Avadel Pharmaceuticals PLC (AVDL) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Avadel Pharmaceuticals fourth quarter and full year 2016 earnings call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Lauren Stival. Ma'am, you may begin.

Good morning. This is Lauren Stival, and I want to welcome you all to the Avadel Pharmaceuticals fourth quarter and full year 2016 earnings conference call. Before we begin, I will start with some cautionary statements.

The following presentation regarding Avadel Pharmaceuticals 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 risks that the products in 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 Form 10-K for the year ended December 31, 2015, which was filed on March 15, 2016. Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained on this call to reflect new information, future events, or otherwise. We will be using a slide presentation for today's call, which can be accessed by going to the Investors section of our website and selecting the Events and Presentations page.

After prepared remarks, we will be opening the call for a question-and-answer period. On the call today we have Michael Anderson, our CEO; and Mike Kanan, CFO. At this time, it is my pleasure to turn the conference over to Mike Anderson, Chief Executive Officer. Mike?

Thank you very much, Lauren. Good morning, ladies and gentlemen. As always, we appreciate your joining us on the call today.

This morning we put out two press releases -- one with our first-quarter and full-year financial results, which we'll discuss momentarily; and another announcing that our Board of Directors has authorized a share repurchase program of $25 million. Prior to our incorporation in Ireland, a share buy-back was not possible without shareholder approval.

Today, we sit with over $150 million in cash and marketable securities on our balance sheet, and although we are actively looking to deploy capital for potential acquisitions, we believe our shares are trading well below their intrinsic value, and this presents the possibility to return cash to shareholders. We recognize that unless we are acquisitive, many of our catalysts are weighted towards the back half of 2017 and into early 2018, and that these catalysts are dependent on our continuing to execute our base business and our Phase III trial, both of which the Company did well with over the course of 2016.

We accomplished a number of objectives in 2016, which I will discuss on today's call, including reaching an agreement on our special protocol assessment with the FDA, and beginning patient enrollment of our REST-ON Phase III clinical trial of FT218, both of which occurred during the fourth quarter. In addition, I will discuss our successful Akovaz launch, general market conditions across our branded hospital projects, our pediatric product performance, and our internal development pipeline.

I will begin, though, by talking about the progress that we have made on our trial and our product FT218, addressing our SpA, the timing, and the IP, as these are of particular interest to investors. To begin with, we reached an agreement for our special protocol assessment with FDA in early Q4.

We sought an FDA because I felt it was an up-front hedge against the risks associated with a very unique trial design and powering that was radically different than the first approval of sodium oxybate. While we expect to end up with the equivalent set of indications, excessive daytime sleepiness and cataplexy, we are doing it with substantially fewer patients.

I think there's a perception that obtaining a SpA caused substantial delay to the overall timeline of the trial. However, from an internal perspective, we don't view that as such. We believe that the risk and potential of having to re-open a study would have been more detrimental to overall timelines and path to approval. FDA's approval of our protocol, end points and powering has given us added level of assurance that should our trial prove successful, we will ultimately be granted in approval.

Right now we've put into place a timeline for completing enrollment of our study by the end of 2017. This is a timeline that we've developed together with our CRO and our internal clinical team, and it's based off of information that we've gathered from our participating clinical sites and investigators. We have meaningfully pared back the number of patients each site believes they can enroll, and we feel there is a level of conservatism associated with those numbers now.

Although it is early in the enrollment process as we stand today, we don't feel it necessary to revise this timeline. However, we recognize that we're searching for a specific sub-set of patients that have an orphan disease, and who have never been on sodium oxybate. We have said and maintain that enrollment will be the primary challenge to this trial, and we're actively pursuing all avenues available to us, including social media campaigns and country-specific trial websites by our partner, Link2Trials.

In fact, just this morning, we launched the REST-ON website, which you can access by visiting Clinicaltrial.Avadel.com. You will see also that we are now recruiting patients in the United States.

Now, just a brief comment on what's happening with IP as it relates to the FDA's recent generic approval, and its response to our competitor citizen's position regarding Valproic Acid. As many of you know, the FDA recently approved the first generic version of Xyrem, but has denied generics the ability to carve out language in their label surrounding dosing adjustments when used concomitantly with Valproate sodium, which Jazz has patented through 2033.

Unless a settlement is reached prior to May, these patents will likely be tried in court. As we see it now, there are two scenarios. First, if the patient -- if the patent is not upheld, it could mean generic entry into the market before the end of this year, which would certainly be detrimental to the marketers of Xyrem, and it would muddy the water for us, although we still hope to show benefits beyond just once-nightly dosing of sodium oxybate.

The second scenario is that the patents are upheld and/or a settlement is reached, both of which would push out generic entry. We would prefer the patents stay intact, as this would likely delay generic entry out until at least 2026, which apparently is when other filers will be permitted to market.

Now, as an NDA, our FT218 would not be required to have the same label as Xyrem. It's a different product, and it's not meant to be either equivalent or substitutable. The FDA agreed in our SpA that we would exclude patients on Valproate from our study. While ultimately we don't know what our label will look like unless our study is successful, we don't feel we will be held to the same requirements as generics. We won't discuss any details of our litigation strategy should it come to that.

In regards to other information that we have not disclosed, specifically the PK curves for FT218, the reason behind this is also patent-related. I can understand that some investors are frustrated, as it is not typical to move from a PK study into a Phase III trial without showing data.

However, our goal here is to maximize the IP protection and market opportunity of this potential product, and disclosing this data prematurely could jeopardize what we believe is our largest opportunity. Our PK data has been extensively vetted by leading biostatisticians, KOLs, and a number of experts who were involved with the initial orphan medical studies, and who have been prescribing Xyrem since its approval; and the FDA, who felt our data was so compelling that there would be no benefit to conduct any additional work prior to a pivotal.

Now, moving on to our revenue-generating operations. We successfully launched our third hospital product, Akovaz, ephedrine sulfate, at the end of Q3, and were able to drive solid revenues during the fourth quarter of $11 million.

Like Bloxiverz and Vazculep, this product was previously unapproved prior to our NDA. This is a strategy that has worked extremely well for us over the last three years or so, and has generated a substantial amount of cash. Akovaz is our largest opportunity yet, and although we've seen entry of a second competitor a few months in advance of our initial assumptions, it is still too early to tell if this will be material, or will materially impact our 2017 financial guidance. As it stands, there is no reason to expect that we would receive more or less of the market volume than the other two competitors.

We've continued to do well in the phenylephrin market, with $10.6 million in Vazculep revenues in Q4. We were able to pick up some share over the course of the year in the 1 ML, and now have just over 40% of the entire market phenylephrin across three [vial] sizes. Our base assumption is that we will see another competitor in this market by mid-year; however, we expect the market to remain steady until that time.

Bloxiverz revenues were up on a quarter-over-quarter basis, bucking a trend that we have seen this year, due to the overall volume of neostigmine declining as a result of an alternative option, sugammadex. However, over the course of the year, we were able to maintain in the neighborhood of 40% market share as one of three players, which I think is a testament to our ability to effectively compete in these hospital-branded generic markets.

As announced last month, we are developing a fourth unapproved sterile injectable product, for which we are working towards an NDA filing by year-end 2017. We expect this product to generate somewhere in the range of $30 million to $40 million per year once launched. This is just an initial estimate, and although it is not as substantial an opportunity as either Bloxiverz or Akovaz, unlike our first three products it is not subject to a gross profit share of 20%.

Now that we are an Irish Company, the profits will be recognized in Ireland, so this should add nicely to our operating income and aid in incrementally lowering our overall tax rate. Additionally, we are evaluating two more products that are currently unapproved, but that which we may likely need to do some clinical work. We believe that these are extremely large opportunities, and should we feel the associated clinical work would be worth the investment, we will move forward accordingly.

I will now discuss our internal pipeline development. As we have announced previously, we are narrowing our focus to LiquiTime and Micropump projects, and looking to divest or completely out-license our Medusa and Trigger Lock platforms, and we have halted spending on those two platforms. We did recently give a little color as to our Micropump and LiquiTime projects in feasibility, to which we have assigned general therapeutic areas -- two in pediatric, one in CNS, and one in psychiatric.

While we are still assessing feasibility, I think what we want to highlight here is that the Company is focused on internally developing other large IP-protected opportunities outside of sodium oxybate. Our goal as a Company is really to build a solid portfolio of diversified assets that will drive long-term value.

The last piece of the business that I'll touch on before turning the program over to Mike Kanan is our pediatric products. A key piece we believe to building value is the ability to commercialize products via a sales force, which was the primary reason for our acquisition of FSC in February of 2016. We paid very little for the business, and in return we received an infrastructure that needed some work.

2016 was a time for assessing the business, and really in a way restructuring it on every level. We recognize the products we acquired through the acquisition have somewhat limited value, and a substantial amount of work has been done to improve everything from stocking to managed care access, to territory optimization.

Sepracor scripts were up 33% in Q4 compared to Q3, and Karbinal scripts were up 45% in Q4 compared to Q3. Given that winter is not typically the high season for Karbinal, we are very pleased with that result. On a year-over-year basis, Karbinal prescriptions grew 337%. While we have work to do, we are pleased with the direction we are headed, particularly on a quarter-by-quarter basis.

We've hired a Chief Commercial Officer, Greg Divis, to take the lead on growing this area of our business, and for launching a new product before the end of this quarter. In a very short time, Greg has added significantly to our organization, and I think we're off to a great start for this new year.

From a business development standpoint, we are actively looking for assets where our sales team could leverage call points. With a strong balance sheet, we're in a position to grow and diversify our business through acquisitions, which we hope will drive more near-term growth, even over the course of this year.

With that I will let Mike Kanan, our CFO, discuss the financial results in more depth. Mike?

Thank you, Mike, and thank you all for joining us today. As you have seen in this morning's release, we finished the year extremely strong from a revenue earnings and cash flow standpoint.

Revenues from our hospital sterile products exceeded our expectations on the strong launch of Akovaz. Fourth-quarter revenue was $43.1 million, substantially above Street estimates, and we finished the year strong with $150.2 million in revenues, topping our revenue guidance. During 2016, as many of you know, we increased our revenue guidance twice, and we exceeded those expectations.

As we move into 2017, we feel good about the business and our prospects. Although a new competitor to Akovaz have recently launched, we remain comfortable with our 2017 earnings and revenue guidance, which we are reaffirming here today. We expect R&D spending to be between $40 million to $50 million in 2017, and we expect our full-year adjusted tax rate to fall in the range of 70% to 80% on a non-GAAP basis.

Cash-flow generation for 2016 was also strong, and it continues to be a primary financial focus for our Management Team. Over the last two years we have produced over $60 million of cash flow. Our cash and marketable securities at December 31 was $154 million, up from $145 million at the end of last year.

We have ample liquidity to execute our strategy, including completion of the REST-ON trial, and invest in selective other growth initiatives. As Mike has mentioned, now that we have reincorporated to Ireland, our Board has approved a $25 million share repurchase program. Given our current cash position and our ability to generate additional cash, we believe the timing is right to return some capital to shareholders through a share buy-back.

Now let's move on to how we performed in the fourth quarter and the full year. Revenue in Q4, as I said, was $43.1 million, up nearly $11 million from Q3, on the successful launch of Akovaz, which produced $11 million of revenues in Q4. Revenue was slightly down when compared to the fourth quarter a year ago, as Akovaz and the FSC revenues nearly offset the declines in Bloxiverz revenues.

Revenues for the full year were $150 million, compared to $173 million last year. The decline in sales was primarily due to lower Bloxiverz revenues as a result of changing market conditions. I'll have more to say on revenues in a minute.

Gross margin was 94% in Q4, up sequentially from Q3 and Q4 of last year, and slightly better gross-to-net realization. Gross margin for all of 2016 was 91%, down slightly from 2015. This slight decline compared to the prior year was a result of our pediatric-focused products, which carry lower margins than our sterile injectable projects.

Research and development expenses during the fourth quarter totaled $13.5 million, compared to about $8 million in Q3. Our full-year R&D spend was $34.6 million, up from $25.6 million last year.

These increases were due to higher payroll and outside service costs related to feasibility studies and clinical program costs, primarily associated with the sodium oxybate clinical trial. Notably, we substantially ramped up our R&D spend in Q4, as our REST-ON trial started picking up speed.

SG&A was almost $11 million in the fourth quarter of 2016, compared to $12.7 million in Q3 and $6.8 million in Q4 of last year. The decline in Q4 compared to Q3 was a result of lower one-time stock-based compensation costs that we recorded in Q3 that did not fully repeat in Q4. The increase in SG&A compared to Q4 last year was due to a number of factors, including the addition of FSC sales and marketing costs, continued investment in infrastructure and personnel, higher stock-based compensation expenses, and some non-recurring costs related to our reincorporation to Ireland.

On a full-year basis, we spent $44 million on SG&A 2016, compared to just $22 million last year. This increase was due to the same reasons I just discussed. For 2017, we expect SG&A to remain relatively flat with 2016.

Continuing down our P&L, you will see $7.6 million of contingent consideration payments and accruals in Q4, and $27 million for all of 2016. This non-GAAP expense is essentially the cash payments and accruals we make for our contingent consideration liabilities. As many of you know, as part of the Eclat purchase we pay 20% of our gross profit on Bloxiverz, Vazculep, and Akovaz indefinitely to certain related parties.

We broke even in Q4 on a non-GAAP basis, and incurred a $0.06 loss per share for all of 2016. Our non-GAAP effective tax rate for the full year 2016 was 109%. This abnormally high and large tax rate is due to jurisdictional mismatches between our revenues and expenses. Although over 50% of Akovaz was developed and therefore taxed in Ireland, the rest of our revenue and profits are in the US, where it is taxed at the full US corporate tax rate of 35%. The majority of our expenses, however, are occurred in France and Ireland, where they can't be used to offset taxable income in the US.

In addition, our contingent liability payments are not tax deductible, as they are part of the acquisition cost of Eclat. Since the majority of our Akovaz profits are in Ireland, we expect our tax rate to decline in 2017. However, as I've said, we won't see meaningful decline in tax rate until we launch additional products from Ireland, including sodium oxybate and our fourth UMD product.

Let's move on to the next slide, which covers our full-year GAAP results. I will refer you to the appendix to today's slide presentation for a reconciliation of our non-GAAP results to our GAAP results. The primary difference between our non-GAAP and GAAP results relates to how we treat the acquisition-related earn-out and contingent liabilities. For our non-GAAP numbers, as I said, we substitute the cash payments and accruals for the amounts we record for GAAP purposes. We believe this is a better way to measure performance of the business.

For GAAP, however, we use a fair value approach as required by the accounting rules. For the year ended December 31, 2016, we topped up our contingent consideration liability for GAAP purposes by $49.3 million. Keep in mind, these large charges are non-cash, and are indicative of a better long-term sales outlet for Bloxiverz, Vazculep, and Akovaz. These charges are reflected on a GAAP basis only, and are not reflective of the cash payments we make on a quarterly basis.

In addition, we owe contingent royalties on total revenues of the Eclat and FSC products to certain related parties. We adjust the fair value of these liabilities, as well, and we incurred a charge on a GAAP basis of $6.5 million for 2016. This true-up is included in a line item called other expense, changes in fair value of related party payable. Again, these are non-cash charges, the increase of which is indicative of a better long-term sales outlook.

Our GAAP net loss for the year was $41.3 million, or $1 per diluted share, compared to GAAP net income of $41.8 million, and $0.96 per diluted share last year. The decline in net income is largely due to $23 million in lower sales, higher non-cash charges associated with our contingent consideration, and higher operating expenses, notably R&D and SG&A.

Moving on to sales by product, sales of Bloxiverz were $16.9 million in Q4, compared to Q3 2016's revenues of $15.6 million. We are pleased that our share for neostigmine market remained at approximately 40% in Q4, which was relatively stable compared to Q3. Revenues for all of 2016 were $82.9 million, compared to $150.1 million in 2015.

As touched on earlier, the entrance of Westward in late December 2015 and overall market volume decline due to Merck's competing product sugammadex, contributed to these declines.

Sugammadex, which was introduced in the second quarter of 2016, now accounts for approximately 30% of the total neuromuscular block reversal agent market. Although we initially estimated that Bloxiverz pricing would see a decline of approximately 30% in 2016, we only lost about 20% of our price during that period.

Sales of Vazculep were $10.6 million in the fourth quarter, up from $9.3 million in Q3. Volume was modestly up from Q3, and we are pleased with that performance. Revenue for all of 2016 was almost $40 million, up almost $20 million compared to last year, due primarily to higher market share and the full-year run rate in 2016, when compared to 2015, which began ramping up from its launch in late 2014.

Akovaz sales were $11.3 million in Q4, compared to $5.6 million in Q3. We exited 2016 with approximately 27% share of the overall $7.5 million bio market, as was our goal. As many of you are aware, Endo recently received NDA approval for a version of ephedrine, and are now shipping product.

We have no visibility to their supply capacity and what their DEA quota might be; and we can speak little to how this may affect our product revenues for the full year. Assuming a rational market, there is no reason to believe we wouldn't split the market almost equally among the three players.

In Q4, FSC sales, which are included in the line item Other, totaled $3 million. Included in FSC revenues were in Q4 over about $800,000 of favorable gross to net adjustments, and $800,000 of revenues we pulled ahead in December, to ensure we had enough inventory at the wholesalers in the event of any issues with licensing and permits that could arise due to our name change.

Revenues for 2016 were almost $6 million. We continued to invest a good deal of time and effort in putting the right people in the right places, and expect the underlying performance of this segment to continue to improve. Furthermore, we are pleased to confirm the trade re-launch of Flexichamber for the end of the first quarter 2017, followed by sales promotion in early April.

Moving on to the cash flow summary, we ended 2016 with $154.2 million in cash and marketable securities, up from $149.7 million at September 30, and up from $144.8 million at December 31, 2015. We continue to be cash-flow positive, and we expect to continue that cash flow into 2017, as well.

In closing, let me provide additional commentary around our 2017 guidance. As you are aware, in early January we announced 2017 revenue guidance of between $170 million to $200 million, and adjusted diluted EPS of between $0.20 to $0.35, which includes an adjusted effective tax rate of 70% to 80%.

Although it is still early, we have little clarity on Endo's supply capacity or contract pricing. We still believe we are on track to fall within our initially set range of revenue and EPS, and we are reaffirming our initial guidance. We believe our SG&A has leveled off, and should remain about flat in 2017, while our R&D in 2017 will increase $40 million to $50 million on the continued investment in our REST-ON trial.

With that, I'll turn the call back over to Mike before we take some of your questions. Mike?

Yes. Operator, we'll have a few closing comments, but in the interim we'll be happy to take questions.

(Operator Instructions)

Our first question comes from the line of Jason Gerberry with Leerink Partners. Your line is open.

Hi, good morning. Thanks for taking my questions. Mike, appreciate the commentary on the sodium oxybate enrollment update. I was just curious, it sounds like you're still going to provide a mid-year update on how that's going. Just curious, do you expect even distribution of enrollment -- about 20 to 22 patients a month -- or is enrollment going to be first- or second-half weighted? Just trying to understand what the target enrollment assumptions are for mid-year?

My second question, you mentioned programs that you might be working on outside of Micropump sodium oxybate that may be large and patent protected. I imagine these are still relatively early stages, but wondering if you can talk a little bit about maybe what you're working on, what you're excited about, and when investors might be able to get an update in terms of the identity of that project? Thanks.

Right. Thanks, Jason, and we'll take your questions as you asked them. First of all, as it relates to the sodium oxybate study, we have really not talked in any detail or granularity about our expectations for how the enrollment will take place. What I can tell you is that clearly, now that we're enrolling patients in the US -- which we had already started in Europe and in Canada -- we would expect to see a spike and an up-trend in the enrollment in the clinical study.

There are people in the US, even though we have not been registering patients, sites have been identifying potential patients to put through the screening process. I don't -- it's not something that I think you would see an even number each month, but we're pleased with the progress that we've made overseas so far, and now with the US on line, at least beginning to be on line, we think you'll see an accelerated pick-up in the enrollment.

As far as updates we may provide, at this point in time I would imagine that we'll try to provide some sort of an update closer to mid-year, once we have a better handle on how the enrollment is progressing. At that time we would comment that either we're well on track, ahead of schedule, or if the reverse of that was true we would call that out as well. But at this point in time, we don't have a firm date for updating that, as it relates to oxybate. I hope those are responsive to your questions.

With respect to -- pardon?

No, I just said thanks for --

Sure. With respect to our pipeline, we decided that given the complexity and technical challenge surrounding putting drug delivery into new products that would serve the Company and its shareholders better, that if we waited to identify projects until such a time as we were almost completely certain that from a technical feasibility perspective, projects would be able to be completed and to meet target profiles that we had established.

We still believe that to be the case, and we have a number of projects that we added, at least some therapeutic category description to, earlier this year. I would say that some time by mid-year, or certainly by end of the third quarter we'll be ready to be talking about some of the names of those products. But rather than to identify a project and then find out that there's a technical challenge that we can't overcome, we have just played that a little closer to the vest.

The projects in that pipeline, we are excited about. We -- as you know, we've decided to focus just on two of the original Avadel technologies, Micropump and LiquiTime. We're not going to spend any more time or energy or money on either Medusa or Trigger Lock, and that will help us to hopefully move those projects through faster.

Mike, what's the hurdle for IP? Do you feel like anything you move forward with needs at least 10 to 15 years of post-market IP? Where do you -- how do you set that threshold?

I think that's a reasonable assumption. Obviously we have patent protection that extends to all of our drug delivery, and the patent protections on those specific platforms varies. But typically, in part an issue associated with [oxevay] is any additional patent protection we would seek to combine with our existing platform technology with something specific to the product that we're developing. The answer to your question is that to me is pretty norm in this industry. Certainly to have a product with just two or three years -- while it's better than not -- is typically not sufficient for proprietary technology like that.

Thank you. Our next question comes from the line of Jim Molloy with Laidlaw. Your line is open.

Hi, thanks for taking my questions, and congratulations on some good sales there in the quarter. I wanted to ask about that Other sales. Have you guys broken down in any more detail how that $3.5 million of Other? Is it FSC, or were there key drivers there?

Jim, that -- most of it's FSC; $3 million of it is FSC in the Other line.

Any break-down of how the FSC sales came through?

No, we haven't broken down by product what the product revenues are for Karbinal, AcipHex, or Cefaclor. We haven't done that. But just remember, the $3 million was our best quarter for FSC; but there was roughly $1.5 million to $1.8 million of what I would call one-time revenue items in there. Part of that was a pull-ahead of sales we did in December to ensure we had enough inventory in the wholesale channel as a result of our name change. Then we had a few true-ups in our gross-to-net adjustments. I can't say that the $3 million -- I wish it were, but it's not a run rate for us quite yet on a quarterly basis.

Thank you for that. You guys are very clear on expectations for SGA R&D for 2017. I know that the cash generating $10 million overall, $18 million -- almost $19 million in cash from operations in 2016. Is there a chance you guys -- do you think you can get back to the 2015 $85 million range, or is $18 million to $20 million an expectation we should have for 2017 for cash preparations?

No, I think -- no, I don't think we can get back to 2015 in 2017. Our expense base has grown quite substantially since 2015. It's also a function of the top line; if -- we did I believe close to $175 million in 2015. No, we'll be solidly cash-flow positive in 2017, but not to the levels of 2015.

Then last question for me and I'll go back to the queue. The FSC, you made quite a few transformations there, it seems like, and some adjustments there. When you're looking at additional acquisitions, should we expect something along the lines of an FSC, where you go in and make some fixes, or would it potentially be a transformative acquisition, where you'll bring in some rather large product on the market that could really transform top line?

Jim, this is Mike. Let me start by telling you it's an important initiative for us. We have to be able to grow that business, and we never really contemplated that we would -- it would be a barn burner just on the products and licenses that came with the purchase of the infrastructure. I think that our first number one objective would be to find accretive product opportunities. FSC, of course, was infrastructure as well. Accretive product opportunities that A -- had some life or patent-protected life left to them; but also products that ideally we could be in the background adding either a Micropump or Trigger Lock to it to make something that would be -- have utility for a longer period of time.

The second -- your second part of your question, which related to the size of an acquisition, we'd love to find something a little larger. We believe that's well within our capability. But again, it's a question of the right value and finding something that we can address with that. I think that unless it were an extraordinary opportunity, the likelihood that it would be an additional infrastructure would probably be less likely.

Thank you for taking the questions.

Sure.

Thank you. Our next question comes from the line of Jason Butler with JMP Securities. Your line is open.

Hi, thanks for taking the questions. Just a couple on sodium oxybate. Can you -- I know you mentioned that the SPA specifically excludes the patients currently on the Valproate. Have you had any specific conversations with FDA about your label excluding patients or contra-indicating patients on Valproate? Then you can talk about what the impact on the addressable market is, both in terms of enrollment and ultimately commercially by excluding patients on Valproate?

Well, for starters, we couldn't obviously Jason discuss the content of our discussions with the FDA, but if you're asking is the FDA aware that it was contra-indicated for patients in the study, or those patients would be excluded from the study, they were absolutely aware of that, and there was discussion that took place. That would be about the extent of what we can talk about. With respect to the -- refresh me on your second question again?

Just the impact to the market by excluding those patients?

Oh, it's our understanding that less than 5% -- probably closer to 2.5% of patients are on those two drugs concomitantly. We frankly feel like there's -- it doesn't do a lot to prohibit our success in the market place should we eventually get into the market place.

Great, and then just one follow-up. Any update on the cough-cold program? Sorry if I missed it in the prepared comments.

Are you talking about the Perrigo Program?

Exactly.

Yes, so we're continuing to work on guaifenesin. We don't have any more much to say about it. As you know, Perrigo had some changes in their management team over the course of this year. Those projects are still alive, still very active, and we're working with them, the projects and Perrigo, on at least a weekly basis. Now that we have a partner, it's a little difficult for us to go out too much and talk separately without having chatted with them about it.

Okay, great. Thanks for taking the questions.

Thanks, Jason.

Our next question comes from the line of John Boris with SunTrust. Your line is open.

Thanks for taking the questions, and congratulations on the results.

Thank you.

The first question has to do with the sodium oxybate program, Mike. Can you maybe elaborate on the number of sites that have gotten IRB approval? Have all of them that you targeted received IRB approval, and are they all actively enrolling at this point? Then are there any incentives that you have in place for the sites to secure patients on the narcolepsy side of the equation?

The first part of your question, John, is that not all of the sites are up and running yet. As I mentioned earlier today, we just did open enrollment in the US. It's ongoing now at a number of sites. If you go to our website you can see what those sites are. We still have other sites to begin. I think most all of them -- I won't tell you that all sites have IRB approval, but I think the overwhelming majority of them do.

The clinical study is all but 100% ongoing now. As to the second part of your question, which related to an additional incentive for sites to more rapidly enroll patients, we talked earlier that we're using a number of sources, social media. We are working separately with sites and with our CRO to make sure that those patients -- the patients who could be enrolled are, and that the sites are paying attention to trying to get this study completed on time.

I think we've done a good job of making everyone associated with this clinical study understand the importance of being timely on it. I'd rather not talk specifically about any specific arrangements we have with either sites or CRO or anybody else about accelerating or getting the study done any quicker.

Okay, thanks for that. Second question has to do on the acquired assets. Any commentary on any stocking that might have happened in the fourth quarter that we should be mindful of as we model out first quarter?

None. There was nothing abnormal about -- I think Mike talked a little bit about some pull-through that we did with respect to the FSC. That was all related to some licensure issues that we wanted to make sure we avoided as a result of changing the name to Avadel, but nothing with Eclat. Nothing at all.

Great, thanks for that. Lastly, just on Trigger Lock and Medusa, some nice assets to potentially be able to monetize. Just any timeline that your BD group has for being able to monetize these assets?

Well, obviously we would like to monetize them today, but we have a number of conversations ongoing. I can't sit here and tell you that we have an imminent deal, but we do have people with whom we've had some significant conversation. We'll have to just see how that all materializes. You know the business, and you can do lots of good talking; you can be all the way down to the end of the street and find out that you don't have a partner. By the same token, things can move more rapidly. At this point in time we do have conversations ongoing, but I would not describe anything as imminent.

That's great. Thanks for taking the question.

Sure, thank you.

Our next question comes from the line of Scott Henry with ROTH Capital. Your line is open.

Thank you, and good morning. I'll start with a couple numbers-related questions. With regards to the quarterly trajectory for revenues in 2017, any patterns that you would expect?

Well, I think we'll have another strong quarter in Q1, as we fully launch Akovaz. We'll continue to have an upward trajectory into Q2. I would expect Q2 to be as good, if not a little better than Q1. As we get into the back half of the year as Endo gets trenched, if you will, into the market, you probably would not see as strong a quarters in Q3 and Q4 of 2017.

Okay, thank you. That's helpful. I believe I heard you correctly, Mike. Did you say R&D of $40 million to $50 million in 2017? And could you give any guidance on SG&A relative to the 2016 base?

Yes. I said SG&A would be flat with respect to SG&A, and R&D about $40 million to $50 million is what we're thinking right now.

Okay. Then shifting gears on some of the Eclat products, the question is when I look at it, it seems like the tails of these products are proved to be bigger than I think people originally anticipated. Are you seeing that as well? The question is, how long do we expect those durations to continue? Then staying on that line of questioning, we have a second -- we have another Akovaz competitor. Are you hearing anything about any future competitors out there?

Scott, first of all I think without question the tails on these things have proven to be longer than most people thought. We all along believed that because these are smaller injectable products, because they represented gold standards of therapy, and because they've been around for so long that these wouldn't be the types of products that are going to go away, or that people would be able to football price-wise, so that they became not worth the effort. The tails have been good.

As to how long will those tails last, I don't think we know. At this point in time, they seem to be continuing on. We have seen some erosion in the neostigmine business from sugammadex. Phenylephrin seems to be pretty stable, as does ephedrine. That's really dependent upon the amount of competition, and what happens to the pricing, and what really is the generic market.

As it relates to other competitors on either ephedrine or neostigmine or phenylephrine, even though we have typically modeled competitors each year, we don't have any visibility to anybody coming into any of those three markets out. It doesn't mean it couldn't happen tomorrow, it's just that we don't -- we have no way to see that. We keep our fingers crossed, and we're comfortable that we'll get our share of ephedrine once all that's said and done.

Thank you. Our next question comes from the line of Matt Kaplan with Ladenburg. Your line is open.

Hi, good morning, guys.

Hi, Matt.

Congrats on the good result in the fourth quarter, very good. A couple questions to follow up. Number one on sodium oxybate, you mentioned in your prepared remarks that enrollment was going to be the primary risk for the program as you see it. Can you talk about how difficult it is how you've been finding it to identify the appropriate patients who meet the entry criteria for this study, and what your thoughts are there?

Well, only commentary we can give you, Matt, is that we believe the enrollment's on track. We've always recognized enrollment as being one of the issues that we have to be very mindful of. There are people who believe that will be -- or the success of our timing will hinge on that. We believe that, as well. We're pulling out every straw to make sure we have an appropriate enrollment scale, and that we reach out to every patient.

So far, we're not aware of anything that's hindered that, although remember this is a finite group of patients and an orphan disease, so they don't grow on trees. But the fact that they have to be sodium oxybate naive also is a hold-back, but so far -- knock on wood -- the enrollment is going pretty much as we expected.

A follow-up to that, do you think you'll be enrolling more patients in the US or more patients outside of the US at the end of the study as you see it being completed?

I think now that the US sites, or some of them are up and rolling, we think there will be an accelerated trend on enrollment of patients into the study. Ultimately, I think we said we expect to enroll more patients in the US than other places.

Thanks. Then shifting gears to your pipeline, can you talk about where you are on the feasibility studies that you had ongoing for LiquiTime and Micropump internal programs?

Yes. Candidly, there's several different products in the pipeline, and they are at various stages. I would suggest to you when we get to the point where we're pretty comfortable it's a project, we'll call it out to you, we'll assign a value, or put some context around what we're trying to do; but we're really not -- we haven't, unfortunately, updated that yet, specifically, by product.

Should we expect, perhaps, a mid-year update or something like that around there for --?

Yes. Listen, we're -- it's top of mind to us. We recognize that these studies, a couple of these have been ongoing for some time. Applying LiquiTime technology, Micropump technology to them is not just always a straightforward operation. You're -- constantly you have to be concerned about stability. That's probably one of the reasons why there are very few people in the extended-release liquid business. Once you've got what you think is a formulation, then you need to make sure that it passes stability, and that takes some time. Anyway, hopefully we will have some more specifics to talk about during the course of this year, but we don't as of right today.

Okay, fair enough. You mentioned your fourth program in the [desi] space. Can you give us a sense in terms of what the potential is there for that program? Before, previously you had mentioned in the $25 million range of opportunity?

I think we described it, Matt, as somewhere in between the $30 million and $40 million range, ultimately, based on the market conditions at that time. I would look at it somewhere like I would look at a phenylephrine, for example.

Thank you. Our next question comes from the line of Ken Trbovich with Janney. Your line is open.

Good morning, Mike. I appreciate you taking the questions. I wanted to just do a little bit more on the sodium oxybate side. Specifically the sense I get from your description earlier is that if you're excluding the patients from the study there would be a contra-indication in the label. Is that a fair assumption?

No, I don't know if I -- I wasn't trying to communicate that, Ken. All I'm really suggesting to you is that our excluding patients on valproic acid or valproate sodium from our clinical study is a fact, and an issue that we've discussed with the FDA. We -- originally when Hikma or when Jazz filed the citizens petition, it did do believing Hikma was going to try to solicit a carve-out on the labeling. They ruled that you couldn't do that, and that's always been the rule with generics.

I don't think we have a very what we think is robust legal strategy, which we wouldn't behoove our shareholders to discuss, but it is being excluded from our studies. It gives us more options than if patients were in the study on valproic acid, and that we were using the benefits of the other company's patents on this. I would like to, if I could, leave it at that.

I will tell you that FDA is aware of what we're doing. Again, I would remind you that we are not a substitute bio-equivalent product. We're going to be a different product and have different label all together. Nice way not to answer your question, right? Ken? Hello? Operator?

Yes, sir. I'm showing no further questions at this time. I would like to turn the call back to Mr. Anderson for closing remarks.

Thanks. Thank you all again. In conclusion, I think over the last couple of years we -- our Company has become in my view a valuable long-term investment opportunity. Our team has transformed this Company in just about five years from one that had never seen a profit since its inception over 20 years ago into one that's generating cash from operations, has received three NDA approvals, has acquired and rebuilt a commercial infrastructure, and has a large Phase III trial expected to read out some time in the first half of 2018.

We've demonstrated I think our ability to generate revenue to fund our operations independently. Not only are we growing our internal pipeline, but we have put ourselves in the financial position to grow through inorganic means, should the opportunity arise.

2017 should not only be a year of executing our base business, which should continue to generate cash, but it'll be a year of continued development for the Company, both through our internal development projects, and potential external growth. We'll be presenting at a number of investor conferences this spring, and we'll look forward to providing you with updates this year as they arise. Thank you very much for spending the time with us this morning.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.