Avadel Pharmaceuticals PLC (AVDL) 2018 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Avadel Pharmaceuticals Third Quarter 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Ms. Lauren Stival, Director of Investor Relations.

You now may begin.

Good morning, and I want to welcome you to Avadel Pharmaceuticals Third Quarter 2018 Earnings Conference Call.

Before we begin, I'll start with some cautionary statements.

The following presentation and today's call 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 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 the Form 10-K for the year ended December 31, 2017, which was filed March 16, 2018.

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.

We'll be using slides to reflect today's financial overview results, which can be accessed by going to the Investors section of our website, selecting the investor presentations page.

After prepared remarks, we'll be opening the call up to a question-and-answer period.

On the call today, we have Mike Anderson, our Chief Executive Officer; Mike Kanan, our Chief Financial Officer; and Greg Divis, our Chief Operating Officer.

At this time, I'll turn the call over to Mike Anderson.

Mike?

Thank you, Lauren, and good morning, ladies and gentlemen.

Thank you for joining us this morning.

I'll begin our call by talking a bit about our accomplishments over the quarter.

As we shared in our last call, we're in a period of investment as we continue the transformation of Avadel.

Execution is and will remain critical to our success over the next 12 to 18 months.

We laid out several objectives on our last earnings call, which were to improve our Phase III trial enrollment and to continue to progress the launch of NOCTIVA and the education around nocturia.

I'm pleased to say that our team has delivered results in both areas with much more to come.

Let's start with FT218, our once-nightly sodium oxybate for narcolepsy.

Over the last 3 months, we have executed the objectives laid out for our REST-ON Phase III trial of FT218.

In August, we indicated that we were approximately 50% enrolled, and we have continued to enroll new patients over the quarter and have randomized over 50%.

Importantly, we have implemented a number of programs that are designed to accelerate the enrollment in the study.

We initiated our patient referral program and a new patient-focused ad campaign, and have successfully initiated 10 new clinical sites, all of which are now actively screening patients.

2 of our new sites are in Australia, where sodium oxybate is unavailable to patients, thereby, expanding the pool of oxybate naïve patients.

In Sydney, we recently hosted a patient education day with 100 attendees and we were the sponsor of the 30th Annual Sleep DownUnder Meeting, where we had over 50 physicians opt in to receive information about our trial referral program.

We are very optimistic about our reception in Australia and our 2 sites are actively screening patients.

As you may recall, we have an additional site that will come on board shortly and potentially others.

In both Australia and in the U.S., we believe that we are seeing the fruits of our new initiatives.

For example, we currently have the largest number of patients that we have had either being prescreened, screened or scheduled for a first visit.

This does not mean, of course, that this will be sustained every month, and it doesn't mean that all these patients will end up being study participants.

What this does demonstrate, however, is that because of the new sites, new tactics and renewed vigor at older sites, we're seeing positive signs heading into the remainder of our study.

As you know, our screening process is several weeks long, and because our new sites and patient-directed ad campaigns have only recently launched, we have chosen still not to offer a date of the last patient in.

Members of our senior management team, including me, have and will continue to commit significant time in personally visiting clinical sites, participating in new site initiations and increasing our presence and follow through on the commitment sites have made to enroll patients.

With all that we are focused on, we are optimistic that as we work to enroll the back half of this trial and look forward to providing you with more updates.

Now as to NOCTIVA.

Although overall demand generated has been lower than initially expected, we've made progress in many important metrics as we not only launch a new product in NOCTIVA, but also undertake the building of a new market in nocturia.

From a prescription standpoint, we've seen consistent growth since the launch for both new and total prescriptions.

This is also similar when looking at the progress we've made in total prescribers of NOCTIVA.

As with prescriptions, growth has been consistent since launch when evaluating both 4-week and 8-week trends compared to prior periods.

Total prescriptions are now approaching 8,000, and total unique prescribers are over 1,800.

Looking deeper at our current prescriber base, approximately 2/3 of all dispensed prescriptions since launch are coming from 25% of total prescribers.

We believe this speaks highly of their experience and confidence with NOCTIVA, and after gaining this important trial and usage, we began to see an expansion of their treated patient pool.

This is important and has been confirmed in our research, as health care professionals develop a level of comfort in prescribing NOCTIVA for nocturia, we began to see an acceleration of prescribing.

This serves to further confirm the importance of continued education on the relevance of nocturia, the identification of those patients suffering from it and tying those to physician usage.

In addition, very recent intent-to-treat data from our ongoing market research studies indicates that approximately 85% of targeted physicians expect to increase their use of NOCTIVA over the next 6 months.

From an important market access perspective, we ended the third quarter with approximately 140 million lives commercially covered, of which just over 20 million are covered as a preferred brand.

From an analog perspective, in our first 6 months of being commercially available, NOCTIVA has more commercial coverage than one of the most widely used brands for overactive bladder had in its second market year.

In addition, we've recently finalized our first Part D contract with a major PBM.

Signed and now in effect, we have improved coverage for approximately 5 million lives in Medicare Part D. We are pleased with this contract as we recognize how difficult Part D contracts and formulary wins can be to earn, especially in the first 12 to 24 months of a launch.

While we're not satisfied with our current performance in terms of demand and the conversion of demand to revenue, we are making progress on other very important early launch metrics.

From our target prescriber base, we've increased our unaided brand awareness to 80%, up from 60% in August, and markedly improved their perceptions on "level to bother" due to nocturia.

Our research also indicates that over 70% of patients report being bothered by waking at least 2 times per night.

However, our target prescribers initially believed significant bothered only occurred at 5 or 6 voids per night.

They now report a shift in this belief to now stating that it begins to occur at 3 or more voids per night.

In other words, our targeted prescriber base is beginning to take nocturia more seriously.

We've also increased the belief that screening for nocturia is important.

Over 40% of targeted health care practitioners now believe this should be an important consideration in the workup of patients.

This compares to less than 25% at launch.

In addition to making headway on the physician front, we have recently launched the Nocturia Council, a coalition of 13 prominent advocacy groups representing men and women's health care organizations, urologic organizations and patient and caregiver groups.

They have all joined us to educate their millions of constituents who are potential NOCTIVA patients.

It also highlights the unmet educational need that these important stakeholders see related to nocturia.

We will collectively seek to bring to light this undertreated condition that dramatically impacts the health and wealth of patients, and offers potential solutions such as NOCTIVA.

As we work to continue shifting the treatment paradigm of physicians, we also recognize that we must begin to help patients engage with their health care practitioners about their symptoms and its impact on their health and their quality of life.

While over 70% of patients report being bothered by their nocturia, the majority have not spoken to their physician about it, and simply believe that it's a normal part of aging.

We know this is not true, and an opportunity for further education and for NOCTIVA.

Nocturia is a large market of silent and underinformed sufferers.

This was further demonstrated by our recently conducted and published Harris Poll that researched over 2,000 U.S. adults.

The results demonstrated that over 1/3 of American adults wake up to go to the bathroom multiple times at night, and this wakening at night is very disruptive to their health and well-being.

However, currently nocturia sufferers are not aware that this is a condition that can be treated, and they are not actively discussing it with their physician.

To help begin to educate potential patients, we recently launched a comprehensive communication plan around these results and have reached over 144 million impressions to date.

As such, and we have stated from the outset, education is not isolated around NOCTIVA.

We much -- must also educate on nocturia as well.

We are focused on efficiently and effectively doing both, continuing to build the required demand with targeted high potential physicians and effective patients.

There is a clear need for patients, and we know from the clinical data and from actual real-world experience of health care professionals and patients that NOCTIVA can and is helping to address this tremendous need.

Although NOCTIVA promotion to physicians commenced approximately 6 months ago and total prescriptions and revenue are not where we expect them to be, there has been meaningful progress in our launch and buildout of this unique opportunity.

We fully recognize the hard work that must be done to both educate on NOCTIVA, while creating a new market firmly believe it is far too early to draw conclusions on the long-term opportunity that NOCTIVA provides.

Now before I hand the call over to our CFO, Mike Kanan, let me provide a few remarks on our hospital franchise.

Given this portfolio has paid our bills, both in the past and today, we'd be remiss not to call out the fact that we are, still hold the leading market share position with all 3 products.

And while the margins have declined with new competition in each respective market, they are still highly profitable and are expected to continue to provide the company with excellent cash streams.

Furthermore, our fourth UMD product is still on target for filing in early Q1, and we are in active assessment of our next potential opportunities.

I'll now turn the call over to Mike Kanan to review the quarter's financial results and to provide you with some additional color around the market dynamics we've seen in our hospital business.

Mike?

Thank you, Mike, and let me also thank you for joining the call this morning.

Third quarter revenue was $20 million, largely driven from our hospital products.

These hospital products continue to provide, as you heard Mike say, positive cash flow and they do perform very well for us.

They carry gross margins in excess of 70%, and have very little sales and marketing costs or other overhead.

As a result, they continue to be very profitable for us.

Our bottom line results through 9 months included about $48 million in sales and marketing costs as we continue to vigorously position NOCTIVA for long-term growth.

R&D in the third quarter was $11 million.

This spend was predominantly for the Phase III clinical study of FT218.

And our cash and marketable securities balance was $125 million at September 30.

Now let me talk more specifically on how we performed in the third quarter.

Revenue for the quarter, as I said, was $20 million, down from Q2's level of $29 million and $40 million in Q3 of last year.

The declines from both periods reflect lower volumes and net selling prices due to more competition to our hospital products.

Our success with these products has been strong, and we continue to evaluate other potential products as sources of cash flow that can be developed cost effectively and with a high likelihood of success.

And as you heard Mike say, we are making good progress with our fourth hospital product.

NOCTIVA revenues were $1 million in Q3 and $2 million through the first 9 months.

This less-than-expected revenue has been primarily due to the growing number of Medicare-treated patients, coupled with the required level of commercial financial assistance provided to patients to ensure NOCTIVA access in this early launch period.

Cost of goods sold was about 16% of product sales in Q3, up from about 12% in Q2, and 10% in Q3 of 2017.

The increase in COGS was due to lower hospital products' net selling prices.

Research and development expenses during the third quarter totaled $11 million, largely unchanged from Q2, but up 41% from last year's Q3.

This increase is a result of significantly higher spending in our REST-ON clinical trial, including new patient enrollment initiatives, costs associated with the initiation and opening of additional clinical sites and increased spending associated with the testing and scale-up of contract manufacturing services for FT218.

SG&A was $25 million in the third quarter, up from $12 million from Q3 last year.

Of the $25 million, $15 million was sales and marketing expenses.

The $13 million increase was predominantly due to $16 million of higher sales and marketing costs, principally associated with the May launch of NOCTIVA, partially offset by $3 million of sales and marketing costs incurred in the third quarter of 2017 attributable to our former pediatric business, which as you know, we divested in February of 2018.

Included in our non-GAAP results are about $4 million in related party contingent consideration accruals and payments.

Most of these payments are related to the 20% gross profit split we pay on our existing hospital products.

Also included in our non-GAAP results are $1.6 million of paid and accrued interest expense on our exchangeable notes.

On a non-GAAP basis, Q3 diluted loss per share was $0.65.

Included in this loss per share is a tax benefit of 3% or approximately $700,000.

A large portion of our NOCTIVA spend will be eligible to offset U.S. taxable income from our hospital products.

As a result, this has eliminated a majority of our U.S. cash taxes and creates a tax benefit we will be able to utilize in future years.

Moving to our GAAP results.

The primary differences between our non-GAAP and GAAP income statement relates to how we treat expenses associated with the acquisition-related contingent consideration, amortization of the NOCTIVA intangibles and interest expense on our exchangeable notes.

Please refer to today's appendix to today's slides for a reconciliation of our non-GAAP results to our GAAP results.

The largest GAAP to non-GAAP difference is related to contingent consideration.

Included in the GAAP net loss for the third quarter were gains of $7 million related to changes in the fair value of related party contingent consideration.

These noncash gains were recorded as a result of reducing the fair value of this liability due to changing market conditions across the company's 3 hospital products.

Additionally, we have differences between our cash interest expense and our GAAP interest expense on the exchangeable notes.

For GAAP purposes, we record interest expense on the debt component at an interest rate commensurate with our specific credit profile and the tenure for term debt that amounted to $3 million.

For non-GAAP purposes, however, we report interest expense using the 4.5% coupon and that amounted to about $1.6 million.

Our GAAP net loss also included noncash amortization of almost $2 million, predominantly related to NOCTIVA.

GAAP net loss for the third quarter was almost $16 million or $0.43 per diluted share compared to net income of about $22 million or $0.52 per diluted share in the same period last year.

Moving on to our cash flow summary.

We ended the quarter at $125 million in cash and marketable securities, up from $94 million at December 31, 2017, but down from $147 million at June 30, 2018.

As most of you know in February, we completed our exchangeable notes offering, and received net proceeds after expenses of $138 million.

Simultaneously with the notes offering, we repurchased 18 million of our shares and in 2018, we purchased an additional 10 million of our shares under other board authorized programs.

Over the last 12 months, these share repurchase programs have reduced our outstanding share count by approximately 12%.

We have completed these programs and currently do not intend to initiate any new buyback program at this time.

And finally, as you've read in the release, we are maintaining our full year revenue outlook of $90 million to $105 million based on current market conditions.

Within this outlook, we do not anticipate reaching the low end of our previous guidance for NOCTIVA of $5 million due to a higher mix of Medicare Part D scripts, greater co-pay assistance and lower overall script growth compared to the assumptions we used for such previous guidance.

When we updated our guidance last quarter, we made certain assumptions around the mix of patients in Medicare Part D versus commercial insurance plans, the level of co-pay assistance, the timing of contract through the managed care organizations and overall script levels.

Since then, we are seeing that the mix of less profitable Medicare prescriptions is higher than we expected when we revised our forecast in our last call.

We would expect this to reverse as managed care coverage improves over the next number of months.

And finally, the growth of scripts has not, as yet, met our expectations, but we believe the positive increase in recent intent-to-treat numbers indicates there is an increasing comfort with and positive feedback about NOCTIVA.

R&D spending remains unchanged at $40 million to $50 million.

Our outlook for SG&A has been increased to $85 million to $95 million from $80 million to $90 million.

This increase, in part, is a result of higher legal costs as we defend our NOCTIVA IP.

And our anticipated tax rate is expected to be a benefit and will range from 0 to 10%.

Although we have not provided formal 2019 guidance, let me briefly talk about our cost structure and where we see that headed into 2019.

As you heard me say, in 2018, we expect to spend $40 million to $50 million in R&D and $85 million to $95 million in SG&A.

That amounts to about $125 million to $145 million in spending, excluding cost of goods, royalties and $6 million of interest on our debt.

As we have said, 2018 is and has been an investment year in order to position NOCTIVA for success and to make substantial progress on our FT218 clinical trial.

The management team has been aggressively looking at our total cost structure and as we move into 2019, we do not expect spending at 2018's level.

While we have not finished our 2019 planning, we expect to be able to reduce our cost structure significantly from 2018's levels.

Many of these cost reductions come from onetime investments we made this year in FT218 and NOCTIVA.

Such cuts will not jeopardize the completion of the FT218 trial or our NOCTIVA growth initiatives.

We also may make adjustments to certain other initiatives, given a likely reduction in our 2019 hospital revenue.

These cost reductions are necessary, and we recognize that cash is king and that we must be good stewards of capital.

With that, I'll turn the call back over to Mike for some concluding remarks.

Thank you, Mike, and we look forward to providing you updates as they occur.

We're happy now to take any questions.

Operator?

(Operator Instructions) Our first question comes from Matt Kaplan with Ladenburg Thalmann.

Just wanted to focus first on FT218 Phase III REST-ON study.

I guess, how have the adjustments that you've made in terms of modifications had an impact on the enrollment so far?

And I guess, what's your current thinking with respect to the timeline for the completion of that study given -- look you started the study late in 2016, but really got it going besides Europe in 2017, you're almost 2 years into it now.

What's your sense in terms of wrapping this up?

Good question, Matt.

You're right, we dosed the first patient in December, which was end of '16, which was in Europe, and we really didn't begin in the U.S. until sometime around April of 2017.

The initiatives that we put into effect so to date have, in our view, increased the number of prescreening, screenings and those sorts of things.

We're not, at this time, able to go into any detail as to exactly what -- when we expect the trial to be completed, and we, as you noted from the call, didn't reference the number of patients.

We'd prefer, if possible, not to be so fixated on exact numbers of patients enrolled, at least until we get comfortable that we can put a date out there that we're not going to miss.

One of the things that probably has hurt us with respect to FT218 is having previously put dates out there that we didn't meet.

And until we can put 1 out that we can -- we recognize under no circumstance would we miss, we'd rather sort of keep that close to the vest, if you will.

But I will tell you that between the new sites that have opened, the renewed enthusiasm that we believe we've seen from even some of the existing sites, that there's a great deal more interest in the clinical sites in getting this patient -- this study completed, than we've seen in some time.

May not be exactly specifically what you wanted to hear, but that's sort of where it sits.

And you're still targeting 260 to 270 patients enrollment, is that...

Yes, nothing has changed that, as you know, that's dictated by the approval of the SPA, and which remains intact today.

The SPA, of course, was put into effect to theoretically eliminate an issue at the end of the study.

And we still feel comfortable that, that will happen.

264 patients, that's correct.

Great.

And then just on NOCTIVA, what's the feedback that you've been hearing from physicians about NOCTIVA?

And where do you think you can get your payer coverage to, I guess, as we kind of exit 2018 here?

You've made progress there obviously in the payer coverage, but what do you think you can get to and to accelerate the uptake of the product now?

Yes, this is Greg.

A couple of comments with regards to physicians' reaction or receptivity or feedback on NOCTIVA specifically.

We certainly, for those who have experienced and have prescribed it, we hear from both physicians and patients, how well NOCTIVA works for them.

We hear it anecdotally, routinely.

We heard it just this past weekend extensively at a conference.

So those who have experienced and have had a chance to use it are seeing the benefits of it.

Those who are still, if you will, watching and waiting, it's a combination of a couple of things.

One, it's bringing to light the relevance of nocturia and helping physicians who have a lot of these patients in their practice see these patients beyond the lens of an overactive bladder patient or a prostate patient.

From that standpoint, that's -- those are obviously very important things to do.

With regards to payer coverage, we've made a lot of progress there, in particular, on the commercial side, where we've seen really good results come through.

What we're seeing from a prescription standpoint, as Mike Kanan referenced, a much larger percentage of Part D, and that's where we've put a lot of effort to expand coverage in Part D. As noted, we had our first win with a major PBM.

There's a number of decisions still pending for 2019, and our expectation is that will -- through the course of 2019, we'll see the Part D coverage move from what, in essence, has been 0 coverage in terms of contracted agreements, although we've seen reimbursement of Part D lives during the course of this launch.

But moving from contracted coverage from really 0, we expect that to continue to grow with this 1 -- with this major PBM being the first one.

Okay.

That's helpful.

And then last question, in terms of performance of your legacy [dezi] hospital products going forward, I guess, Akovaz looked particularly weak during the quarter.

What's your sense in terms of the 3 products there and continued revenue potential there going into '19?

Matt, are you speaking about a new entry into the ephedrine business?

Or the number 4?

Yes, Just -- yes.

No.

Numbers 1, 2 and 3 and I guess that obviously Akovaz was -- did reduce substantially from second quarter.

Yes.

So we've -- obviously, these are what I would describe as trade name generics, they're -- not really any other way to put them right now.

And we've seen additional competition in all 3 of those products over the course of this year.

We've seen particularly Bloxiverz, which I think now has either 7 or 8 different generic competitors.

We have 4 or 5, as you mentioned, with Akovaz and a couple with Vazculep as well.

And we've seen -- as a result of that, we've seen margin erosion and people taking the price out.

I think that when you get down to it, you consider the CGMP cost of remaining compliant with sterile products manufacturing.

Personally, we -- it's hard to model these things, but it would be surprising to see a whole lot more erosion out of it no matter what the case, but you really don't know.

Matt, that, in essence, is why that's a difficult model to -- or difficult kind of a business to model and why you wouldn't want to do it strategically is because have the patent protection, but we've seen erosion.

It's still a good source of revenue, and as new people come in, you just don't know.

We've had competitors come in to all 3 of those markets haven't done much, we've had other ones come in and immediately go to a customer and try to take 30% of the market out.

So it's sort of difficult to model.

Greg may have something to add to that.

Yes.

Thanks, Mike.

Matt, a couple of other comments, right, just for kind of level setting.

4 customers make up over 85% of these purchasers.

There's 3 major GPOs who are a big part of those 4. The fourth is what we characterize as alternative repackagers, right?

These are folks who buy it in bulk and repackage it into single-use vials.

And we've had a big customer in that space who have slowed down their purchasing a bit as they right some things internally within their organization.

So despite that, we've retained our market leadership position, specifically as it relates to all 3 of these products and that -- and related to your question around Akovaz.

So the team, despite that, has performed very, very well, and it remains a channel for which our group is very effective at maintaining our position.

And our next question comes from John Boris with SunTrust.

First one, just related to NOCTIVA.

I believe you mentioned 8,000 total prescriptions, 1,800 unique prescribers.

Of the 8,000 prescriptions, what percent of them were in Medicare Part D?

And can you give any -- or can you quantify how less profitable a Medicare Part D patient is relative to a commercial pay patient?

And then on FT218, you're obviously above the 132-patient mark.

What is it within the SPA that continues to make it challenging for patients to actively enroll if we look at, for example, the growth of Xyrem in terms of volume, their volumes are relatively healthy in the mid- to upper single-digit growth rate.

So it seems as though there's patients available, but what is it about those patients that are preventing them from enrolling at a more rapid pace into your program?

Great questions, John.

We'll start with your NOCTIVA question, and Greg will answer and then I'll try to take on your FT218 question.

Sure.

So John, relative to the 8,000, I'll cut it in a couple of ways for you.

If you look at the mix between commercial and/or cash versus Part D, that, to date, that if you look at the most recent kind of full month's worth of data, which would be the September month, that relationship is around 62% Part D and 38% all other, of which 34 of that 38 is commercial.

If you go back to the summer months, a little bit earlier, that relationship was more in the 55% range for Part D that has grown to 62%.

If you look at the most recent weekly data, that number is now pushing more around 66% to 67%.

So the proportion of Part D has grown relatively speaking.

Why is that important relative -- or how does that impact revenue?

Part D -- those Part D lives manifest themselves in 2 ways for us.

They all go into our Part D specialty pharmacy, and then where there's coverage and affordability, that patient is triaged out to retail and gets dispensed in that as a percentage of retail dispensed prescriptions.

But the balance of those stay in what we call Eagle Pharmacy, which is our Part D specialty program.

And if you look at the progression of that, for the full period of launch to date, that number is 44% of scripts of those 8,000 are what we characterize as Eagle, 56% are dispensed in retail.

And if you look at that more recently, that number of 44% has trended up towards closer to 48% or 49% in kind of the recent periods.

So relative to the profitability between retail-dispensed Part D and Eagle-dispensed Part D, retail-dispensed Part D are highly profitable patients for us, but they're dramatically offset by Eagle dispensed, because there's no coverage for those patients.

They pay a $40 out of cash pay.

It's really a cash pay program for them, and that really covers our COGS and our distribution, and it's a means to get them on the drug as we navigate through Part D and as their coverage comes on, we can then triage them out into the retail setting.

So hopefully, that answers your question.

So Mike, how much is an Eagle prescription versus a retail prescription on a monthly basis?

How much profit do you get, or how much is it?

And what's the profitability of it?

Well, I mean, the WACC is 4.25% but the Eagle program is -- the WACC of the drug is 4.25%.

But the Eagle program itself is a cash pay program, where the patient pays cash only $40, and that $40 for those Eagle dispenses really covers our COGS and our shipping fees.

So in simple terms, there's really little to no margin on an Eagle dispense and it was a strategic decision done to get patients on the therapy, so as we got through the first 6 to 12 months and Part D when it became start to come more readily, we can then see those patients on therapy convert into retail-dispensed patients.

Got it.

And just the impact of Ferring in the market to date?

Do you have a sampling of that?

Yes.

We've seen them doing kind of, what I would characterize as prelaunch things, but we haven't seen them actually launch officially yet and there's obviously litigation-related matters that may or may not impact the timing of their launch.

So John, with respect to FT218 and the issues that you've described, that's a fantastic question.

There are a number of different issues.

First of all, when you think about a typical narcoleptic patient, before they're diagnosed, they're sort of passed around and treated for many other different kinds of diseases and issues before they're actually diagnosed as being narcoleptic.

So there's 1 component that says, here's a patient who's been passed around.

They finally are diagnosed as being narcoleptic, and their choice is to participate in a 17-week clinical study where they've got a 50% chance of being randomized to placebo or to taking a product that you have to take inconveniently, perhaps.

And -- but at least you're getting treatment.

So I think that, obviously, is a major component of some of the timing on this.

Second one would be is that, a lot of the patients who would may be interested in participating in the study maybe, for some period of time in the past, were on sodium oxybate.

And as a result of that, unless you know they meet those fairly stringent criteria that the FDA has loosened up on, that wouldn't be able to participate.

And the reason for that, of course, is because either you're -- first of all, you're unblinding the study.

Somebody who previously had been on sodium oxybate for a period of time would immediately know whether they were randomized to placebo or the drug, and there would be, if they're on, randomized to placebo, no incentive for them to continue.

Number two, you're also populating your study with either known responders or nonresponders, neither of which would be good.

So those 2 things are critical.

And then obviously, there are issues that aren't in the public domain relating to products and drugs that they may be currently on or a number of cataplectic episodes that they may suffer from.

And all of those things go into it and when you wrap all that up into a big package, it makes it a somewhat difficult study to get patients enrolled in.

And while it seems like a pretty modest number when you consider those kinds of things, and particularly the disease itself, it's -- for some patients, it's a difficult decision for them to make.

I do think that having spoken personally with a lot of our principal investigators over the last several months, that there's a real interest in physicians to have this study completed and to be able to offer this as an alternative for patients.

The inconvenience, et cetera, that's recognized by requiring somebody to get up 2 or once or twice in the middle of the night, whatever the case is, is a handicap for the drug.

And being the only drug indicated for nighttime use, it would be nice to have an alternative.

And I think patients and physician providers, at least those that I've spoken with in the clinical study, all recognize that as a desirable thing to have.

So we're going to keep trudging.

We've put in a lot of new initiatives.

We are actively getting out in each and every clinical site, trying to get patients enrolled, trying to get them through the screening process, following up with them and all those kinds of things to supplement the efforts of not only the clinical side, but our CRO as well.

Just 1 last follow up, Mike, if I may.

As they exit the trial and complete the trial, is -- can they go over into an open-label portion of the trial?

And if so, what percent of them have done that?

And what's the retention?

So we haven't spoken about that in the public domain, John, but it is something that we're looking at, and we would expect probably down the road to think about implementing something like that.

But at this point in time, we haven't had any discussion about that.

I can't answer your question.

It's an important criteria though obviously once you put [situly] in a place where it's not readily available, if you had a patient who went through the clinical study and completed it on FT218, even worst case, they could go on the other form of sodium oxybate, the Jazz product, but there are some locations where it's not available, such as Australia, and a country or so in Europe.

And that becomes a big issue and we're working on that as we speak.

That will be important.

And our next question comes from François Brisebois with Laidlaw.

Just a couple here.

So in terms of REST-ON, you've touched on pretty much as much as you guys are willing to touch on, it seems like.

But in terms of -- just in terms of timeline granularity, is that -- so you're staying away from the number of patients now, but once you will -- once you'll give a certain outlook that you're comfortable you can hit, whenever that is, do you know exactly what kind of parameters that you'll be giving out, whether it's just patients, sites, a mix of both?

What is it that you guys will be willing to give more details on?

And also -- and just in terms of Australian sites with the treatment-naïve patients, there's 2 out of the 10 that you've added, why not do them all in Australia?

Why not do more of them in Australia?

What's the reasoning there?

Good questions, Frank.

First of all, with respect to your first question, I would expect that once we get comfortable that we've seen the type of trends and increases in the enrollment that gives us a great deal of confidence that we can put the data out there, we'll probably give you a much closer idea.

I don't know that we'll ever get to the point where we say -- issue a press release every week, saying, we have got 3 more, 2 more and that kind of thing.

But we'll give people a better idea.

What I do -- what I think is important for you to understand is that, we are going to complete the enrollment of this study.

There's no question about that.

We're seeing progress.

We've spent a lot of time talking to clinicians and talking to patients and talking to clinical sites as to how we can -- what is it we can do to increase enrollment?

We've gotten as a result of that, a lot of ideas, and we think we're beginning to see the fruits of that.

Once we know we're seeing the fruits of it, we're going to call that out for you.

I can assure you that, without question, it is the most important thing in our company is to get this study completed and to do it as quickly as and expediently as we can.

We recognize this and always have as a major asset to the company.

Nothing has changed that.

We're sorry it hasn't rolled faster than it has, but we feel very comfortable that we're going to get there.

So that's the first thing.

The second question that you asked with respect to Australia is, we are.

We have 2 sites now enrolling patients.

We have another site opening up in the not-too-distant future, and we're looking at several others.

There's a real significant opportunity in Australia to get patients into the study.

I don't -- we're skeptical about sitting here and saying that Australia is the key that we've missed all along.

It's not.

But it should be enough along with our new sites in the U.S., the reinvigoration of those that have been available in the U.S., that we can get this study completed.

So we -- stay tuned, we'll be talking about other sites in Australia in the not-too-distant future.

Did that answer your question?

It does.

And I'll just come with 1 last one, if that's okay?

Just you guys mentioned the spending related to NOCTIVA and the IP protection there, can you just give a little more color on that?

And how we should think about the, NOCTIVA's position?

IP litigation.

You're referring to the litigation, Frank, our spend around it?

Yes.

yes.

Well, we can't quantify the exact spend around our NOCTI litigation matters, but a driving factor in terms of why we raised our SG&A spend guidance was due to this pending litigation that we've got going on with our IP.

But as I also said, as we move into '19, we expect to significantly be able to reduce our overall cost structure.

We're a smaller company.

We recognize capital's not cheap, and we have to be good stewards and the management team is looking very hard as we finish up our 2019 planning as to where and how and when we're going to be reducing cost.

And we think we've got a reasonable plan to do that and to significantly reduce cost going into 2019.

And there is no further questions in the queue.

I'd like to turn the call back to Mr. Mike Anderson for any further remarks.

Once again, we appreciate your joining us today.

I want to make sure that everybody understands that we recognize we have -- we provided you today with lots of activity, and that the objective is to produce results.

In our particular case, we believe that this activity will lead to results, and we're -- we also have a sense of urgency to make sure that we get there.

I also want to assure those who -- to make sure everybody heard, as Mike described, that we do have an expectation in 2019, is that our spending will be significantly reduced over the spending that we've had in 2018.

We think we're on the right track and we'll look forward to updating you again as new developments occur on future calls.

And we appreciate your time this morning, and hope you have a great day.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Everyone, have a great day.