Company Overview - Avadel is a growing biotech company that has transformed itself over the past five years [3] - The company is currently in its ninth quarter of launching LUMRYZ, a once-at-bedtime oxybate for treating narcolepsy [4] Product Performance - LUMRYZ is designed for patients suffering from excessive daytime sleepiness (EDS) and cataplexy, applicable to both adults and pediatrics [4] - The company has over 3,100 patients currently using LUMRYZ, indicating a growing business and increasing number of prescribers [4] Financial Status - Avadel has achieved a cash flow positive state as a commercial stage organization [5] - The company is in the latter stages of a pivotal Phase III trial aimed at expanding indications for idiopathic hypersomnia [5]

Summary of Avadel Pharmaceuticals FY Conference Call Company Overview - **Company**: Avadel Pharmaceuticals (NasdaqGM: AVDL) - **Industry**: Biotechnology - **Product**: LUMRYZ, a once-at-bedtime oxybate for narcolepsy treatment Key Points Company Performance and Product Launch - Avadel is in its ninth quarter of launching LUMRYZ, with over 3,100 patients currently using the drug [1][24] - The company has achieved a cash flow positive state as a commercial stage organization [1] - LUMRYZ is the first and only once-at-bedtime oxybate for treating narcolepsy, addressing both excessive daytime sleepiness (EDS) and cataplexy [1] Pipeline Expansion - Recently announced acquisition of VLX-OF (Vyllory Oxybate) to expand the oxybate portfolio [2][13] - The addition of VLX-OF is seen as a strategic move to build a portfolio of extended-release oxybate options [13][14] - Expected completion of enrollment for the pivotal Phase 3 trial for idiopathic hypersomnia by the end of the year [1][37] Market Dynamics and Competitive Landscape - Approximately 160,000 patients suffer from narcolepsy, with 50,000 eligible for oxybate therapy [8] - LUMRYZ is positioned uniquely as it improves nighttime symptoms and promotes healthy sleep architecture, unlike wake-promoting agents [10][11] - The company is aware of rising competition from orexin receptor agonists but believes LUMRYZ's efficacy in treating 24-hour conditions will maintain its critical role [39][41] Regulatory and Manufacturing Insights - Product engagement with the FDA has been productive, with no significant issues reported [5][6] - Manufacturing has been onshored to the U.S. to ensure supply chain redundancy and compliance [6][7] Financial Guidance and Growth Drivers - Raised revenue guidance for the year to $265 million to $275 million, driven by strong demand and writer engagement [24][30] - Significant penetration across a broad writer base, with 1,600 writers accounting for 80% of total oxybate use [26] - The company is focused on maintaining high levels of patient engagement and support to drive conversion rates and persistency [30][34] Future Outlook and Strategic Initiatives - Plans to conduct initial pharmacokinetic studies for VLX-OF by the end of the year, with an NDA submission targeted for 2027 [19][20] - The company is exploring geographic expansion opportunities while ensuring adequate supply for the U.S. market [53][54] - Anticipates multiple catalysts and milestones in the next 12-15 months, including trial completions and regulatory submissions [55] Additional Considerations - The company is confident in its ability to capture market share from older therapies and is seeing increasing requests for LUMRYZ from patients [31][44] - The potential for polypharmacy approaches in narcolepsy treatment is acknowledged, with a focus on complementary use of LUMRYZ and orexin receptor agonists [49][50] This summary encapsulates the key insights and strategic directions discussed during the conference call, highlighting Avadel Pharmaceuticals' current position and future opportunities in the biotechnology sector.

Financial Data and Key Metrics Changes - The company has transformed into a fully commercial and profitable business, primarily driven by the launch of LUMRYZ, which is now in its ninth quarter of patient and prescriber growth [4] - The annualized revenue per patient is approximately $92,000, which is expected to remain steady with opportunities for improvement through metrics like persistency and compliance [28][32] Business Line Data and Key Metrics Changes - LUMRYZ has seen broad-based adoption, with about 1,600 writers accounting for 80% of the total opportunity, and new writers are increasingly receptive to prescribing LUMRYZ [6][9] - Approximately half of the patients on therapy are switch patients, with a significant portion being new to oxybate or previously discontinued patients [12] Market Data and Key Metrics Changes - There are an estimated 160,000 narcolepsy patients, with around 50,000 eligible for oxybate therapy, of which about 15,000 are currently on therapy [16][18] - The company anticipates a growing segment of writers who have historically not prescribed oxybate, indicating potential market expansion [17] Company Strategy and Development Direction - The company is focused on expanding its oxybate portfolio with the recent licensing of Bexil Oxybate, which aims to be the first no salt, no artificial sweetener, extended-release oxybate product [5] - The strategy includes enhancing the sales force and direct-to-patient initiatives to drive growth and patient engagement [25][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing growth of the oxybate market, citing consistent quarter-over-quarter growth and a robust patient base [41] - The company is optimistic about the long-term role of oxybates, despite potential competition from orexin receptor agonists, emphasizing the durable benefits of oxybates [44][45] Other Important Information - The company is advancing its idiopathic hypersomnia study, with expectations to complete enrollment by the end of the year and plans for an NDA filing in the latter half of next year [5] - The company has a clear pathway for the development of Bexil Oxybate, with plans for initial PK work and potential NDA submission by 2027 [58][65] Q&A Session Summary Question: Where do you see the greatest adoption of LUMRYZ? - Adoption is broad-based, with high-volume writers increasing their use and new writers being receptive to initiating therapy [6] Question: What is the trend in patient growth? - Growth is driven by a mix of switch patients and new patients, with physicians increasingly choosing LUMRYZ for various patient types [14] Question: How does the company view the impact of generics on LUMRYZ? - The company believes that generics will not materially impact LUMRYZ, as evidenced by the performance during the launch of the authorized generic [36] Question: What is the company's strategy for Bexil Oxybate? - The strategy involves creating a comprehensive oxybate portfolio and leveraging the benefits of once-at-bedtime dosing [56] Question: How is the company funding its R&D projects? - The company plans to fund its R&D projects through cash flow generated from LUMRYZ, ensuring financial stability [65]

Core Insights - Avadel Pharmaceuticals presented new data on LUMRYZ, a once-nightly sodium oxybate treatment for narcolepsy, at World Sleep 2025, highlighting its efficacy in improving symptoms for both new and returning patients [1][2][3] Group 1: Efficacy of LUMRYZ - The REFRESH study demonstrated that patients switching from twice-nightly oxybate to LUMRYZ experienced clinically meaningful improvements in excessive daytime sleepiness (EDS) and other narcolepsy symptoms [4] - 70% of switch participants and 90% of non-switch participants reported improvement on the Patient Global Impression of Change after 4 months of therapy [4] - The study also indicated a reduction in severity of narcolepsy symptoms from moderate to mild, with significant improvements in quality of life metrics such as fatigue, brain fog, and mood [4] Group 2: Presentation Highlights - A total of 17 abstracts were accepted for presentation at World Sleep 2025, including one oral presentation and 16 posters, focusing on the benefits of LUMRYZ [1][2] - Presentations reinforced the advantages of LUMRYZ in addressing hallmark symptoms of narcolepsy, including EDS and sleep-related hallucinations [3] Group 3: Regulatory and Market Position - LUMRYZ is the first and only once-at-bedtime treatment for cataplexy or EDS in patients aged seven years and older with narcolepsy, receiving FDA approval in May 2023 and October 2024 [8][10] - The FDA granted LUMRYZ seven years of Orphan Drug Exclusivity due to its clinical superiority over existing treatments, emphasizing its once-nightly dosing regimen [10]

Core Viewpoint - Avadel Pharmaceuticals has entered into an exclusive global license agreement with XWPharma to develop and commercialize valiloxybate, a novel GABAB receptor agonist designed for the treatment of sleep disorders, including narcolepsy and idiopathic hypersomnia, with a unique once-at-bedtime, salt-free, and artificial sweetener-free formulation [1][2][3] Group 1: Licensing Agreement Details - XWPharma grants Avadel an exclusive global license to develop, manufacture, and commercialize valiloxybate, excluding mainland China, Hong Kong, and Macau [3] - XWPharma will receive an upfront payment of $20 million and is eligible for milestone payments up to $30 million related to development milestones [3] - Avadel will pay XWPharma up to $155 million in performance-based tiered sales milestones for achieving annual net sales up to $750 million, and 10% of sales milestones for sales exceeding $750 million and up to $3.5 billion [3] Group 2: Development Timeline - Avadel plans to initiate an initial pharmacokinetic (PK) study in the fourth quarter of 2025, followed by a pivotal PK trial in the second half of 2026 [1][4] - The development program is expected to leverage Avadel's existing infrastructure for efficient clinical and regulatory advancement [4] Group 3: Product Overview - Valiloxybate is designed to provide the therapeutic benefits of oxybate therapy through a once-at-bedtime, salt-free, and artificial sweetener-free formulation, potentially offering a differentiated profile from traditional oxybate therapies [5] - Preliminary clinical data suggest the potential for bioequivalence between valiloxybate and Avadel's existing product, LUMRYZ, which is the first and only once-at-bedtime treatment for narcolepsy [5] Group 4: Market Position and Strategy - The addition of valiloxybate to Avadel's portfolio reinforces its leadership in sleep medicine and reflects the transformative benefits of once-at-bedtime oxybate therapies [2] - The company aims to personalize care for individuals with hypersomnolence disorders, expanding access to innovative therapies for a broader patient population [2][5]

Core Viewpoint - Avadel (AVDL) shares have increased by 39.7% in the past four weeks, closing at $14.85, with a mean price target of $19 indicating a potential upside of 28% [1] Price Targets and Analyst Estimates - The mean estimate consists of eight short-term price targets with a standard deviation of $2.88, where the lowest estimate is $16.00 (7.7% increase) and the highest is $24.00 (61.6% increase) [2] - A low standard deviation suggests a strong agreement among analysts regarding the stock's price movement [9] Earnings Estimates and Analyst Agreement - Analysts show strong agreement in revising AVDL's earnings estimates higher, which correlates with potential stock price increases [11] - Over the last 30 days, four earnings estimates have been revised upward, leading to a 39.4% increase in the Zacks Consensus Estimate [12] Zacks Rank and Investment Potential - AVDL holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks based on earnings estimates [13] - While consensus price targets may not be reliable for predicting gains, they can indicate the direction of price movement [14]

Company Overview - Armata Pharmaceuticals, Inc. (ARMP) is part of the Medical sector, which includes 978 individual stocks and currently holds a Zacks Sector Rank of 7 [2] - The company has a Zacks Rank of 2 (Buy), indicating a positive outlook based on earnings estimates and revisions [3] Performance Metrics - Over the past 90 days, the Zacks Consensus Estimate for ARMP's full-year earnings has increased by 24.7%, reflecting improved analyst sentiment [4] - Year-to-date, ARMP has returned approximately 36.8%, significantly outperforming the average return of -4.5% for Medical companies [4] Industry Context - Armata Pharmaceuticals operates within the Medical - Biomedical and Genetics industry, which consists of 488 stocks and currently ranks 97 in the Zacks Industry Rank [6] - The average return for stocks in this industry is 3% year-to-date, indicating that ARMP is performing better than its peers [6] Comparative Analysis - Another notable stock in the Medical sector is Avadel (AVDL), which has returned 28.5% year-to-date and has a Zacks Rank of 1 (Strong Buy) [5] - Avadel belongs to the Medical - Drugs industry, which has a current rank of 80 and has moved up by 8.3% year-to-date [6] Investment Outlook - Both Armata Pharmaceuticals and Avadel are highlighted as stocks that could continue their strong performance, making them of interest to investors in the Medical sector [7]

Group 1 - Avadel (AVDL) shares have increased by 32.7% over the past four weeks, closing at $12.75, with a mean price target of $17.5 indicating a potential upside of 37.3% [1] - The mean estimate consists of eight short-term price targets with a standard deviation of $3.38, where the lowest estimate is $12.00 (5.9% decline) and the highest is $22.00 (72.6% increase) [2] - Analysts show strong agreement in revising earnings estimates higher, with the Zacks Consensus Estimate for the current year increasing by 15.5% over the past month [11][12] Group 2 - AVDL holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks based on earnings estimates [13] - The clustering of price targets with a low standard deviation suggests a high degree of agreement among analysts regarding the stock's price movement [9] - While price targets can be misleading, the direction they imply may serve as a useful guide for potential price movements [10][14]

Financial Data and Key Metrics Changes - The company reported net revenue of $68.1 million for Q2 2025, reflecting a 64% year-over-year increase and a 30% sequential growth compared to Q1 2025 [18][22] - Gross profit for the quarter was $61.8 million, showing a 60% increase year-over-year and a 32% increase sequentially [18][22] - The company achieved net income of $9.7 million, or $0.10 per diluted share, marking the first net income since the launch of Lumerize [22] - Cash generated during the quarter was $15 million, with total cash, cash equivalents, and marketable securities amounting to $81.5 million at the end of the quarter [22] Business Line Data and Key Metrics Changes - The number of active patients on Lumerize reached 3,100 as of June 30, 2025, representing a 63% increase compared to the same quarter last year [5] - Lumerize net revenue for the quarter was $68.1 million, a 64% year-over-year increase [5][6] - The company raised its full-year revenue guidance for 2025 to between $265 million and $275 million, up from the previous guidance of $255 million to $265 million [17][18] Market Data and Key Metrics Changes - The company noted a significant unmet medical need in idiopathic hypersomnia (IH), with approximately 42,000 diagnosed patients currently limited to a single FDA-approved therapy [8] - The company received orphan drug designation from the FDA for Lumerize's use in IH, which could potentially expand the market significantly [7][8] Company Strategy and Development Direction - The company is focused on expanding Lumerize's market presence and pursuing additional indications, particularly in idiopathic hypersomnia [6][10] - Investments are being made to enhance commercial execution and patient demand for Lumerize, including expanding the sales force and increasing marketing efforts [15][20] - The company is also pursuing a low or no sodium extended release formulation to complement its existing product offerings [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued growth of Lumerize, citing positive trends in patient demand and improvements in key metrics such as persistency and reimbursement rates [6][18] - The company is optimistic about the potential for Lumerize to transform the treatment landscape for IH and improve patient care [9][10] - Management highlighted the importance of their intellectual property portfolio in protecting Lumerize and its innovations [25] Other Important Information - The company is actively pursuing legal actions against Jazz Pharmaceuticals to protect its rights and intellectual property, including an antitrust case scheduled for trial [11][25] - The company is committed to leveraging its commercial platform to maximize the potential of Lumerize and explore future business development opportunities [93] Q&A Session Summary Question: Guidance and quarterly trajectory - Management indicated that the guidance reflects expectations for continued patient growth and improvements in key metrics, with the potential for future adjustments based on performance [29][30] Question: Patient initiation and dropout rates - Management noted that improvements in persistency were observed in Q2, and they expect these trends to continue, driven by tailored patient support [32][33] Question: Annualized net revenue per patient and inventory impact - The annualized net revenue per patient was approximately $92,000, with no significant impact from inventory stocking on revenue [39][40] Question: Impact of orexin on narcolepsy business - Management views oxybates as complementary to orexin therapies, emphasizing the ongoing importance of oxybates in treating narcolepsy [50][51] Question: Market sizing and growth rates - Management noted that the oxybate market is growing, driven by increased awareness and diagnosis rates, with Lumerize attracting new patients [56][58] Question: Promotional strategies for idiopathic hypersomnia - Management highlighted the overlap in prescribers for narcolepsy and IH, indicating a strong promotional strategy leveraging existing relationships [72][75] Question: Current mix of switch and naive patients - Over half of the patients on therapy are switch patients, with management encouraged by the adoption cycle and growth from both switch and new patients [81][84]

[PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part details the company's financial performance, condition, and cash flows, along with management's analysis and market risk disclosures [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for Avadel Pharmaceuticals plc for Q2 and H1 2025 and 2024 are presented, including income, comprehensive income, balance sheets, equity, cash flows, and detailed notes [Summary of Significant Accounting Policies](index=11&type=section&id=NOTE%201%3A%20Summary%20of%20Significant%20Accounting%20Policies) The company is a biopharmaceutical firm whose sole commercial product is LUMRYZ, an extended-release sodium oxybate for treating cataplexy or EDS in narcolepsy patients - LUMRYZ was approved by the FDA for adults with narcolepsy on **May 1, 2023**, and for pediatric patients (age 7+) on **October 16, 2024**[35](index=35&type=chunk) - The company has initiated a pivotal Phase 3 trial, REVITALYZ, to evaluate LUMRYZ for the treatment of Idiopathic Hypersomnia (IH)[37](index=37&type=chunk) - LUMRYZ was granted Orphan Drug Designation (ODD) by the FDA for the treatment of IH on **June 5, 2025**[37](index=37&type=chunk) [Revenue Recognition](index=14&type=section&id=NOTE%202%3A%20Revenue%20Recognition) All net product revenue for the reported periods is derived from U.S. sales of LUMRYZ, with sales highly concentrated among three customers Percentage of Total Gross Sales by Customer | Customer | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Caremark | 41% | 52% | 43% | 48% | | Accredo | 40% | 33% | 42% | 36% | | Optum | 19% | 15% | 15% | 16% | [Royalty Financing Obligation](index=17&type=section&id=NOTE%206%3A%20Royalty%20Financing%20Obligation) The company has a royalty financing obligation with RTW Investments, L.P. stemming from a $30 million tranche received in August 2023, requiring quarterly payments of 3.75% of worldwide LUMRYZ net product revenue until $75 million is repaid - The company received **$30 million** from RTW and must pay **3.75%** of worldwide LUMRYZ net revenue until a total of **$75 million** is repaid[64](index=64&type=chunk)[65](index=65&type=chunk) Royalty Financing Obligation Activity (in thousands) | Description | June 30, 2025 | | :--- | :--- | | Beginning Balance (Dec 31, 2024) | $37,139 | | Accretion of imputed interest | $4,593 | | Royalty payments made | $(3,859) | | Ending Balance (before current portion) | $37,873 | | Non-current Royalty financing obligation | $35,318 | - Interest expense related to the royalty financing obligation was **$2.4 million** for Q2 2025 and **$4.6 million** for the six months ended June 30, 2025[68](index=68&type=chunk) [Commitments and Contingencies](index=21&type=section&id=NOTE%2012%3A%20Commitments%20and%20Contingencies) This section details the extensive and complex litigation between Avadel and Jazz Pharmaceuticals, involving multiple patent infringement lawsuits and countersuits - In the 'First Jazz Complaint', a jury found Avadel infringed one Jazz patent (U.S. Patent No. 11147782) and awarded damages of **$234**, with a subsequent injunction largely reversed or vacated on appeal by the Federal Circuit in **May 2025**[98](index=98&type=chunk)[102](index=102&type=chunk) - Avadel successfully forced Jazz to delist its REMS Patent (U.S. Patent No. 8731963) from the Orange Book following a court order, which was affirmed on appeal in **February 2023**[93](index=93&type=chunk) - Jazz's lawsuit challenging the FDA's approval of LUMRYZ was dismissed, and the D.C. Court of Appeals affirmed the ruling in **June 2025**, upholding the FDA's approval[140](index=140&type=chunk)[141](index=141&type=chunk) - Avadel has filed its own lawsuits against Jazz, alleging infringement of its patents by Jazz's product XYWAV®, as well as claims of trade secret misappropriation, with these cases ongoing and trial dates set for **2025** and **2028**[120](index=120&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) Consolidated Statements of Income (Loss) Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $68,129 | $41,504 | $120,640 | $68,682 | | Gross profit | $61,763 | $38,716 | $108,697 | $64,372 | | Operating income (loss) | $8,884 | $(12,741) | $5,883 | $(38,776) | | Net income (loss) | $9,665 | $(13,822) | $4,745 | $(41,164) | | Net income (loss) per share - diluted | $0.10 | $(0.14) | $0.05 | $(0.44) | Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $63,402 | $51,371 | | Total current assets | $159,105 | $134,208 | | Total assets | $187,157 | $164,236 | | Total current liabilities | $57,065 | $48,834 | | Total liabilities | $96,448 | $90,388 | | Total shareholders' equity | $90,709 | $73,848 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,465 | $(47,890) | | Net cash provided by investing activities | $4,063 | $31,937 | | Net cash provided by financing activities | $1,672 | $13,913 | | Net change in cash and cash equivalents | $12,031 | $(2,320) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transition to profitability in Q2 2025, driven by LUMRYZ commercialization, highlighting revenue growth, stable operating expenses, and sufficient liquidity for the next twelve months - The company achieved profitability in Q2 2025 with a net income of **$9.7 million**, a significant turnaround from a net loss of **$13.8 million** in Q2 2024[161](index=161&type=chunk) - Net product revenue for LUMRYZ increased **64.2%** to **$68.1 million** in Q2 2025 compared to Q2 2024, driven by patient growth to approximately **3,100** as of June 30, 2025[162](index=162&type=chunk) - The company initiated the REVITALYZ Phase 3 trial for LUMRYZ in Idiopathic Hypersomnia (IH), with the first patient dosed on **July 31, 2024**, and enrollment expected to complete by the end of **2025**[153](index=153&type=chunk)[154](index=154&type=chunk) - Cash, cash equivalents, and marketable securities increased by **$7.8 million** in the first six months of 2025 to **$81.5 million**, supported by **$4.5 million** in cash from operations[160](index=160&type=chunk) [Results of Operations](index=36&type=section&id=2.1%20Results%20of%20Operations) A detailed analysis of the financial results for the three and six months ended June 30, 2025, compared to the same periods in 2024, showing significant revenue growth, slight gross margin decrease, and shifts in R&D and SG&A expenses Gross Profit Analysis - Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $120,640 | $68,682 | $51,958 | 75.7% | | Cost of products sold | $11,943 | $4,310 | $7,633 | 177.1% | | Gross profit | $108,697 | $64,372 | $44,325 | 68.9% | | Gross profit margin | 90% | 94% | - | - | - R&D expenses increased by **$1.5 million (20.9%)** in H1 2025, primarily due to costs for the Phase 3 REVITALYZ clinical trial for LUMRYZ in IH[164](index=164&type=chunk) - SG&A expenses decreased by **$1.8 million (1.9%)** in H1 2025, driven by a **$10.6 million** reduction in legal costs, offsetting increased spending on commercial activities, including higher employee costs (**$5.5M**) and patient/market access costs (**$4.7M**)[166](index=166&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=2.2%20Liquidity%20and%20Capital%20Resources) The company's liquidity position improved significantly, generating $4.5 million in cash from operations in H1 2025, driven by net income and non-cash adjustments, with management believing existing cash and anticipated revenue are sufficient for the next 12 months Net Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Operating | $4,465 | $(47,890) | $52,355 | | Investing | $4,063 | $31,937 | $(27,874) | | Financing | $1,672 | $13,913 | $(12,241) | - The company believes its existing cash, cash equivalents, marketable securities, and anticipated cash from LUMRYZ sales provide sufficient capital for at least the next twelve months[175](index=175&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company outlines its exposure to market risks, primarily interest rate, foreign exchange, and inflation, deeming current impacts immaterial but acknowledging potential future effects on operational costs - Interest Rate Risk: A hypothetical **50 basis point** change in interest rates would not materially impact the fair value of the company's securities due to the short-term nature of the portfolio[177](index=177&type=chunk) - Foreign Exchange Risk: Exposure is primarily from one subsidiary with a euro functional currency, where a **10%** change in the euro exchange rate would have an immaterial impact on net income[178](index=178&type=chunk) - Inflation Risk: The company does not believe inflation had a material effect on its results for the period but acknowledges it could affect future costs for clinical trials, commercialization, and labor[180](index=180&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of **June 30, 2025**[181](index=181&type=chunk) - There were no material changes in internal control over financial reporting during the three months ended **June 30, 2025**[182](index=182&type=chunk) [PART II - OTHER INFORMATION](index=40&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part covers legal proceedings, updated risk factors, equity sales, and other significant corporate information [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed information on the company's ongoing litigation, primarily with Jazz Pharmaceuticals, as disclosed in Note 12 of the financial statements - Information regarding legal proceedings is incorporated by reference from **Note 12: Commitments and Contingencies - Litigation**[184](index=184&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section updates the company's risk factors, emphasizing threats from political and trade instability, intense industry competition, and potential changes in tax law - The company faces significant competition for LUMRYZ from authorized generic versions of Jazz's Xyrem and potential future products, including orexin 2 receptor agonists[188](index=188&type=chunk) - Significant political, trade, or regulatory developments, such as tariffs and changes in U.S. federal policy, could have a material adverse effect on operations[186](index=186&type=chunk) - Changes in tax law, including the 'One Big Beautiful Bill Act' signed on **July 4, 2025**, and the OECD's Pillar Two model rules, could adversely affect the company's business and financial condition[191](index=191&type=chunk)[193](index=193&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the reporting period - None[195](index=195&type=chunk) [Other Information](index=42&type=section&id=Item%205.%20Other%20Information) The company entered into a new employment agreement with General Counsel Jerad G. Seurer, effective August 6, 2025, and reported no Rule 10b5-1 trading arrangements adopted or modified by directors or officers during Q2 2025 - A new employment agreement was executed with General Counsel Jerad G. Seurer, providing a **$420,000** base salary and a **45%** target bonus[198](index=198&type=chunk)[199](index=199&type=chunk) - During Q2 2025, no company directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement[201](index=201&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including new employment agreements and officer certifications - Filed exhibits include new employment agreements for Susan Rodriguez (dated **May 1, 2025**) and Jerad Seurer (dated **August 6, 2025**)[202](index=202&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to SEC rules and the Sarbanes-Oxley Act were also filed[202](index=202&type=chunk)