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Avadel Pharmaceuticals plc (NASDAQ:AVDL)
Q1 2020 Earnings Call
May 11, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Avadel Pharmaceuticals First Quarter 2020 Financial Results Conference Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

It is now my pleasure to introduce your host Tom McHugh, Chief Financial Officer. Mr. McHugh, you may begin.

Thomas S. McHugh -- Chief Financial Officer

Good morning and thank you for joining us on our conference call. This morning, we issued our first quarter financial results news release. The release can be accessed on our website www.avadel.com.

As a reminder before we begin the following presentation includes several matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and the impact of competitive products and pricing.

These and other risks are described more fully in Avadel's public filings under the Exchange Act, including the Form 10-K for the year ended December 31st, 2019, which was filed on March 16th, 2020 and in subsequent SEC filings. Except as required by law Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise.

On the call with me today are: Greg Divis, our Chief Executive Officer; and Dr. Jordan Dubow, our Chief Medical Officer.

At this time, I'll turn the call over to Greg Divis.

Gregory J. Divis -- Chief Executive Officer

Thank you, Tom. And good morning, everyone, and thank you for joining us on our first quarter 2020 conference call. Before we get started, we certainly hope you and your families are safe and healthy during this COVID-19 pandemic. Before, we appreciate the impact this has had on our economy and on our everyday lives. As a company we have proactively taken the necessary actions to ensure our business continues to operate, and our employees and their families are safe and healthy. We remain in daily communication with our suppliers and partners; neighboring us to identify and monitor potential risks to our supply chain and to our critical business objectives, specifically with respect to FT218.

Today, we have navigated COVID-19 with no material impact, given the difficulty in predicting any future impact, we are and will remain diligent in our daily monitoring of the situation. Again we wish you, your families and colleagues all the best during this pandemic.

Let's now turn the -- to the update for the first quarter. I'll begin with a brief update on our business highlighting the key progress we have made year-to-date, as we continue to execute against our strategy and the transformation of Avadel. I'll then turn the call over to Jordan to give an update on the FT218 program followed by Tom, who will review the financial results for the quarter and we will conclude with a Q&A session.

With that, let's get started. With just over a year ago that we announced a significant shift in our strategy to focus on the development of FT218 and carried out a major restructuring of the company. Since that time, we have strengthened our team with a number of key hires, all who have been integral to developing and effectively executing our strategy. The team's insight, their tenacity and execution, we achieved the strategic milestones set out a year ago.

From restructuring our operations and removing $80 million in cost from the company to completing our pivotal Phase 3 REST-ON trial, 12 months ahead of schedule. This progress culminated with our recent announcement just two weeks ago, a positive topline data from our pivotal Phase 3 REST-ON study. We are extremely pleased with the data as once-nightly FT218 demonstrated, highly statistically significant and clinically meaningful improvements across all three co-primary endpoints MWT, CGI and cataplexy, compared to placebo at all three doses study, 9 grams, 7.5 grams and 6 grams.

In addition, we reported that FT218 at the 9 gram dose was generally well tolerated. As Jordan will discuss in detail this data clearly demonstrates the potential benefit once-nightly FT218 may provide for treating both excessive daytime sleepiness and cataplexy in patients with narcolepsy. Furthermore, this data answers questions, many interested stakeholders have had as to how FT218 would perform in a clinical setting. There is no more speculation and these questions have now been answered. And the clinical trial results have put us on a direct path to advance once-nightly FT218 to NDA submission and toward our goal of bringing once-nightly FT218, if approved to patients as soon as possible.

Progress we have made both year-to-date and over the last year as not only delivered this impressive topline data, but also resulted in the significant strengthening of our balance sheet. The result of the transformation of Avadel, the accelerated progress of FT218 and the recent exceptional topline data readout, we have now completed two financings in less than 90 days, raising a total of $190 million in gross proceeds, thus significantly strengthening our balance sheet during a time of unpredictable market volatility and challenges due to COVID-19. This injection of capital further extends our cash runway and provides Avadel with the resources we believe are needed to complete the NDA submission for the FDA, compile additional supporting scientific data to position FT218 in the market and investment plans and capabilities to prepare for and fund a successful launch of FT218.

In short, we now have the financial strength to execute the required plans, while ensuring we retain all strategic optionality for FT218 and the company overall. Each of these actions and many more have put us on an accelerated path toward recognizing the growth and value-creation opportunity we believe FT218 offers patients and our investors. While providing if approved a new treatment option for the tens of thousands of narcolepsy patients, who could potentially benefit from once-nightly FT218.

As I conclude my opening comments, the past several months, the COVID-19 pandemic has been a time of significant personal and professional challenge for everyone. Despite these challenges, our team has remained focused and continues to execute exceptionally well on behalf of the company and its shareholders. We are grateful for the support of all stakeholders and the execution of our team over the past 12 plus months and especially since the beginning of 2020 and during this pandemic.I'll now turn the call over to Dr. Jordan Dubow, Chief Medical Officer to provide an update on the FT218 development program. Jordan?

Jordan Dubow -- Chief Medical Officer

Thank you, Greg, and good morning everyone. As we discussed in our recent data call, we are thrilled with the topline data results from the REST-ON Phase 3 study that was conducted under a special protocol assessment agreement with the FDA. In this study, we had three co-primary endpoints: Maintenance of Wakefulness Test for the MWT, the Clinical Global Impression-Improvement or CGII; and Mean Weekly Cataplexy Attacks. While most studies are required to win on just one primary endpoint, we had to win on all three co-primary endpoints.

Our three co-primary end points are important in that there are measures of both the underlying phenomenology of the disease, i.e. excessive daytime sleepiness and cataplexy in narcolepsy patients, as well as an overall functional outcome, the CGI, which serves as an anchor to show the clinical meaningfulness of the other two endpoints. In the REST-ON study, the primary analysis or the primary endpoint was conducted on the 9 gram dose for all three co-primary endpoints, which were in a higher article order. If the 9 gram dose was successful, we were then able to test the 7.5 gram dose on all three co-primary endpoints, followed by the 6 gram dose up to 7.5 gram dose was also successful.

With that setting the stage for the study's protocol, let me say we were excited to report that FT218 at the 9 gram dose exhibited highly significant, clinically meaningful improvement over placebo for all three co-primary endpoints. Additionally, the 7.5 gram and 6 gram doses also demonstrated a highly significant, clinically meaningful improvement for all three co-primary endpoints, compared to placebo as early as three weeks after starting FT218. In addition, FT218 at the 9 gram dose was also generally well tolerated.

The Phase 3 study results we presented to-date are in line with our expectations based on the pharmacokinetic data that we presented last year for FT218. As a reminder, we demonstrated in two earlier head-to-head studies that FT218 at the 4.5 gram and 6 gram strength had equivalent exposure, lower overall Cmax and lower plasma concentrations eight hours after dosing, compared to the same strengths of the twice-nightly sodium oxybate.

Looking ahead, we've announced we are initiating an open-label extension study for REST-ON and a Switch study to evaluate patients switching from twice-nightly sodium oxybate to once-nightly FT218. Although these studies are not needed for regulatory submission or approval, we would like to provide those patients who participated in the REST-ON study with continued access to FT218, as well as generate data for physicians on both extended use of FT218 and patients switching from twice-nightly sodium oxybate to once-nightly FT218. Although this is an important study, the safety of our patients in clinical trials site personnel comes first, which is why we recently made a decision to delay initiation of enrollment in the study, due to the current COVID-19 pandemic.

We will continue to monitor the situation and we'll start enrollment as soon as we determine it's safe for our stakeholders. Again, these studies are not needed to support a regulatory submission or approval, so this decision does not impact the timing of our NDA submission. We look forward to meeting with the FDA, at a pre-NDA meeting, to discuss the format and content of our FDA submission and are working diligently to expeditiously file our NDA and bring this once-nightly drug to patients.

We think the data generated for FT218 to-date will serve as a strong basis for a complete regulatory package, as well as position FT218 as a potentially meaningful new treatment option for the narcolepsy community. I want to again thank all the patients, investigators and study staff, who have participated in the REST-ON study, as well as the Avadel team, for getting us to this exciting and pivotal time in the company and for the patients we serve.

With that, I would like to turn the call over to our Chief Financial Officer, Tom McHugh, to review the financial.

Thomas S. McHugh -- Chief Financial Officer

Thanks, Jordan. I will summarize a few financial highlights for the first quarter and then turn the call back to Greg for closing remarks.

Our hospital products business generated $12.2 million of revenue in the first quarter 2020, compared to $16.4 million of revenue in the first quarter of 2019. The decline on a year-over-year basis was primarily attributed to lower overall sales volume across the company's hospital products as a result of increased market competition. Taking into consideration the ongoing impact of coronavirus in the global economy, in a particular electrosurgeries in the US, anticipate revenues will decline in the second quarter of 2020, possibly significantly from the first quarter of 2020.

R&D expenses were $5.5 million in the first quarter of 2020, compared to $7.3 million in the first quarter of 2019. This decrease on a year-over-year basis is primarily attributed to lower headcount, due to the restructuring activities completed during 2019.

SG&A expenses were $7.9 million in the first quarter of 2020, compared to $10.4 million in the first quarter of 2019. This 24% decline is primarily the result of realized cost reductions and restructuring actions completed during 2019. We recorded an income tax benefit of $9.5 million in the first quarter 2020, compared to $0.4 million in the first quarter of 2019.

Tax benefit in the first quarter 2020 is primarily the result of the passage of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act that was enacted on March 27th, 2020. The CARES Act allows the company to carry back net operating losses to periods when the statutory tax rate was 35% versus our current tax rate of 21%. The 14% rate differential, when applied to our NOLs, represents the majority of the $9.5 million benefit.

Net loss for the quarter of 2020 was $0.9 million or $0.02 per share, compared to a net loss of $13 million or $0.35 per share for the same period in 2019. The company's net cash burn for the quarter was approximately $11 million and included $1.5 million of payments related to our restructuring activities. The royalty payment of $2.1 million related to our hospital products business and an interest payment of $3.2 million related to the convertible notes.

Cash, cash equivalents and marketable securities were $113.5 million as of March 31st 2020, which includes net proceeds of approximately $60 million related to the private placement completed in February. Subsequent to the end of the quarter, in May of 2020, the company completed a public offering receiving net proceeds of approximately $117 million after deducting estimated offering expenses.

As Greg mentioned earlier, based on current cash on hand, coupled with cash flow generated from our hospital products business, we believe we have the cash needed to complete the NDA submission for the FDA, compile additional supporting scientific data, position FT218 in the market. And based on current plans, expand and add the requisite capabilities to prepare for and fund a successful commercial launch of FT218.

Now, I will turn the call back over to Greg for closing remarks.

Gregory J. Divis -- Chief Executive Officer

Thanks, Tom. In closing, although we are pleased with the progress we have made to-date in advancing FT218 toward an NDA submission, the strengthening of our balance sheet and the positioning of Avadel to maintain all optionality to maximize shareholder value. We fully recognize there's much more to be done. And our success will be measured on the progress we make going forward, not on what we've accomplished already.

As such, we remain fully focused on and committed to delivering the results we believe are required to build sustainable shareholder value and bring a potentially meaningful treatment option to the tens of thousands of narcolepsy patients, who could potentially benefit from once-nightly FT218. I too want to thank our investigators, patients, shareholders and fellow employees for their contributions to our progress and support of our strategy. We look forward to providing investors and all stakeholders with further updates in the future.

With that, we are ready to open the line for Q&A. Operator?

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] The first question is from David Amsellem, Piper Sandler. Please go ahead, sir.

David Amsellem -- Piper Sandler -- Analyst

Thanks and I have a couple of questions. So first, on the actual filing of FT218 and potential litigation with Jazz, can you just talk us through mechanically what happens when you have an accepted filing and you don't certify. And just walk us through how we should think about the calendar regarding litigation. I would imagine just Jazz initiates litigation, but you don't certify, but they're going to force a certification. So how should we think about mechanically how that plays out and how the calendar should play out regarding that? That's number one.

Number two is regarding pricing of FT218 let's assume that you do launch without delay, is it fair to assume that you'll come in at a lower price point than JZP-258? And that you won't necessarily be irrational here, but will come in at a price point that gets you in the good graces of payers and gets you more hassle-free access. How should we think about that? Thanks.

Gregory J. Divis -- Chief Executive Officer

Hi, David, it's Greg. So why don't -- I'll just -- we will take those in reverse, if you don't mind.

David Amsellem -- Piper Sandler -- Analyst

Sure.

Gregory J. Divis -- Chief Executive Officer

Again, I think it's premature to finalize a pricing strategy or disclose and discuss the final pricing strategy as we sit here today and in particular, in reference to two other products in the marketplace that haven't been approved, launched or priced at this stage. I think it's fair to say, I think as we've discussed in the past that having access and removing barriers are important attributes of a successful launch from our perspective and pricing is certainly going to be part of that. We certainly, as we thought about pricing without saying we've narrowed it in, we certainly don't expect ourselves to price at a premium and that we would be looking to price at a point where we can create the type of access that's required to have a successful launch and build FT218.

As it relates to your question about timelines and litigation, maybe I'll make a couple of remarks and Jordan, feel free to weigh in as well. We can't obviously comment on what other companies may or may not do or what their strategy is or isn't from that perspective. What we do know is we'll have a filing that we will -- and obviously we'll file our NDA. There will be -- we're filing under a certain pathway, as we've described and disclosed with -- as it relates to the two relevant Orange Book-listed patent families, from a Section A carve out standpoint. As Jordan acknowledged or communicated just a minute or two ago that we would expect to have a complete and robust filing package. And that's what we will obviously submit that to the FDA. We would expect that to be accepted in typical form or fashion as they are within the 60-day window where the NDA is accepted. And then we will proceed through the full review, right?

In terms of timing or what other parties may or may not do from a litigation standpoint, we can't speak to that. But that certainly is the window we would expect and we would engage in the review, obviously, with the FDA directly at that point. And so, anyway, I think that's how -- that's kind of where we're at.

David Amsellem -- Piper Sandler -- Analyst

Okay. Thank you.

Operator

We've a question from Paul Matteis, Stifel. Please go ahead, sir.

Paul Matteis -- Stifel, Nicolaus & Company -- Analyst

Great. Thanks so much. Maybe as a follow-up to that, when you do file and when the NDA is accepted, assuming it is? When and how do you find out whether or not there may be a 30-month stay? Does that happen upon acceptance or does that -- does it take until ultimately labeling discussions and kind of the finalization of some of these nuance considerations for you to really know about potential launch timing?

Gregory J. Divis -- Chief Executive Officer

Yes.

Paul Matteis -- Stifel, Nicolaus & Company -- Analyst

And then second, maybe now that you've got the data in hand, had time to analyze it, can you just clarify what rate limiting profiling other than putting the package together, do you need data from any other ancillary studies as well? Thanks so much.

Gregory J. Divis -- Chief Executive Officer

Yes. So I'll take the first question, Paul, and thanks for your question, and then I'll ask Jordan to comment on the second one. With regards to timing or when we'll know if our carve out strategy is successful. Clearly, we believe as we proceed from a pre-NDA meeting all the way through submission, acceptance and get into the full review, we believe we'll learn as we go along, how our data and our filing strategy has been viewed from the FDA's perspective, right? But at this stage, from my -- from our viewpoint, given that we are pursuing a regulatory approach that carves out, until we have a final label, I'm not so sure we'll be able to firmly state publicly that we have successfully carved out.

Conversely, if something emerges during the review period that would result in us moving in a different direction, we'd obviously have an obligation given all of these recent communications. We would obviously have an obligation to disclose that and because we would then be certifying and obviously subject to a potential 30 months stay. That being said, as we've discussed numerous times, we believe we have a clear path and clear data that supports a regulatory and filing strategy that gives us an opportunity to successfully carve out of those Orange Book-listed patents from our label and avoid certification in any potential 30-months stay whatsoever.

With regards to data and kind of what's next on the NDA, maybe, Jordan, you want to comment, please?

Jordan Dubow -- Chief Medical Officer

Yes, thanks. Thanks, Greg. Thanks, Paul. Yes, I mean, I think, you know, in terms of the NDA, obviously we have to compile the NDA, do some integrating of data sets, which just takes time, lot of documents, lot of work that has to be done, which my team were early working on to get move as fast as we can. And then really the only like -- in terms of like box checking, I think Greg spoken before about getting a secondary manufacturer as part of our application. So there's some bridging work that we have to do there, that's really more of a box checking activity that we don't view as a challenge, but it's just work that still need to be done. And so we're moving forward with that. As I said, we're -- we've already taken the next steps to meet with the FDA and then ensure we're all in alignment done, what goes in the filing.

Paul Matteis -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you very much.

Gregory J. Divis -- Chief Executive Officer

Thanks, Paul.

Operator

The next question is from Francois Brisebois, Craig-Hallum. Please go ahead, sir.

Francois Brisebois -- Craig-Hallum Capital -- Analyst

Hi. Thanks for taking the question. Just a couple of quick ones here. In terms of the full data, when do we expect -- did you mention that it's be more of a potentially 2021 event, a scientific conference, or when would we expect to see the full data set here?

Gregory J. Divis -- Chief Executive Officer

Jordan, you want to...

Jordan Dubow -- Chief Medical Officer

Sure. Yes, yes. Thanks. Thanks, Frank. Yes, I mean, I think right now, and as we've said before, in all likelihood we'll present at a scientists congress next year. I think, secondary end point it's going to be supportive of the primaries in terms of some PSG data, as well as some additional patient reported outcomes in terms of sleep quality, as well as the app worth we obviously, as a secondary endpoint as well. I mean, I'm highly confident based on the primary data that these will -- FT218 will show benefit on these as well. At this stage, though, I don't know for sure when, if we are going to present in before the normal scientific congress that we have next year.

And obviously, I think a lot of things are in flux right now as well, just based on what's going to be the state of Congress is even next year. I think there's some concern that they all are going to be virtual, or they're not. So we're still sure enough to plan, but most likely, it'll be presented scientifically next year.

Francois Brisebois -- Craig-Hallum Capital -- Analyst

Understood. And then, just two quick ones here. When would you expect -- I understand there's a delay in initiation in terms of the open-label and the switch. But once that gets going from start to finish, how long would you expect us to see data on that? And then terms of 6 gram, 7.5 gram, 9 gram dose distribution, it seems like a lot of the efficacy was seen at the 7 gram dose. I'm just wondering, in the real world, how often do people titrate up in progress to the 9 gram dose, or what would you expect there in terms of percentages of people going from 6 gram all the way to 9 gram?

Jordan Dubow -- Chief Medical Officer

Yes, in terms of the open-label switch, right -- early March, we had a large number of our sites ready to go. We actually had our first patient due to come in to start the study, and we unfortunately had to call the investigator that night when we -- early March and we kind of anticipated what was happening from the pandemic standpoint and just decided it's safer for everyone to just hold off since we don't have to do this study.

And I think just like everyone else for obviously ongoing clinical trials for rest of the world we're keeping an eye on it. We obviously want to get it going. We want to get access to the patients. So we're continuing to look at that. I think -- obviously, we hope to start it fairly soon, but we have to ensure it's safe.

In terms of data, I mean, I think we commented, it's an open-label study. So we'll be able to periodically just, kind of, see some of the data that were captured in terms of how many patients, what doses are the on, some of the questions that we're asking. And so, assuming we can start it, let's say hopefully by the end of this quarter, it is an optimistic goal. I'm not saying that's going to for sure. It's going to depend on, I think what happens in different parts of the world in terms of different parts of the country, how many people are going out. If we can start it toward the end of this quarter, I still think we'll have some useful data by the end of the year. And again, it's an open-label study. So some of it we can, obviously keep updated on.

In terms of the dosing, you know, it's a good question. I mean, obviously, I can only really only comment on data that I've seen published from the twice-nightly product. And I think in the real world, although the 9 gram dose had probably the highest efficacy in the previous clinical trials, in the real world, not everyone goes up to the 9 gram dose. They like to, I think, stay between 6 gram and 7.5 gram is probably the majority of patients.

When you look at our primary data, the delta versus placebo is similar between the two doses. The change from baseline is obviously still bigger with a 9 gram dose. And so, I think these from what it looks like now, the 9 gram dose was well tolerated. I think there's some big reason for some people to be pushed up to that highest dose. And so I think our distribution will still be at the higher doses given how well our 6 gram dose performed and how early performed, I don't think we'd be surprised if, it's a similar distribution where the majority of people are on the 6 gram and 7.5 gram dose. I think it's a good option. As you know, there are -- everyone is different and that's why I think is the last time we anticipated. Still our view would be to get all doses approved. We feel optimistic about that because there may be some patients, who need the 9 gram, while others are fine in the 7.5 gram dose.

Francois Brisebois -- Craig-Hallum Capital -- Analyst

Great. Does the dosage affect the pricing potential?

Gregory J. Divis -- Chief Executive Officer

Frank, Greg. Thanks. We haven't again discussed, but -- how we would consider, again, pricing, but I think as we think about it today, it would likely not have a material impact on pricing.

Francois Brisebois -- Craig-Hallum Capital -- Analyst

Understood. All right. Thank you. That's it for me. I will hop in the queue.

Jordan Dubow -- Chief Medical Officer

Thanks, Frank.

Operator

[Operator Instructions] We have a question from Matt Kaplan, Ladenburg. Please go ahead, sir.

Matt Kaplan -- Ladenburg Thalmann -- Analyst

Hey, guys. Good morning. Thanks for taking the questions. Just wanted to follow-up -- maybe a question for Jordan. Follow-up on the two planned studies, open-label extension and the switching study. Can you help us understand perhaps if there is going to be data that's generated from these studies that will help you to differentiate FT218 from XYREM in light of the fact that we've already seen some compelling data with respect to potentially a better side effect profile, due to the lower Cmax? I guess, what do you hope to generate from these two studies that you've planned?

Jordan Dubow -- Chief Medical Officer

Hi, Matt. Good morning and thanks for the question. Yes, I mean, I think we haven't given out I think the full details. But as we've said, I mean, we don't want to overcomplicate it. We're still just doing an open-label study. And the differentiators will be, there's a few questionnaires that we have will kind of give some form of preference data. Outside of that, there's a lot of complications with generating, kind of, the robust data, right? I mean, we did want to do a double-blind double-dummy study, then you'd have to wake up both patients in the middle of the night, which could affect some of that differentiation. And so that's where we wanted to be keep it as simple as we could, yet gain important information about dosing. But we do have some questionnaires about preference that we'll get to, kind of, some of those differentiation concepts of our overall both, kind of, the dosing regimen, as well as the efficacy and safety versus prior to coming into the study.

Matt Kaplan -- Ladenburg Thalmann -- Analyst

Okay, great. Thanks. That was my question today.

Gregory J. Divis -- Chief Executive Officer

Thanks, Matt. Okay. Well, it seems like there are no further questions in the queue, so I think we'll just wrap the call up now. And first of all, thank all of you for joining us on our call today. And we appreciate your time and your questions and look forward to staying in touch with all of you. Stay safe and be healthy. And we wish you all the best. Have a great rest of the day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Thomas S. McHugh -- Chief Financial Officer

Gregory J. Divis -- Chief Executive Officer

Jordan Dubow -- Chief Medical Officer

David Amsellem -- Piper Sandler -- Analyst

Paul Matteis -- Stifel, Nicolaus & Company -- Analyst

Francois Brisebois -- Craig-Hallum Capital -- Analyst

Matt Kaplan -- Ladenburg Thalmann -- Analyst

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