Avadel Pharmaceuticals Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 14 speakers on the call.

Operator

Greetings, and welcome to Avadel Pharmaceuticals Second Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Is now my pleasure to introduce Austin Murtaugh with Precision AQ.

Operator

Thank you. You may begin.

Speaker 1

Good morning, and thank you for joining us on our conference call to discuss Avadel's Q2 2024 results. 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 and uncertainties are described in Avadel's public filings under the Exchange Act included in the Form 10 ks for the year ended December 31, 2023, which was filed on February 29, 2024, and 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.

Speaker 1

On the call today are Greg Divis, Chief Executive Officer Richard Kim, Chief Commercial Officer Doctor. Jennifer Goodman, Senior Vice President of Medical and Clinical Affairs and Tom McHugh, Chief Financial Officer. At this time, I'll turn the call over to Greg.

Speaker 2

Thank you, Austin. Good morning, everyone, and thank you for joining us for this quarterly update. Following my opening remarks, Richard will provide an update on our launch progress. Jennifer will walk through our Phase 3 idiopathic hypersomnia or IH clinical trial. Tom will then review our Q2 financial results.

Speaker 2

And we will conclude with a question and answer session. The Q2 marked the 1 year anniversary of introducing Loomrise to the market and I'm immensely proud of the work done by our team and the impact we have made within the narcolepsy community. From the start, we recognized that oxybate eligible patients deserve a once at bedtime treatment option that address their needs where 1st generation oxybates fell short. Our team's relentless determination in serving people with narcolepsy has been the driving force behind our tremendous progress. Since launch last year, we have seen our pre approval market insights materialize in real time, which when combined with the strong foundation we have built only reinforces our confidence in the significant opportunity that Lumerite offers in our pursuit of its potential $1,000,000,000 plus opportunity.

Speaker 2

Specifically, we point to the following. We have seen consistent strong uptake from patients switching from the twice nightly first generation oxybate products, the majority coming from the mixed salts formulation. Demand is growing from both naive patients and patients who have previously tried and discontinued twice nightly oxibates, a patient segment many had discount. And the launch of LumRite has resulted in the expansion of new oxibate prescribers. We had previously never written an oxibate script and additionally physicians who are now treating more patients with oxybate, specifically with LumRise than prior to our launch, resulting in new patients coming into the oxybate market that prior to Lumerise were not accessible or potentially interested.

Speaker 2

These important data points only confirm what our research informed us that the oxybate market opportunity for LumRise is both significantly larger than that of the 1st generation oxubates and is unique primarily to LumRise alone. With that, we are pleased to report that there were more than 1900 patients on therapy at June 30, and we generated $41,500,000 in net revenue during the Q2 of 2024. Additionally, as Tom will cover during his review, based upon how we exited Q2, we currently expect that we will generate operating income in Q3, an important financial milestone we will have achieved during the 1st full calendar year of launch. As announced last week, we dosed our 1st patient in our Phase 3 REVITALYZE trial evaluating LumRise's potential benefit in the adult IH population. Based on feedback from physicians and experts in the field, we believe LumRise has strong potential to improve care for those living with IH through its unique extended release formulation.

Speaker 2

In addition, we are expecting a potential approval decision by the FDA for our supplemental new drug application for Lumiere's use in the pediatric narcolepsy population. The target action date is set for September 7. If approved, we believe LumRise has the potential to address the needs of both pediatric narcolepsy patients who could benefit from a full therapeutic dose of enoxapate given in a once at bedtime formulation and the caregivers who currently have to awaken in the middle of the night, night after night to administer a second dose of a first generation oxybate to their children. Lastly, we continue our development work on a potential lower low sodium once at bedtime oxybate formulation with a target profile that is bioequivalent to LUMIRIS. As previously stated, we expect to have an update by the end of 2024.

Speaker 2

In summary, after 1 year of launch and with an eye on the future, we believe LumRise is well positioned in its pursuit to become the preferred oxybate among patients and providers as we continue to positively impact the multibillion dollar oxybate market opportunity. I'll now turn the call over to Richard for details on

Speaker 3

our commercial developments. Richard? Thank you, and good morning, everyone. As Greg mentioned, it's hard to believe that we have 1 year of launch behind us and what a year it's been. It has been amazing to witness BloomRise's transformative impact among people with narcolepsy, their families and healthcare providers.

Speaker 3

Let me start with our new key patient metrics. As of the end of Q2, there were more than 1900 patients on therapy. Additionally, for our leading indicators that we have provided quarterly since launch through June 30 approximately 3,800 patients were enrolled in our RISE UP patient support program and more than 2,400 total patients had initiated therapy. With our 2nd quarter numbers, you can see that we have continued the momentum with our launch and that there has been no slowdown in quarter over quarter patient demand for boomerase. Now let's look at our patient dynamics.

Speaker 3

We continue to have strong representation across our 3 patient segments, including those switching from or previously discontinued twice nightly oxibates and those new oxibates. As expected at this stage, switch patients still make up a significant portion of patients on Lumeris. At the same time, it's been especially encouraging to see more new to oxybate patients being prescribed Lumerice. Now this in addition to Lumerice use in previously discontinued twice nightly oxalate patients along with new writings for lumyrides who have previously never prescribed an oxalate. Our important data points validating our market research that Lumiere's can grow the oxalate market beyond its size from when it was just 1st generation oxbate.

Speaker 3

Now our data continues to indicate there are more than 4,500 HCPs who make up the current oxybate prescribing universe. Importantly, from these HCPs almost 500 make up 50% of the total oxybate prescription volume and to date 85% of that group have written for Lumox. We are pleased with our continued capture of high volume OXTAVATE prescribers as they represent a core component of our launch strategy. Transitioning to product fulfillment, our overall pull through process continues to deliver with over 700 new patient starts in the 2nd quarter. These results are attributable to a number of factors including robust payer coverage, strong execution for our field reimbursement and RISE UP teams, along with ACPs continue to gain clinical experience prescribing LumRise.

Speaker 3

Looking to the second half of the year, we have built a strong foundation we believe will support LumRise's ongoing uptake in the narcotic community. In particular, demand for Lumaris continues to be strong and our fulfillment systems are working to get patients initiated efficiently. Paired with early signs that the oxybate market is growing, we remain highly confident in our belief that BloomRise is on track to become the preferred oxybate in the narcolepsy market. And now, I will turn the call over to Jen to discuss the recent dosing of the first patients in our Phase 3 IH study.

Speaker 4

Thank you, Richard. Since the introduction of BloomRise, we have heard from patients and providers repeatedly about the transformative relief LumenRise has brought to their lives. LumRice has not only provided patients with the opportunity for an uninterrupted night sleep, but we also often hear about what they characterize as a restored ability to live their lives on their own terms. While we have been serving the narcolepsy community for more than a year with LumRise, people living with IH have been severely constrained in a lack of approved treatment. In April, an externally led patient focused drug development meeting was held with the FDA and sleep consortium to inform patient needs for IH treatment.

Speaker 4

Among more than 800 individuals living with IH, nearly 2 thirds of respondents stated that their IH symptoms were not controlled or were poorly controlled. Patient testimonials underscore the need for additional therapeutics. Physicians and patients have been vocal in their demand to see LumRise evaluated for IH due to the deep sleep inertia associated with IH and we are now answering their call. We are excited to have recently dosed the first patient in our clinical trial evaluating LUMINIS for IH as it is the first step to potentially bringing this important therapy to patients. Our study known as REVITALYZE is a double blind, placebo controlled, randomized withdrawal, multicenter Phase 3 study to evaluate the efficacy and safety of LumRise as a once nightly dose in IH patients.

Speaker 4

Enrollment of approximately 150 participants will include both those switching from 1st generation immediate release oxibate as well as those not on oxibate therapy at baseline. Our primary efficacy endpoint is to demonstrate a change in the Epworth Sweepiness Scale Score, which is administered at week 14 after a 2 week double blind randomized withdrawal period. Our key secondary endpoints are the patient global impression of change in the idiopathic hypersomnia severity scale, which is a validated multi domain assessment of key IH symptoms. The primary efficacy analysis will occur after the 14 week portion of REVITALYZE is completed and the study will be followed by an open label extension. Initiating REVITALYZE is a key milestone for Avadel and most importantly for the IH patient and medical community.

Speaker 4

We have seen the positive impact that Lumites has had on narcolepsy and are working diligently toward expansion in IH. I'll turn the call over to Tom for a review of our financial results.

Speaker 2

Thank you, Jen. Before I begin, please note that full financial results are available in the press release issued this morning and the 10 Q. I will also be reviewing non GAAP financial results, which can be found on our Investor Relations website at investors. Avadel.com. I'll start with our top line results.

Speaker 2

In the quarter ended June 30, 2024, we reported net revenue of $41,500,000 and gross profit of $38,700,000 both of which represent a greater than 50% increase from the quarter ended March 31, 2024. The increase in net revenue was driven primarily by continued strong patient demand for Lumerise. Additionally, we estimate that there was about 4 weeks of inventory in the channel at the end of June versus approximately 3 weeks at March 31. Turning to operating expenses, we reported $51,500,000 of GAAP operating expenses for the 2nd quarter, which includes a non recurring expense of $5,000,000 related to the previously announced mandatory exchange of the company's American depository shares and termination of the American depository receipt program. As a result of the mandatory exchange, Avadel was added to the Russell 3,000 index at the beginning of July.

Speaker 2

The 2nd quarter also included $6,500,000 of non cash charges comprised of stock based compensation of $5,500,000 and depreciation and amortization of 1,000,000 dollars After adjusting for these items, which totaled $11,500,000 remaining cash operating expenses were approximately 40,000,000 dollars We expect that for the remainder of 2024, recurring quarterly cash operating expenses will be in the range of $40,000,000 to 45,000,000 dollars and non cash operating expenses will be in the range of $5,000,000 to $7,000,000 With respect to the balance sheet, we have $71,400,000 of cash, cash equivalents and marketable securities as of June 30. The use of cash during the 2nd quarter included the $5,000,000 of expense related to the termination of the American Depository Receipt Program. I'll finish my remarks with a few comments regarding our expectations for the remainder of 2024. We continue to pay close attention to the sell side estimates. And at this time, we are comfortable with the current revenue consensus of approximately $168,000,000 for the full year, including the possibility that it could be higher if actual results such as the rate of increase in reimbursed patients, the total number of reimbursed patients who are treated with LUMRISE and net pricing outperformed the assumptions currently used by the sell side analysts.

Speaker 2

Lastly, with respect to our timeline to reaching breakeven, we were very close to achieving this during the Q2 when comparing $38,700,000 of gross profit to approximately $40,000,000 of recurring cash operating expenses, which resulted in an adjusted operating loss of approximately $1,200,000 Based on our current plans and assumptions, we expect that adjusted operating income will be positive beginning in the Q3 and continue to be positive for the remainder of 2024. Our expectations regarding adjusted operating income are based on a number of factors, including the number of reimbursed patients on Lumerise, net pricing of Lumerise and recurring cash operating expenses. And with that, I will turn the call back to Greg for closing remarks. Thank you, Tom. Before we wrap up, I want to take a moment to comment on our publicly reported launch metrics and what to expect moving forward.

Speaker 2

This quarter we added a new metric, the total number of patients on therapy. For the full year of launch now behind us, going forward, we intend to report only this patient metric and of course revenue as we believe these two metrics are the most important as our launch matures. We believe we are well positioned to execute our business priorities including our ongoing launch of BloomRise and our lifecycle management opportunities, both of which are focused on our primary business objective, maximizing the full value of BloomRise. So in conclusion, we're very pleased with our progress and our growth thus far, recognizing that we have much more to accomplish. We thank you for your support and look forward to providing future updates on our progress.

Speaker 2

And with that, we will open the call for questions. Operator?

Operator

Thank you. Our first question comes from the line of Andrew Tsai of Jefferies. Your line is now open.

Speaker 5

Hi, good morning. Congrats on the strong launch and appreciate you sharing the metrics. Thanks for taking our questions. So the first one is, if we were to take another look, data cut as of July or even early August, how does the slope of uptake look so far? Should we be factoring in some kind of summer seasonality due to holidays, vacations this quarter?

Speaker 5

Or should we expect slope of patient additions and so forth to remain unchanged or even increase this quarter? Thanks.

Speaker 2

Thanks, Andrew. I think we would qualitatively characterize it as our trends remain consistent as we've seen to date. This is our 1st summer that we've been in the marketplace. So whether there's seasonality or not, we'll have a chance to assess that for Lumenri specifically as we get through the period. But at this point, I think we would describe it as continuing to be consistent as to what we've seen.

Speaker 5

Great. And then secondly, speaking of just the slope being consistent, pediatric could be approved in a month from now. So that's 5% of the current oxbate users. So is it fair to assume there could be a nice little bolus coming from that approval? Or could the uptake in this population be slower than what we're thinking?

Speaker 5

Thanks.

Speaker 2

Yes. I think as we think about it, it's an important addition to our label because we hear quite a lot from parents who wake up in the middle of the night, night after night. Again, it's a relatively small patient population. So I think over time, we have an opportunity to both convert patients as well as potentially even expand the use in the pediatric market over time based upon some of our insights. I think as we think about the balance of 2024, it's modestly or marginally incremental at this point, but longer term, we think it's really important.

Speaker 5

Great. Thank you so much.

Operator

Thank you. Our next question comes from the line of Francois Brisebois of Oppenheimer. Your line is now open.

Speaker 6

Hi, thanks for taking the questions. I was just wondering in terms of reimbursement, where we stand now and just the impact there of if you kind of cut it as revenue per patient and obviously appreciate the new metric and the look back at that new metric and what it meant. But if we're thinking about revenue per patient, is there any impact expected from reimbursement here in the second half?

Speaker 2

Maybe Richard you can cover reimbursement and Tom kind of value per patient.

Speaker 3

Yes. Hey, Frank, thanks for the question. Yes, we're super pleased with how our market access team has performed. Today, we have about 85% of commercial covered lives where our LUMARIS policy exists. So it's been really strong, which has really helped to drive us being able to get patients initiated.

Speaker 3

So, Baum, you want to sort of take the revenue per patient?

Speaker 2

Yes. So thanks, Frank. The revenue per patient, last quarter, we had talked about exiting the quarter at about $120,000 per reimbursed patient. We've seen some improvement in that, that net pricing heading into Q2. Let's say it's natural to some extent because Q1 is pretty heavily impacted by gross to net adjustments.

Speaker 2

So we're we do see some improvement in Q2. I think the only other comment I would add regarding reimbursement is that the other segment of our business, which represents 15% to 20% of enrollments are really non commercial, predominantly Medicare and Medicaid. And as we get into 2025, where a lot of those decisions will be made for LumRise, which we weren't eligible in 2024, especially for Medicare, we'll get a better sense of how our coverage evolves beyond the commercial coverage as we roll closer to the end of this calendar year.

Speaker 6

Thank you. And then maybe just lastly in terms of new prescribers to oxybate that weren't prescribers before the 4,000 or greater than 4,500. I know it's concentrated, but did you guys approach these docs? Is this surprising that these docs who never prescribed oxibates for over 20 years have started based on the once nightly? Is it just more awareness?

Speaker 6

Where do these thoughts come from?

Speaker 3

Richard? Yes. It's Frank. So for the vast majority of those providers, we have not called on them. So I think this really speaks to their really tremendous value proposition that Pneuminex brings.

Speaker 3

And in our pre launch market research, when we tested our profile with high use narcotic prescribers who don't use OxoBate, half of them said with the profile of Lumerise they would want to prescribe Lumerise compared to what they haven't done with the 1st generation oxybate. So we think it's a really positive sign and something for us to build upon going forward.

Speaker 2

Yes. I'll just add to Richard's comments is that it's really interesting to us that we're getting demand without any really true efforts on our part directly in terms of promotion. So it's something we're evaluating to see if it's there's some more we can do there for sure.

Speaker 6

Great. Thank you and congrats, Jan.

Operator

Thank you. Our next question comes from the line of Ami Fadia of Needham and Company. Your line is now open.

Speaker 7

Hi, good morning. Thanks for taking my question. Can you give us a sense of what percent of patients that are currently on NOMIRIZE either came from one of the other oxibates versus previously discontinued and as well as never on oxibate before any? And then if you could give us any updates on pull through at the peer level across the 3 GPOs that you have contracts with? Perhaps any color on Humana or some of the other Optum plants would be helpful.

Speaker 7

Thank you.

Speaker 3

Sure. Yes. Thanks for the question, Sanmi. So as far as sort of like a percentage of switch versus sort of never on an OXNB before, the biggest chunk of our patients that we have right now are still being sourced from switch patients from 1st generation oxybates with the highest percentage of those being from the mixed salt overall as well. So what we are seeing at the same time though is that the new to Oxalate patients are starting to increase the representation as well.

Speaker 3

And we really see that as a very positive sign where they sort of continue to support the value proposition of LUMIRMEY. So the biggest chunk are still switch patients, but we are starting to see a bit of an increase in the representation of new patients prior to OXOBIB. And as far the GPO representation is concerned, I think traditionally what we sort of

Speaker 8

see is

Speaker 3

the zinc CVS lives are and the scent lives are the biggest chunk with often being smaller. And I think what we're seeing in general is the channels being representative of the size of those GPO contracts with the zinc being the largest, Ascent being the 2nd largest and then the MSR Optum business being the smallest of the 3. So pretty consistent with the sizing opportunity of those three contracts that we have. Yes.

Speaker 2

I think the only other comment I would add to that is that I think it's fair to say that like the significant majority of the lives underneath those GPO umbrellas have established policy coverage decisions now, not all of them with regards to Alumark. So I think getting to your question, we've got policy coverage decisions in place and pulled through those through the GPO contracts.

Speaker 7

Okay, great. If I may ask one more question. Can you just sort of walk us through or give us an update on the cadence of when you expect decisions from the ongoing IP cases? And specifically on the Jazz versus FDA case, can you walk us through the upside downside and how we should think about in a downside scenario, the ability to keep LUMRIS on the market should a decision go in favor of Jazz? Thank you.

Speaker 2

Well, in terms of timing, I think it's our view that the next decision will likely come out of the APA case in DC, followed by the patent case in Delaware. So when that is, we don't know and they could come in a different order, I guess. That's ultimately at the discretion of the judge from that perspective. And we remain again, our position hasn't changed. We're very confident in our views.

Speaker 2

And even if the decision were unexpectedly go against us in that regard. We're prepared to take whatever steps necessary to ensure that Numerai stays on the market to be able to treat patients accordingly. And we believe that will be the case. But I'll close out again on the litigation matters that we're highly confident in our position. And I'll remind all of our investors that there's other cases that are coming after this as well, including our antitrust case, which has been set for November of next year, for which we're pursuing requisite damages for the unnecessary delay of LumRise's approval due to the inappropriate list of REMS tax.

Speaker 2

But in terms of timing, it's really at the discretion of the judge and we're prepared to act accordingly.

Speaker 7

Thank you.

Speaker 2

Thanks, Tom.

Operator

Thank you. Our next question comes from the line of David Amsellem of Piper Sandler. Your line is now open.

Speaker 9

Hey, thanks. Just a couple for me. I know you're going to have more updates on the low sodium product, but can you talk to generally the IP situation on that formulation and your level of confidence that you're not going to run afoul of Jazz's intellectual property surrounding their low sodium, oxivate product. So that's number 1. Then number 2 is, is it fair to say that with a bioequivalence pathway for that, there's a relatively rapid path to market for that formulation?

Speaker 9

And then lastly on IH, are you thinking about that opportunity as something where you can expand the market? Or do you see switching away from ZYWAVE to LUMRISE in the IH setting? Or is it a little bit of both? Thanks.

Speaker 2

Thanks, David. I'll try to pick those off one at a time. Again, I think when it comes to our development strategy and our approach to a low or no sodium formulation, we have to understand what's in the patent landscape for sure. And so we would be pursuing that. You should assume that we're pursuing our direction accordingly and that with that being considered appropriately in our development plan.

Speaker 2

It was as simple as just formulating something similar to what's in the market today, it would have already been done by now from that standpoint. So again, we're very conscious of what the patent landscape is out there and navigating it appropriately. Number 2, on your question about development pathway using a bioequivalence, that ultimately is the decision by the FDA to agree with us on that approach. But we do believe that there is a pathway based upon other products that have been approved that a bioequivalent only pathway is a viable pathway, assuming we can demonstrate bioequivalents and the FDA agrees with that. And lastly, in terms of IH, I think right now, you've heard Jen talk about the research and the symposium that the FDA held specifically, where 800 patients talked about the need for more therapeutic options, their symptoms are not controlled with the current available treatments.

Speaker 2

So from our perspective, just the narcolepsy, patients may choose due to the nature of this condition to want to switch to Zumrize should it be approved. Our view is we think it's important to add another treatment option. We think the nature of this condition is such that I want the bedtime option in the form of Loomrise is very, very compelling to patients and we hear that all the time in particular from physicians and key opinion leaders who will as Jen, I think noted are very, very bullish on the prospects of what LumRise could offer for their patients, primarily because these patients struggle with the ability to wake up full stop, right, to take their 2nd dose. So again, for us, it's an option for all patients, whether they're on therapy today. And what we know today is that there's no depending upon what data set you look at, there's anywhere from 30,000 to 40,000 patients with a unique diagnosis code related to idiopathic hypersomnia and a small percentage of those are actually being treated with the only FDA approved drug today.

Speaker 2

We think Lumine is a really great option for them as well. So thank you. All right. Thank you.

Operator

Our next question comes from the line of Mark Goodman of Leerink. Your line is now open.

Speaker 10

Tom, I know we talked about kind of the question a little bit already, but can you just give us a sense of free goods, just how much what percent of free goods in the Q2, maybe just the direction you're moving in there and the impact it's? And just more broadly on the market, what's your sense of the total number of patients like how much did it grow versus before you launched? Thanks.

Speaker 2

Yes. Mark, you're a little bit breaking up. So I just want

Speaker 6

to make sure. Your first question is,

Speaker 2

I believe the patients who are on free product, right, relative to the total. And then the second is just how we're viewing the market trending.

Speaker 10

How much the markets changed exactly before you launched Stenthouse?

Speaker 3

Yes. Thanks for the questions, Mark. For us, where we are with BloomRide in the launch right now, we think the single most important thing that can happen is HCPs and patients get experience with LumenRide. And the feedback thus far has been terrific. And we really see free products as an investment in our launch overall.

Speaker 3

Now what we hear from other specialty sort of chronic product launches is sort of free products being used in about that 20% to 25% range of total patient usage. We think that's a pretty good proxy when you think about things. And for our business, over 80% of our business is commercial today. I think Reagan commented that part of our business we would anticipate getting more of our CMS especially Medicare patients being picked up in 2025. So we do believe that things will improve for us.

Speaker 3

But once again, it really comes down to us doing free product as an investment and gaining HP in patient experience. And ultimately, we are also able to convert some of these patients using our programs either our bridging program or temporary success program, our permanent affordability program onto reimbursed patients as well. So, and as far as the overall market size is concerned, we've had with our claims data provider, it's been a little bit messy in the Q2 for us overall. But what we see overall in the marketplace, Mark, is a few good leading indicators for why we believe the market is growing for oxibate. The first is the previously discontinued patients, syphilis on the OxoVase, we believe are uniquely a Lumerice opportunity and we're getting a good portion of those starting and initiating therapy with Lumerice.

Speaker 3

The second is we are getting more new to naive patients initiating in lirumize. That's consistent with the market research that we've prepared to launch that lirumize would open the doors for more new to oxybate patients considering going up to an oxybate. The third thing that we talked about earlier was that we are getting unique prescribers who've never prescribed the 1st generation oxalate that are not prescribing new mice as well. So we view these as all early positive signs that the market is growing beyond where the 1st generation oxalate market

Speaker 2

was. Yes. I just want to emphasize a couple of points Richard made. Again, I'll just restate it. Number 1 is that we don't think LumRise is going to dramatically be different in terms of its percentage of free drug versus kind of other products.

Speaker 2

But what we've seen, which I think is a really positive is we've seen patients when a coverage policy decision comes into play, as Richard noted, we'd be able to convert them to an essence of paying patient. So that's something that our team is focused on and we'll continue to do that. And again, I think the way I think about the notion of what's happening with the market because kind of the secondary data sources are a little choppy right now is that patients that were getting added to LumRise, sources of business were getting added to LumRise as new starts, They're not in the denominator of kind of the legacy market, right? Those patients weren't therapy for. So from our perspective, that is a great sign in terms of what are the prospects 1 year into launch of what the potential future holds for our ability to really grow this market.

Speaker 2

Thanks. Thanks, Mark.

Operator

Thank you. Our next question comes from the line of Ashwani Verma of UBS. Your line is now open.

Speaker 11

Hi, good morning. It's Fatima on behalf of Ash Varma at UBS. Thanks for taking my question. Just like very quickly, can you talk about what you're seeing in terms of discontinuation persistence rates? Any change from what we've seen early in the launch?

Speaker 11

And just a quick second question. Are you seeing any impact in the second quarter from Xyrem being removed from certain formulary? Thank you.

Speaker 2

Thank you very much. Richard?

Speaker 3

Thanks for the questions. So as far as it comes to discontinuations, what we see holistically is Lumiere's has lower discontinuation rates than the 1st generation oxybate. When we compare that at time mesh cohorts of patients throughout the launch. What we do know historically is discontinuation rates for oxbate tend to be higher earlier in treatment and they tend to subside over time and that's also what we see with BloomRide. It's once again lower than 1st generation oxalates.

Speaker 3

And the discontinuation rate is probably driven a little bit more from naive patients and previously discontinued patients that do have a higher discontinuation rate than the switch patients do over time. But we've also learned a lot like we have in other components of our launch. We're learning a lot of from ACTs and patients. We're learning how to intervene differently, when to intervene, how to intervene, how to specialize things depending on which patient type. So we know that every product does have dropouts and that's true of any product medication.

Speaker 3

But we work really hard to get these patients started and we are going to be working really to make sure that the right patients stay on therapy as well. And as far as your second question about the impact from Xyrem, yes, I mean clearly there were some changes in some formulary that happened earlier this year. We did benefit from some of those patients going on to Lumeris. But we also know that our value proposition is very strong against all of the perceneration points on the OxoBates. So those fixed patients as we mentioned before remain important source of our business as in addition to the other two segments as well as we go forward.

Speaker 11

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Oren Livnat of H. C. Wainwright. Your line is now open.

Speaker 12

Thanks. I appreciate it. Clearly, you have plenty of room to grow in narcolepsy, but you're pretty aggressively pushing into IH. And I have just a couple

Operator

of questions

Speaker 12

there. First, what's the reasoning behind trying to get in there right away now while that market is maybe not as developed? Is there any reason to maybe let your competitor with twice nightly continue to make the investments and do the legwork, probably the harder the tougher lifting to grow that market first and get oxybate established as a therapy versus getting in there ASAP? And also, do you believe you have IPS side freedom to operate there given I think there's some different labeling on the Zywave side and some of the arguments your competitors making on that front in court? And I have a follow-up there.

Speaker 2

Oren, whatever the competitor is doing, they're doing right from that perspective. But it's clear to us and our feedback from physicians and patients that there is an unequivocal need for Lumerai in this category, in this patient population. And we're not going to wait for someone else to do whatever they're going to do to serve this community and help expand and build our franchise. And regardless of what's in their label and what arguments they make or don't make, it doesn't matter to us because we believe we're going to introduce LumRise to this patient population. It will be well received.

Speaker 2

It will serve and have its rightful place and has the opportunity to make a difference and arguably to the market leader in this category as well. So we believe we have full rights to operate accordingly. And at the end of the day, the market has spoken to us in the form of patients and physicians who say get us LumRite as fast as you can. That's what we're trying to do.

Speaker 13

Okay.

Speaker 12

And it's really impressive that you guys are projecting adjusted breakeven next quarter and I think OpEx is actually lower than I had modeled excluding that item this quarter. Can you just talk about you're growing revenue really rapidly, OpEx not so much or at all now. How does that look going forward? Are you right sized for continued dramatic growth from here, IHS side? Or do you think you need to invest more buying this product along with revenues?

Speaker 12

And also I have curious about cash conversion going forward too. Obviously, it's not surprising accounts receivable are accumulating as the product grows rapidly, but do you expect that to reverse in the second half?

Speaker 2

I'll save the second question for Tom. In terms of your comment about do we need to invest more on the launch, here's how we would describe it. Again, we're constantly evaluating our source of business and where opportunities are to try to accelerate the launch of BloomRise. I would say that we are generally well deployed and well resourced to maximize the primary opportunity in LumenRx. But we are not the least bit shy of deploying more capital or investing in opportunities if we believe it has an opportunity to really grow the both the speed and the peak of what Lumerai can achieve from that standpoint.

Speaker 2

So it's something we're always looking at. I will point to the comment that we made earlier today that we're seeing patients go on Lumiere from physicians who we are not actively calling on. So we've been trying to understand that and what are the profile of those physicians. And is there an opportunity to pursue that more aggressively and accelerate that segment. We believe we've always believed longer term that was going to be something we were going to pursue over time, but it has moved faster than maybe than what we had assumed, which we think is positive and it's something we're looking at.

Speaker 2

So I think at the end of the day, it doesn't change our outlook in terms of our view on profitability and generating operating income in the second half of this year and going forward. But it does it is something we're always looking at because at the end of the day, maximizing and human rights is our primary objective. Yes. Oren, thanks for the question. Listen, we believe we're going to hit cash flow breakeven this year.

Speaker 2

You picked up on a key point and it's not surprising that as we grow, our working capital will increase primarily in the form of accounts receivable. But what you see sitting on the balance sheet at June 30, we'll convert to cash in Q3.

Speaker 12

Perfect. Thanks. I appreciate it.

Speaker 2

Thank you, Oren.

Operator

Thank you. Our next question comes from the line of Miriam Belgyi of LifeSci Capital. Your line is now open.

Speaker 11

Thank you and congrats on the quarter and launch progress. Just a quick question for me. For the Phase III IH study, how should we be thinking about success here? And how do you think LumRise's performance will compare to data shared from the RD approved product?

Speaker 2

Well, again, and I'll make some comments and Jen feel free to weigh in. I think at the end of the day, we have an excellent proxy in terms of narcolepsy, in terms of how LumRise performed in our pivotal trial relative to the 1st generation oxybates, right. We believe that gives us high confidence that LumRise will be successful in our IH trial that we've initiated. So we're highly confident that we'll demonstrate highly statistically significant benefit to patients. And from that standpoint, we remain highly confident.

Speaker 2

Anything you want to add to that?

Speaker 4

The only thing I will add is that the enthusiasm from the investigators who are participating in this trial certainly underscores everything that Greg has said. There is a long overdue unmet need to be able to provide an extended release form of sodium oxybate for IH, which only Lumine will provide if it's approved.

Speaker 11

Got it. Thank you for taking my questions.

Speaker 2

Thanks, Sameer. Thank you.

Operator

Our next question comes from the line of Matt Kaplan of Ladenburg Thalmann. Your line is now open.

Speaker 13

Hey, good morning guys and congrats on the strong quarter results. Just to stay on the IH theme a little bit, can you talk about maybe it's a little bit early since you just started the trial, but the timeline for the Phase 3 and then also the regulatory pathway, do you think you'll need 2 studies or will one be sufficient for an NDA file?

Speaker 2

I'll take the first part of that and Jen feel free to weigh in on the second point. Matt, I think you made a good point, which is that it's early in the trial. We're just getting our sites initiated, our early sites initiated. We haven't reached our, let's call it, our full run rate or steady state. We're very pleased with the fact that in a very short order from a site initiation, we've seen patients move into prescreening and the patients go on there, go on treatment.

Speaker 2

So we're by the early data points, we're excited about that, but we haven't restarted, if you will. It's going to take a while before at our full capacity. So I think it's difficult to project how long we think it's going to take. We've always said that we believe the best proxy right now is kind of how long it's taken the other products, the other oxydate products to get through their Phase 3. And that was let's just call it 15 months to 18 months.

Speaker 2

We think that's the right proxy for us now. And to be clear, our assessment, our assumptions around that changes, we'll be sure to communicate accordingly as and when we're up and running more at kind of full steam and steady state. So in terms of regulatory pathway, Jen?

Speaker 4

Sure. Happy to comment to that. We're very pleased with the engagement that we've had with the FDA. This will be a supplemental new drug application. And of course, there's a prior precedent where there was only one pivotal trial to achieve approval in idiopathic hypersomnia.

Speaker 4

So we very much believe that's our pathway as well.

Speaker 13

Great, great. Thanks. Thanks for adding details.

Speaker 3

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Brandon Folkes of Rodman and Renshaw. Your line is now open.

Speaker 8

Hi, thanks for taking my questions and congratulations on a very good quarter. Maybe just two follow ups from earlier questions for me. Just coming back to the pediatric population, how does the educational awareness compare in this population to get a patient or I guess a caregiver to switch and convince them to move a pediatric patient of a therapy that may not be as good as LumRise, but in their minds maybe adequate perhaps compared to what they've tried in the past? And then similarly, just given the weight based dosing there, how much of a focus with the pediatric population be for the sales force given the runway in the adult population?

Speaker 2

Thanks, Brian. Richard, do you want to comment on the pediatric opportunities?

Speaker 3

Yes. As Greg said earlier, the opportunity is about 5% of the overall ox based marketplace today. For us right now when we think about sales force coverage, the vast majority of the pediatric patients are seen by physicians that we call in that treat both adults and pediatric patients today. So incrementally, we're only adding a few physicians who are specifically focused on pediatric sleep disorders. So I think our label will be very clear about the ability to switch patients as it is for adults today as well.

Speaker 3

And we've just heard consistent feedback from providers and families about how this could really be a changer for their families because what remember it's not only the patient who have to wake up, it's generally the entire family that's disrupted during the middle of the night. So it's a modest opportunity as far as numbers or percentage is concerned, but we think it's a very important opportunity for us to sort of execute against going forward as well. So we're super excited about the opportunity that lays ahead.

Speaker 2

Yes. I think the only thing I would add is that I don't think today where we think it's going the market for pediatric patients going to perform any different than how we see adults today. And that physicians see patients in the ordinary course when they come in for their follow-up, whether it's 3 times a year, twice a year or whatever it may be that the opportunity to discuss BloomRimes will come up. And of course, it's imperative for us, which we'll be doing is doing our related investment in marketing and awareness campaigns to the pediatric population to try to spur patient activation accordingly from a parent's perspective. But again, that's no different than I think how we see the adult population today.

Speaker 8

Great. Thanks. And then maybe just a follow-up on the discontinuation rate. If I look at the metrics you gave and thanks for the additional metrics, it looks like we had an additional 700 patients initiate therapy during the quarter and an additional 500 patients on therapy at the end of the quarter. Is that a fair way to kind of think about obviously there's a lot of moving pieces around that, but just at a high level, do you think that at this stage for every 700 patients starting therapy, 500 will stay on LumRise?

Speaker 3

Richard? Yes. Thanks, Brandon. Right now, we're still relatively early to launch. And as we know historically, more of these situations tend to happen earlier or after a patient initiation.

Speaker 3

So we haven't really sort of got our full base at sort of steady state longer term usage. So we think this situation is earlier on launch maybe high represented than they are going to be later on launch. So I don't think we've quite gotten to our steady state. So it's a bit dynamic right now. And it's hard to sort of say exactly what's happened in the past reflects the rates going forward.

Speaker 3

We know that there will be more discontinuation rates over time, but the rates may be different going forward.

Speaker 8

Thanks. Very helpful. And then last one if I may just on Zywave does have the potential to dose once nightly. Do you believe LumRise will take market share from both the twice nightly patients and once likely IH patients? And if so, do you have any sense of what percentage of patients, IH patients are currently making use of that once nightly dosing on ZARWAY?

Speaker 8

And that's it for me. Thank you.

Speaker 3

Thanks. Richard? Yes. No, what we know right now from the XYOSTED label is 23% of patients were did take a single dose. Keep in mind those are patients from the MEAN study who are unable to take the 2 doses that the study started off with.

Speaker 3

And also keep in mind that the maximum dose of those patients is 6 grams that they can take. We know that oxybate use for adults tends to migrate more towards 7.5 to 9 grams of total usage. So it's really one of the predominant things that we hear about our opportunity in IH is that a lot of patients are incapable of waking up to take that second dose. And we believe that the opportunity for liromiasis is quite substantial from both those patients who are taking 2 doses and those patients who may be taking a single dose to potentially have a higher therapeutic option in LUMISE as well. So we really sort of see the opportunity within the existing, OXWAY patients today.

Speaker 3

As Greg mentioned before, it will grow beyond that as well.

Speaker 8

Great. Thank you very much and congratulations on the strong execution again.

Operator

Thanks, Brian. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Greg Davis for closing comments.

Speaker 2

Thank you, and thank you everyone for your time and joining us today on our Q2 2024 earnings call. We wish you all a great day and look forward to providing updates in the future.

Operator

This does conclude the program. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Avadel Pharmaceuticals Q2 2024
00:00 / 00:00