Avadel Pharmaceuticals PLC (AVDL) 2019 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by, and welcome to the Avadel Pharmaceuticals First Quarter 2019 Financial Results Conference Call.

(Operator Instructions)

I will now turn the call over to Mr. Mike Kanan, Chief Financial Officer of Avadel.

You may now begin.

Good morning, and thank you for joining us on our conference call.

This morning, we issued our first quarter 2019 financial results news release.

The release can be accessed on our website at www.avadel.com.

As a reminder, before we begin, the following presentation includes a number of matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements.

These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and the impact of competitive products and pricing.

These and other risks are described more fully in Avadel's public filings under the Exchange Act, including the Form 10-K for the year ended December 31, 2018, which was filed on March 15, 2019.

Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise.

After the prepared remarks, we'll be opening the call for Q&A.

On the call with me today are Greg Divis, our interim Chief Executive Officer; Dr. Jordan Dubow, our new Chief Medical Officer; and Geoff Glass, Chairman of our Board of Directors.

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

Greg?

Thank you, Mike, and good morning, everyone, and thank you for joining us on our call this morning.

As most of you are aware, this past quarter, Avadel initiated a major restructuring of the company to preserve our financial health and strengthen our operational focus by directing the majority of our resources toward the successful development of FT218, our novel once-nightly formulation of sodium oxybate for the treatment of narcolepsy.

To accomplish this, we have taken a series of urgent and critical actions with the overall objective of not only strengthening our financial health, but also providing clarity and focus to our strategy and, thus, positioning the company for potential longer-term sustainable growth and value creation.

These actions include: one, stopping the substantial cash burn by rapidly ceasing spend on NOCTIVA; two, conducting a comprehensive independent assessment of the FT218 program to identify opportunities to strengthen our position in the market, the clinical development timing and the probability of success; three, increasing our transparency with investors on the status and progress of FT218; four, enhancing our internal clinical and medical expertise deployed and dedicated to FT218; and five, maximizing the cash flow and profitability of our declining hospital business.

I'm pleased to communicate that we have made significant progress on each of these initiatives and more over the last few months.

First, as we have committed to, we will be providing a quarterly update on the enrollment progress of the REST-ON clinical trial as well as provide our latest guidance on the timing of completion of study enrollment.

As of May 7, REST-ON has now enrolled 166 patients or 63% of the target enrollment that leaves 98 patients needed to complete enrollment.

Based on the current enrollment rate, we expect to finish enrolling patients in the trial during the second half of 2020.

Second, coming out of the restructuring, an important objective was to enhance our internal medical and clinical development team with a focus on driving awareness of FT218 among physicians and assuring our development strategy and plan maximizes the value of FT218.

Last week, we announced the appointment of Dr. Jordan Dubow as our Chief Medical Officer.

We are thrilled to have Jordan join our team.

He has extensive clinical development and regulatory experience in neurological disorders, including sleep.

He would be leading our FT218 development program, and his focus will be on preparing a thorough clinical data package to best position FT218 for regulatory approval and to help us drive greater awareness in the medical community on how FT218 may create a meaningful improvement in the lives of their patients suffering from narcolepsy.

Additionally, to support the long-term value opportunity of FT218, I am pleased to announce that we have received our first patent granted by the USPTO.

This is a formulation patent that is expected to provide intellectual property protection through mid-2037.

Furthermore, we expect additional patent issuances in the future, all intended to further strengthen our FT218 patent stake.

We will update the market as appropriate.

Third, we have now operationally exited NOCTIVA.

The assets of Avadel Specialty Pharmaceuticals, LLC, the subsidiary responsible for sales, marketing and distribution of NOCTIVA, have been sold.

There are no NOCTIVA-related functions or personnel remaining at the company.

The action of selling these assets via a Chapter 11 363 sale was a success in that it rapidly halted a cash burn that was not sustainable and has now provided a new company an opportunity with the product.

Finally, we continue to focus on maximizing the performance and cash flow of the hospital products business.

As we previously stated, we filed the NDA for AV001 on March 15 and are awaiting feedback from the FDA on the acceptance of our submission.

For the existing approved products, the business had a strong quarter, surpassing prior revenue guidance and remains profitable.

This positive trend has continued through April.

However, given the nature of this business and the previously approved and assumed new competitors, we anticipate increasing downward pressure on this business.

As we have done in the past, we will continue to aggressively defend our position in each respective market while carefully managing both margin and expenses to ensure that the business continues to generate positive cash flow.

I would now like to hand the call over to Dr. Jordan Dubow, our newly hired Chief Medical Officer, to introduce himself and briefly comment on the FT218 development program.

Jordan?

Thank you, Greg, and good morning, everyone.

I look forward to meeting many of you in the future.

I'm very excited to join the leadership team at Avadel and to have the opportunity to collaborate on our mission of seeking to improve the lives of individuals suffering from narcolepsy by bringing a new and innovative treatment option to the market in FT218.

I share the view that FT218 is a high-value product candidate with the potential to drive a meaningful benefit to narcolepsy patients frustrated by the dosing regimen of the standard-of-care therapy, which may be particularly problematic for those patients with major struggle with excessive daytime sleepiness and disturbed sleep.

With the large commercial market already established, I believe a differentiated, once-nightly therapy will be positioned for success for treating this condition.

Although I've only recently joined the company, I've had the opportunity to review interim findings from the third-party review of the REST-ON clinical trial in the FT218 development program more broadly.

From what I've reviewed to date, I'm confident in the status of the program overall, see potential opportunities to enhance its positioning in the market and confident in our ability to complete trial enrollment in the second half of 2020.

We will be more specific about improvements and changes in the coming months once I'm able to assess the entirety of the program and work through my 100-day plan.

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

Mike?

Thank you, Jordan.

Before detailing the financials for the quarter, I would like to update you on the status of our restructuring effort.

Restructuring actions completed to date are expected to result in $50 million to $60 million of annual operational expense reductions.

We remain on track to realize the annualized cost reductions of between $80 million to $90 million as we stated when the restructuring was announced in February.

With respect to cash, let me reiterate that based on anticipated cost reductions resulting from our recent restructuring actions, which again amount to $80 million to $90 million, and our long-range revenue projections for the hospital portfolio, we continue to project that we have enough cash to take us into 2021.

Cash and marketable securities at March 31, 2019, was $79 million compared to $99 million at December 31, 2018.

This $20 million reduction in cash is greater than our anticipated future quarterly burn rate, so don't consider that number as indicative going forward.

At the beginning of each year, we have a number of front-end loaded cash payments such as interest on the convertible debt and insurance costs.

As we have explained, we have taken aggressive restructuring and cost reduction actions early in the year and resulting cash cost, mostly in the form of restructuring costs, has been paid as well.

Now I'd like to touch on the rest of the financial highlights for the first quarter.

Revenues were $16.4 million, above our guidance of $13 million to $15 million for the quarter primarily due to assumed competitive launches and/or pricing actions in the hospital products business that did not occur during the quarter.

This trend continued through April 2019 as anticipated competitive launches have yet to occur.

We still do expect increased competition from products launched or expected to be launched in 2019.

That said, due to the strength seen to date, we now project annual revenue to be above $30 million for 2019, which is an increase from our prior guidance as being possibly below $30 million.

R&D was $7.3 million in the first quarter of 2019 compared to $10 million in the first quarter of 2018.

This decline was a result of $1.3 million of lower spending associated with the exit of NOCTIVA and about $1.2 million of cost reductions at the company's Lyon, France R&D center.

SG&A was $10.4 million in the first quarter of 2019 compared to $24.5 million in the first quarter of 2018.

This reduction was primarily due to a decrease of about $10 million of sales and marketing costs related to the exit of NOCTIVA during the current quarter when compared to the same period of the prior year.

The reduction also related to $2.7 million of costs during the 3 months ended March 31, 2018, related to our pediatrics products, which, as you know, were divested in February of 2018.

With regard to our continued confederation liabilities, as a result of slightly improved forecast in our hospital business' long-term revenue projections, we increased these liabilities by $2.4 million in the first quarter of 2019.

Onetime charges totaling $3.9 million were recognized in the first quarter of 2019.

This included a $1.2 million restructuring charge and a $2.7 million noncash loss on the deconsolidation of Avadel Specialty Pharmaceuticals, LLC.

As a result of the Avadel Specialty Pharmaceuticals, LLC bankruptcy filing on February 6, 2019, we no longer control the operations of this subsidiary.

And accordingly, as of February 6, 2019, we deconsolidated this subsidiary and recorded this onetime noncash charge.

Now I'd like to turn the call over to our Chairman, Geoff Glass.

Geoff?

Thanks, Mike.

Avadel continues to make rapid progress in reshaping itself to focus on FT218 and to preserve the cash necessary to assure this important once-nightly novel therapy has the best possible chance to impact the underserved narcolepsy patient community.

And while the wheel of change may not yet be complete, the Board and management team have been focused on urgent actions, which in the past few months include appointing new members to our leadership team and our Board of Directors; announcing a restructuring and cost savings plan in early February, which as Mike said earlier, has already made substantial progress; completing a rapid exit of NOCTIVA via the bankruptcy sale of the assets of Avadel Specialty Pharmaceuticals, LLC to stem an untenable cash burn; submitting the NDA for AV001 to the FDA; recruiting a world-class Chief Medical Officer in Dr. Jordan Dubow, whom I'm confident in the impact that he will make for the company but, most importantly, in helping create a needed option for the narcolepsy patient community; creating a new level of transparency with our investors, including on our REST-ON enrollment which has continued to progress; and obtaining intellectual property covering FT218 through mid-2037.

These urgent actions have been taken solely with the purpose to assure that the company has the focus and the capital to advance FT218.

We believe that our Phase III product venturing into a market which exceeds $1.5 billion, with a registration study that is 63% complete, with a possibly meaningful improvement for patients versus the standard of care's dosing regimen and without new chemical entity risk is a unique and compelling opportunity.

And with that, we're ready to open the line for Q&A.

Operator?

(Operator Instructions) Your first question is from Michael Sesser with DWS.

So I just have a question about the balance sheet.

Based on the cash burn guidance you guys gave in the press release, it seems like you're going to have enough cash to see the trial through to completion but not enough to file the NDA and go through the regulatory process with the FDA.

So can you just discuss what your options may be once we get into 2021 if you -- unless you don't want to?

Well, I think we're -- as we said, we have -- this is Mike Kanan.

Thanks for the question, Mike, and good morning.

We have, as we've said in the past on our projections, have not changed, that our primary focus right now is to complete the study and the time line that Greg outlined for us.

And we have enough liquidity into 2021.

And we're focused on that time period intensely.

And we will consider all of our options as we moved forward currently and beyond 2021.

But all we can say today is that we have the liquidity necessary into 2021, and we'll explore all options that might come in front of us to go beyond 2021.

But our focus is completing the trial and liquidity, and our liquidity leads up to that date.

I am showing no further questions at this time.

I would now like to turn the conference back to Greg Divis.

Thank you, and thank you, operator.

Thanks, everyone, for joining us on our call today, and have a great rest of the day.