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Edited Transcript of AVDL.OQ earnings conference call or presentation 12-Nov-19 1:30pm GMT

Q3 2019 Avadel Pharmaceuticals PLC Earnings Call

DUBLIN Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Avadel Pharmaceuticals PLC earnings conference call or presentation Tuesday, November 12, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory J. Divis

Avadel Pharmaceuticals plc - CEO & Director

* Jordan Dubow

Avadel Pharmaceuticals plc - Chief Medical Officer

* Michael F. Kanan

Avadel Pharmaceuticals plc - Senior VP & CFO

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Presentation

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Operator [1]

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Greetings. Welcome to Avadel Third Quarter 2019 Earnings Call. (Operators Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Michael Kanan, Chief Financial Officer. Please go ahead.

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Michael F. Kanan, Avadel Pharmaceuticals plc - Senior VP & CFO [2]

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Good morning and thank you for joining us on our conference call. This morning, we issued our third quarter 2019 financial results news release. The release can be accessed on our website at avadel.com.

As a reminder, before we begin, the following presentation includes a number of 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 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 31, 2018, which was filed on March 15, 2019. 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 will turn the call over to Greg Divis. Greg?

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Gregory J. Divis, Avadel Pharmaceuticals plc - CEO & Director [3]

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Thank you, Mike. Good morning, everyone, and thank you for joining us on our third quarter conference call. I'll start with a brief update on our business and the progress being made as we continue the execution of our strategic objectives and the transformation of Avadel. I'll then turn the call over to Jordan to give an update on FT218, followed by Mike, who will review the financials for the quarter. With that, let's get started.

During our third quarter, we continued to execute and make substantial progress against the key objectives we set out to achieve earlier this year. We're especially pleased by several of the events we recently announced, which continued to positively change the trajectory of our business. We are primarily focused on the clinical development of FT218 to potentially disrupt the $1.6 billion sodium oxybate market for treating narcolepsy as well as maximizing the cash flow from our sterile injectable hospital products.

First and foremost, we recently announced that the FDA agreed to an amendment to our ongoing pivotal REST-ON Phase III protocol and statistical analysis plan, assessing the efficacy and safety of our once-nightly sodium oxybate, FT218. This amendment is expected to reduce the time line for the study by up to 12 months while keeping our FDA-approved Special Protocol Assessment agreement in place.

I'm pleased to announce that as of today, the REST-ON study has enrolled 200 patients out of the 205 total patients we are targeting. With the currently scheduled number of patients in screening and baseline over the next 4-plus weeks, we've remained on track and expect to complete enrollment by the end of this calendar year as well as provide top line data in the second quarter of 2020.

Completing this study up to a year earlier than we had planned can be attributed to the contributions and insightful work of our clinical and medical team. I'm very pleased with how the team has come together and the impact they are making in advancing our FT218 program.

This brings me to the recently presented data from 4 Phase I studies for FT218 at the World Sleep 2019 Congress. As Jordan will describe in a moment, this compelling data comparing the 4.5-gram and 6-gram dosages of our once-nightly FT218 to the corresponding dosages of twice-nightly sodium oxybate strengthens our confidence in the ongoing Phase III REST-ON study of FT218. As we often remind people, FT218 being developed under a 505(b)(2) pathway with no new chemical entity risk and only requiring 1 pivotal study, which is now approximately 98% complete and is being governed by a Special Protocol Assessment agreement with the FDA. When considering the totality of new data published this year, the progress on accelerating the REST-ON trial and feedback we've received from patients and physicians about the prospects of once-nightly FT218, we are more excited than ever about the benefits FT218, if approved, could potentially offer patients, caregivers and health care providers.

Turning to the positive trends we are seeing in the sterile injectable hospital business, we announced earlier today that sales from our 3 current commercial products have continued to outperform expectations with total revenue of $14 million for the third quarter and $48 million for the first 9 months of 2019. As a result of this better-than-expected performance over the past 9 months, we have raised our revenue guidance for 2019 to be at or above $55 million.

The next major milestone for this part of our business is receiving the FDA's decision on the NDA for AV001, which is a sterile injectable product designed for use in the hospital setting. AV001 will be sold through the same channel as our currently approved products and will benefit from an existing infrastructure and proven capability in launching into products this space.

Currently, based on where we are today, we still expect to announce the FDA's decision on this product around the PDUFA date, December 15, and we'll keep our investors informed as appropriate. If approved, the launch of AV001 is expected to contribute to our 2020 revenue and further support the development of FT218. We look forward to updating all investors on the status of and the opportunity for AV001 as we close in on the PDUFA date in December.

I'll end my comments today by mentioning that in addition to the higher-than-expected revenue and potential future revenue from the hospital business, our liquidity moving forward has greatly benefited from the restructuring and other cost reduction actions taken since the beginning of the year. These activities include exiting nonstrategic businesses, consolidating geographically and reducing our headcount from over 220 dedicated FTEs to what will be approximately 30 employees or less in 2020. This is while, in parallel, we have made critical additional strategic hires throughout this period, strengthening the technical, functional and leadership capabilities across the organization.

In total, we have reported approximately $63 million of lower SG&A and R&D spend year-over-year, which keeps us on track to realize between $80 million and $90 million in annualized cost savings for 2019. The totality of these actions speaks to our entire team's commitment to refocus the company strategically and operationally while taking the necessary and aggressive and urgent actions to strengthen the company financially in our pursuit of rebuilding trust and rebuilding shareholder value.

I'll now turn the call over to Dr. Jordan Dubow, our Chief Medical Officer, to provide a detailed update on the FT218 program.

Jordan, the floor is yours.

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Jordan Dubow, Avadel Pharmaceuticals plc - Chief Medical Officer [4]

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Thank you, Greg, and good morning, everyone. We've had a very productive few months in advancing the FT218 program towards potentially realizing the significant opportunity that a once-nightly formulation of sodium oxybate offers the narcolepsy community. When speaking with treating physicians and patients about the benefits of once-nightly treatment of sodium oxybate could have on their quality of life, it seems that there's a clear demand in the market.

As Greg mentioned earlier, we recently announced the FDA agreed to an amendment to the protocol and statistical analysis plan for our FT218 REST-ON Phase III pivotal study, which is still under a Special Protocol Assessment agreement with FDA. Most importantly, we are able to implement this amendment while retaining the scientific, statistical and clinical robustness of the study. Specifically, the amendment to our statistical analysis plan allows us to analyze the 9-gram dose independently first, and if positive, the 7.5-gram dose and 6-gram dose, respectively, as previously described. This is instead of analyzing both the 9-gram and 7.5-gram doses simultaneously, as originally planned.

It is important to note that this change should not modify the fundamental design of our protocol, including the primary and secondary endpoints, the treatment duration or the doses being studied. As a result of this amendment, the study now only needs to enroll a target of 205 patients to be sufficiently powered to show a statistically significant and clinically meaningful improvement in both cataplexy and excessive daytime sleepiness.

As Greg mentioned earlier, the current enrollment for the study stands at 200. This puts us on track to complete enrollment by the end of 2019 and have top line data in the second quarter of 2020. This is up to a year ahead of our previous expectations for the study.

I would also like to take this opportunity to highlight the recent PK data we presented at this year's World Sleep Congress, which is from 4 Phase I studies to comparing the relative bioavailability of once-nightly FT218 to twice-nightly sodium oxybate at 4.5-gram and 6-gram dose levels, one, evaluating the food effect of FT218 and another evaluating the dose proportionality of FT218. This data demonstrated that: number one, FT218 at 4.5 grams and 6 grams demonstrated lower overall maximum plasma concentrations and equivalent exposure to twice-nightly sodium oxybate as well as similar morning plasma level or concentration at 8 hours and variability to twice-nightly sodium oxybate. Number two, FT218 has lower exposure and lower maximum plasma concentration in the fed versus the fasted state, which is consistent with the expectations of a sodium oxybate product. Number three, the overall maximum plasma concentration in FT218 was dose-proportional and exposure was slightly higher than dose proportional, which demonstrates the predictability of FT218 as dosing increases. Number four, FT218 was generally well tolerated and the safety profile appeared comparable to twice-nightly sodium oxybate at the 4.5-gram and 6-gram dose level.

The totality of the data from these studies demonstrate that FT218 exhibits the PK profile required for once-nightly dosing. Furthermore, we believe the clinical data we are accumulating for FT218 will serve as a strong basis for a complete regulatory package as well as position FT218 as a disruptive new therapy in the narcolepsy market.

I want to again thank all the patients, investigators and study staff who have participated or are currently participating in the REST-ON study.

With that, I would like to turn the call over to our CFO, Mike Kanan, to review the financials. Mike?

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Michael F. Kanan, Avadel Pharmaceuticals plc - Senior VP & CFO [5]

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Thanks, Jordan. Before detailing the financials for the quarter, I would like to summarize some financial highlights. First, revenues from our hospital business were stronger than we anticipated when we began the year and when we last set full year revenue guidance in August.

Revenues were $14.2 million in the third quarter compared to $17.6 million in the second quarter of 2019 and $19.8 million in last year's third quarter.

Second, our cost reductions have taken hold. As you've heard Greg say, we have cut costs by about $63 million through the first 9 months of 2019, and we are on track to meet the $80 million to $90 million in cost reductions we targeted earlier this year. These actions, including cost reductions in France, Ireland and the U.S., were needed to align the company's cost structure with the realities of our business. It's worth noting that virtually all costs associated with Noctiva and Avadel Specialty Pharmaceuticals, LLC have been eliminated.

In addition, our outside of the U.S. restructuring actions have been completed in Ireland as well, and they are well underway in France. Through September 30, cash restructuring costs, including the amounts we paid to discontinue Noctiva, have been about $10 million and are in line with our expectations.

And finally, our cash burn for the quarter was $6.8 million and included both an interest payment on our converts of $3.2 million and ongoing royalty payments of about $3.3 million.

Cash at the end of September was $72.5 million compared to $79.3 million at the end of June. Based on anticipated cost reductions resulting from our restructuring actions and our long-term revenue projections for the hospital portfolio, we continue to project we have enough cash to take us well into 2021. And if approved, AV001 is expected to contribute to our 2020 revenue and further support the development of FT218.

Now I'd like to touch on the rest of the financial highlights for the quarter. As I said, revenues were $14.2 million for the third quarter, down from $19.8 million in the third quarter last year due to lower net selling prices across all of our hospital products as a result of increased market competition.

Q3 2019 revenues were higher than we anticipated due primarily to lack of competitive launches and/or pricing actions previously anticipated to occur during the quarter. We still expect increased competition from products launched or expected to be launched in 2019. That said, due to the strength seen to date, we now project annual revenue to be at or in excess of $55 million for 2019. This represents an increase from our previous guidance issued in August when we announced that 2019 revenue guidance was expected to be greater than $45 million.

I will also note that our revised guidance is well above the $30 million of revenue guidance we initially established at the beginning of the year.

R&D expense was $7.5 million in the third quarter of 2019 compared to $11.4 million in the third quarter last year. This decline was primarily the result of lower spending due to the divestiture of Noctiva and cost reductions at the company's Lyon, France R&D center. We continue to invest a substantial amount of our R&D spend towards the clinical development of FT218.

SG&A was $5.3 million in the third quarter compared to $24.8 million in the third quarter of 2018 and $6.8 million in the second quarter of 2019. These reductions, both compared to prior year and last quarter, were primarily due to cost reductions associated with the divestiture of Noctiva and lower general and administrative expenses resulting from cost reduction actions implemented as part of our commitment to preserve cash.

Restructuring charges were $1.9 million in the third quarter of 2019, mostly related to the actions we have taken in France that we initiated in early 2019.

And finally, as you know, on July 2, 2019, Specialty Pharma was made aware of a $50.7 million claim by the Internal Revenue Service as part of the bankruptcy claim against Specialty Pharma. On October 2, 2019, the IRS amended the original claim filed in July, reducing the claim to $9.3 million. Specialty Pharma filed its U.S. federal tax return as a member of the company's consolidated U.S. tax group. As such, the IRS claim was filed against Specialty Pharma in the bankruptcy proceedings due to IRS tax law requirements for joint and several liability of all members in a consolidated U.S. tax group.

We are pleased with the progress that we have made on this matter to date, but we continue to disagree with this reduced amount of $9.3 million as well. As such, we continue to engage with the IRS and to defend our positions vigorously and fully expect satisfactorily to resolve this matter.

Now I'd like to turn the call back over to Greg. Greg?

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Gregory J. Divis, Avadel Pharmaceuticals plc - CEO & Director [6]

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Thanks, Mike. In closing, I would like to restate how pleased I am with the progress we have made this year. Undoubtedly, we are different and a new Avadel, delivering significant progress in restoring our financial health while executing on our focused business strategy.

As 2019 closes, we expect to provide 2 significant updates with regards to our most immediate near-term milestones: first, the completion of enrollment for the pivotal REST-ON study; and number two, the FDA's decision on our NDA for AV001.

The momentum we are building is just beginning, and we are committed to rebuilding trust with investors, key partners and stakeholders while we focus on executing the necessary strategic plans to rebuild shareholder value. I want to personally thank our employees, patients, investigators and our shareholders for their contributions to our progress to date and look forward to providing investors with -- and all stakeholders with further updates in the future.

I want to thank everyone for joining us on our call today. We look forward to updating you in the very near future and wish you a great rest of the day. Thank you.

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Operator [7]

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This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.