like additional expansion at a later point of time? Maybe if you can just elaborate on that. I don't know -- I don't think we know how many sales reps like Jazz has behind, or some of your competitors if they have like openly talked about that, how do you sort of benchmark yourself to the other players?

Yes. Yes. You do the best you can to try to benchmark through third-party data sources to try to understand what other companies are doing and how they're deploying. But at the end of the day, we have a very clear go-to-market strategy in terms of how we want to align our teams around those who are using oxybates today. So when we look at that and we analyze that data, it allows us to create balanced territories to deploy the right number of reps relative to the number of positions we want them to have responsibility for. So today, as we sit here today, we'll never not say that we shouldn't invest incrementally in our field sales team or our field teams at large to make sure we have the right ratio of customers to our -- each of our individual field team members. But where we sit today, I think when you think about 4,000 or so high-volume prescribers, or oxybate prescribers in totality, of which maybe 1,600 or so are really the highest volume targets that represent 80% of the oxybate market, we think we're well positioned today to cover that with the right sort of reach and frequency to ensure we've got the right sort of presence and the right sort of share of voice inside of those offices. But I'll note again given the importance and the value of every patient, we're not immune or adverse to adding more people if it gives us better reach or better frequency, especially as we think about some of the market expansion opportunities we begin to realize, some of that happening without promotion. So now we're expanding our reach into a broader audience. And as those results continue to come in, it may create an opportunity to expand in the future. But right now, we think we're well positioned across all of our field teams, whether it be field sales or even our field reimbursement, or our field support teams.

Yes. How much does the DTC investment play a role in this type of a market promotion sensitive?

Yes. I mean it is a promotionally sensitive market in totality. I would characterize it that way, for sure. But I'm not so sure we think about it as DTC as much as we think about it as kind of direct-to-patient or DTP because our goal is to really try to meet not only through the physician actions we're taking, but we really want to go direct to patients where we can. So our goal, ideally is to meet patients or potential patients where they go to seek information, whether that's online, through patient groups, through social media. And we've spent a lot of time over the last number of months, 18-plus months, continue to refine our target audience and where we're trying to go and engage to expand with the goal of expanding our patient education and activation efforts. And in 2025, we've actually made a meaningful increase in these investments as well. We're doing this because like all can appreciate, an educated patient is the most influential advocate we can have because when a patient asks for LUMRYZ, all of our data so far says they get LUMRYZ. So it will be an area of continued focus, of continued investment and certainly assessment to ensure that we are successfully meeting patients where they are to seek information. We're educating them in the most effective way possible. And the goal is to activate more patients to proactively go to their physicians and seek out LUMRYZ themselves. So it is important and it's something we will continue to do.

Yes. That's great. Maybe just to start and talk about like different types of patients, right? So the naive versus the prior oxybate experience. So can you elaborate on this, like what percentage of LUMRYZ patients right now are from naive versus first generation? I know you're trying to optimize that mix. And what does the persistency look like in each of that segment? So like ultimately, like what's your goal when you're trying to optimize that split?

Yes. So Ash, thanks for the question. The -- maybe think about the first 18 months of launch for LUMRYZ. In the first 12 months, I would say very clearly, the majority of patients were switch patients coming from first-generation oxybates. And in the second half of 2024, we saw that patients begin to shift more towards new-to-oxybate patients. So in the second half of the year, just for a reference point, about 60% of the patients were new-to-oxybate patients in the second half of the year. In persistency and the measurements of persistency go hand in hand with that patient mix to a large extent. Discontinuations are really a function of a balance between efficacy and side effects for patients. And for new-to-oxybate patients who have not been exposed oxybate before or exposed to side effects, discontinuation rate is, quite frankly, just higher for that patient segment. By comparison, the patients who are switching from first-generation oxybates have experienced the side effects and the discontinuation rates are much, much lower. The investments that Greg has mentioned, we're focused on a lot of different things. Two particular focus items for us are continuing to drive patient demand across all patient segments, ideally improve the mix of switch patients and new to oxybate patients. And along with that, will come improvement of persistency, along with other improvements we're making in our processes. The net effect of these -- we've seen some really promising trends in Q1. We're not ready to specifically comment on Q1 at this point. But we are seeing some early promising trends so far, 2 months into the year. And as these continue to improve and gain traction, it should lead to revenue improvements throughout the year as well.

All right. Okay. And then like in the long run, like where do you want to take this split? And if you have any short-term goals, I would love to hear that to, like the mix between the naive versus experienced?

Yes. It's hard to think about an ideal patient mix, because all patients are important, quite frankly. If we will drive demand and increased demand across all patient segments, and coupled with our efforts around improving persistency and that patient experience on LUMRYZ. So listen, I'd leave it that way for the time being, all patients are important for us. And -- but as the patient mix improves, more towards switch patients, that will come with improved persistency and revenue improvements as well.

I think, Ash, the only thing I would add to that, I think it's one of the unique things that makes LUMRYZ such a unique opportunity from a market perspective because we're not beholding our subject or restricted to just only the potential new-to-oxybate patients or naive patients who are coming the 4,000 or so patients who are coming into the market every year to potentially compete with the other oxybates for. We do very well in that group, but we also source patients from switch patients, we source patients who previously been on oxybate and who have discontinued. And those two segments represent about 90% of our market opportunities. So I think for us, there's a lot of patients out there. It is a large market opportunity and a lot of shots on goal to build a successful franchise.

Got it. Okay. All right. So maybe just like I'll ask a couple of questions around the other market dynamics that are playing out. I mean one is that like we are going to get some data from the orexin like we have Alkermes, Takeda starting to report. Like Takeda Phase III, Alkermes Phase II. So what is your assumption on this potential entrant like -- does orexin impact like more the daytime sleep medication? Or can you continue to grow by taking share from first-generation oxybate even when orexin is being introduced to the market?

I think the short answer to that is yes. And there's clearly a lot of investor excitement about the prospects of orexins. But for us, as we think about it, we're most interested in what clinicians and prescribers think, right? And clearly, it offers a new mechanism of action for treating these serious sleep disorders, especially in particular, with the daytime benefit that they demonstrated. It's less clear now for us and for physicians as to whether the benefits at night are positive or whether there are actually some potential concerns about what may happen at the nighttime. So according to physicians, and it's been confirmed with a lot of key opinion leader discussions, I would say that we believe there's certainly a role for ongoing use of oxybates as a nighttime agent that helps consolidate sleep. That also produces additional daytime benefits. Now we've done quite a bit of comprehensive research on this so far, and we'll continue to do so. Not talking to 2, 3, 5 docs, but talking to well over 100 physicians, another large cohort we're talking to currently. And I would say the takeaway we get from that is the following, is that narcolepsy is and will remain a polypharmacy treatment. They like different mechanisms of actions. Patients like to add mechanisms of actions to their therapy. There is the potential that the introduction of orexins could potentially expand the patient population, but the role of oxybate from our research with physicians and their impact on nighttime sleep architecture are still expected to play important and relevant roles. And for us, our goal is to make sure it LUMRYZ is that oxybate of choice both today and into the future.

Yes. Okay. And then just on the like 2026, like dynamics. So we know that Xyrem is going to go through like a full generic market, right? So -- and that may or may not form. But what I wanted to understand is like what is your assumption on pricing in that scenario -- in either the scenario? Like can that impact like pricing, not just for Xyrem, but for other market participants like you? Or do you think that you have some way to like defend your position in the market if that happens?

Yes. I mean I think for us, we have to be prepared. This is another area we've done a lot of work on and a lot of research on to be prepared for what the potential scenarios could be. I would say, generally, in terms of pricing, we don't see a material impact on pricing in the future on LUMRYZ or branded oxybates for that matter overall, right? We remain highly confident of our growth potential even in the face of additional potential generics in large part because we have this unique patient population that we can continue to draw from, of which, again, 90% of it comes from outside of where primarily these potential generics will source their business, which are new to oxybate or naive patients, right? I would say, given the challenges we've come to understand and appreciate of managing new-to-oxybate patients, some of the commentary that Tom made a few minutes ago, our view in a world of additional generics is that the majority of those potential patients who may be asked to step through a first generation of oxybate to get to a branded LUMRYZ product, will likely do so in large part, probably because of the challenging issues of managing this patient with a whole lot of resources that companies like us offer, but you still see discontinuation. So from our viewpoint, we've got multiple segments of patients to grow, and we do expect that if a patient is going to step through a twice-nightly generic, whether it's because they've had a troubled treatment experience or they just want to get to a second-generation oxybate. We think LUMRYZ will be well positioned to capture a lot of those patients for us as well. So we don't see pricing eroding dramatically for us. I can't comment on how it may be impacted by -- how the generics may be impacted by it.

Yes. Okay. All right. That's great. So maybe just in the last couple of minutes, just quickly on a few of the like these legal proceedings. I think the most most near term is this Circuit Court like reevaluated the District Court's decision on the idiopathic hypersomnia preliminary injunction. Sorry, that's a mouthful. Like how are you sort of preparing for that? And I guess -- and if you can like elaborate on your position. And the question that I've been getting from investors like in the event that let's say, the Circuit Court actually overturns the District Court decision then can Jazz throw another Hail Mary at like in 2027 when you are about to enter in the market potentially?

Yes. Ash, I'll take that one. Yes, I think you're right. That is our expectation of the most near-term event on the litigation front. The appeals hearing was back on February 7. We'd expect a decision sometime during Q2 out of that appeals hearing. And really, I'd summarize sort of the heart of the matter of two things. There's more to it, but two things primarily. One is initiating new clinical studies for LUMRYZ. We're currently enjoying from doing that. And then also seeking FDA approval for indications for LUMRYZ beyond narcolepsy, which we're also enjoying from even seeking FDA approval at this point. Listen, we believe very strongly in our arguments. We fully expect that this injunction is going to be overturned. And again, expect the timing is probably Q2 for a decision on that. With respect to your question on Jazz and what they may do next, a better question for them, of course. I'm not going to comment on the legal strategy and what they may or may not do. But our intent has been since since the beginning is we'll vigorously defend our intellectual property rights and make obviously all our best efforts to make LUMRYZ available to patients who can benefit from it.

Yes. All right. That's great. And with that, we can wrap this session up here. So we are almost out of time here. But thank you so much for taking the time today, and I look forward to learning more from you, and good luck with the story.