PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024, including statements of loss, balance sheets, cash flows, and notes on accounting policies, revenue, and legal matters Note 1: Summary of Significant Accounting Policies This note outlines the company's operations, focusing on its sole commercial product LUMRYZ, its FDA approvals, Orphan Drug Exclusivity, and recent corporate actions including direct Nasdaq listing and an ATM offering program - The company's only commercialized product is LUMRYZ, an extended-release sodium oxybate for treating cataplexy or excessive daytime sleepiness (EDS) in adults and children (7+) with narcolepsy2629 - LUMRYZ received FDA approval for adults on May 1, 2023, with Orphan Drug Exclusivity (ODE) until May 1, 2030. The pediatric indication was approved on October 16, 2024, with ODE through October 16, 203127 - Effective April 15, 2024, the company's ordinary shares were directly listed on Nasdaq, following a mandatory exchange of its American Depositary Shares (ADSs) A new At-the-Market (ATM) offering program for up to $100 million was established on May 8, 2024313234 Note 2: Revenue Recognition This note details that all net product revenue is from U.S. LUMRYZ sales, with 100% of gross sales concentrated among three key customers: Caremark, Accredo, and Optum Gross Sales by Customer Concentration | Customer | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Caremark | 43% | 46% | | Accredo | 39% | 37% | | Optum | 18% | 17% | Note 6: Royalty Financing Obligation This note details the royalty financing obligation with RTW, including the $30 million first tranche, 3.75% quarterly royalty payments up to $75 million, a $2 million expiration fee, and an effective interest rate of 30.4% - The company has a royalty financing obligation with RTW, requiring quarterly payments of 3.75% of LUMRYZ worldwide net revenue until a total of $75 million is paid back58 - The company received the first tranche of $30 million but allowed the second tranche to expire on August 31, 2024, incurring a one-time commitment fee of $2 million57 Royalty Financing Obligation Activity (Nine Months Ended Sep 30, 2024) | Description | Amount (in K) | | :--- | :--- | | Beginning Balance (Dec 31, 2023) | $32,760 | | Accretion of imputed interest | $8,128 | | Royalty payments made | ($3,305) | | One-time expiration payment | ($2,000) | | Ending Balance (non-current) | $34,437 | Note 11: Commitments and Contingencies This note details the company's complex legal proceedings, primarily with Jazz Pharmaceuticals, involving patent infringement lawsuits, Avadel's antitrust counterclaims, trade secret misappropriation claims, and Jazz's unsuccessful challenge to LUMRYZ's FDA approval - In the patent trial with Jazz, a jury found infringement of one patent (U.S. Patent No. 11147782) with damages of $234 The court issued an injunction but excluded Avadel's ability to continue selling LUMRYZ for narcolepsy An ongoing royalty rate is pending, and Avadel is appealing the decision8788 - Avadel has filed antitrust counterclaims against Jazz, alleging monopolization under the Sherman Act related to the improper listing of a patent in the FDA's Orange Book The court denied Jazz's motion to dismiss these claims9697 - On October 30, 2024, the D.C. District Court ruled in favor of the FDA and Avadel, denying Jazz's motion for summary judgment that sought to overturn the FDA's approval of LUMRYZ108 Note 12: Subsequent Events This note reports a significant post-period event: LUMRYZ received FDA approval on October 16, 2024, for pediatric narcolepsy (ages seven and older), with Orphan Drug Exclusivity granted until October 16, 2031 - On October 16, 2024, LUMRYZ was approved by the FDA for pediatric narcolepsy patients aged seven and older, receiving Orphan Drug Exclusivity until October 16, 2031110 Condensed Consolidated Statements of Loss (Unaudited) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $50,025 K | $7,014 K | $118,707 K | $8,510 K | | Gross profit | $43,870 K | $6,897 K | $108,242 K | $8,357 K | | Operating loss | ($327) K | ($35,110) K | ($39,102) K | ($112,949) K | | Net loss | ($2,625) K | ($36,274) K | ($43,789) K | ($131,490) K | | Net loss per share - diluted | ($0.03) | ($0.41) | ($0.46) | ($1.71) | Condensed Consolidated Balance Sheets (Unaudited) | Metric | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $127,258 K | $134,202 K | | Total assets | $158,253 K | $164,698 K | | Total current liabilities | $42,783 K | $36,855 K | | Total liabilities | $83,590 K | $76,959 K | | Total shareholders' equity | $74,663 K | $87,739 K | Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($54,780) K | ($100,482) K | | Net cash provided by (used in) investing activities | $36,867 K | ($78,021) K | | Net cash provided by financing activities | $15,090 K | $156,446 K | | Net change in cash and cash equivalents | ($2,585) K | ($22,170) K | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, emphasizing significant revenue growth from LUMRYZ's commercial launch, increased operating expenses due to commercialization and clinical trials, and confirms sufficient liquidity for the next twelve months - LUMRYZ is the company's only commercial product It received FDA approval for adults in May 2023 and for pediatrics in October 2024, with Orphan Drug Exclusivity through 2030 and 2031, respectively114115 - The company has initiated REVITALYZ, a Phase 3 pivotal trial to evaluate LUMRYZ for the treatment of Idiopathic Hypersomnia (IH), with the first patient dosed on July 31, 2024124 Financial Performance Summary (Q3 2024 vs Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net product revenue | $50,025 K | $7,014 K | +$43,011 K | +613.2% | | Gross profit | $43,870 K | $6,897 K | +$36,973 K | +536.1% | | Operating loss | ($327) K | ($35,110) K | +$34,783 K | -99.1% | | Net loss per share | ($0.03) | ($0.41) | +$0.38 | -92.7% | - Management believes existing cash, cash equivalents, marketable securities, and anticipated cash from LUMRYZ sales provide sufficient capital to meet requirements for the next twelve months155 Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to various market risks, concluding that interest rate risk from short-term investments and foreign exchange risk from a euro-denominated subsidiary are immaterial, while acknowledging potential future impacts of inflation on operational costs - Interest rate risk is considered low, as a hypothetical 50 basis point change in interest rates would not materially impact the fair value of the company's short-term investment portfolio157 - Foreign exchange risk is primarily related to a subsidiary with a euro functional currency, but the potential impact of a 10% currency fluctuation on net loss is considered immaterial158 - Inflation has not had a material effect on operations, but the company acknowledges it could increase future costs for clinical trials, commercial launch, and labor160161 Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of September 30, 2024, 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 September 30, 2024162 - There were no changes in internal control over financial reporting during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, these controls163 PART II – OTHER INFORMATION Legal Proceedings This section refers to Note 11 of the financial statements in Part I for detailed information on the company's legal matters, primarily ongoing litigation with Jazz Pharmaceuticals - Information regarding legal proceedings is incorporated by reference from Note 11: Commitments and Contingencies - Litigation in Part I, Item 1 of this report164 Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K filed on February 29, 2024165 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the reporting period - The company reported no unregistered sales of equity securities for the period165 Other Information This section discloses that no directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of 2024 - During the three months ended September 30, 2024, no directors or officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement166
Avadel Pharmaceuticals plc(AVDL) - 2024 Q3 - Quarterly Report