Avadel Pharmaceuticals PLC (AVDL) 2022 Q2 法說會逐字稿

Greetings, and welcome to Avadel Pharmaceuticals Second Quarter 2022 Earnings Call. (Operator Instructions) It is now my pleasure to introduce Brandi Robinson. Thank you. You may begin.

Good morning, and thank you for joining us on our conference call to discuss second quarter 2022 earnings.

As a reminder, before we begin, the following presentation includes several matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market entry and 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 included in the Form 10-K for the year ended December 31, 2021, which was filed on March 16, 2022, and subsequent SEC filings. Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise.

On the call today are Greg Divis, Chief Executive Officer; Dr. Jennifer Gudeman, Vice President of Medical and Clinical Affairs; Richard Kim, Chief Commercial Officer; and Tom McHugh, Chief Financial Officer.

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

Good morning, everyone, and thank you for joining us to discuss our second quarter 2022 results.

This was an important quarter for Avadel, where we continue to make progress in our mission to bring LUMRYZ to all once-at-bedtime eligible patients living with narcolepsy, which included the receipt of a notable and important regulatory milestone for LUMRYZ in the form of a tentative approval, the active pursuit of additional legal and regulatory strategies to accelerate a final FDA decision for LUMRYZ prior to June of 2023 or when the REMS patent we certified on will expire and the continued execution of our commercial preparations with a focus on shortening the time between final approval and launch while we took the necessary actions to ensure, as required, we have the liquidity to carry us to the potential outer date of a final FDA approval decision.

With that, I will start by commenting on our most recent company update. On July 19, we announced that the FDA granted tentative approval of LUMRYZ, formerly known as FT218, our investigational once-at-bedtime oxybate therapy for the treatment of cataplexy or excessive daytime sleepiness in people with narcolepsy.

Receiving tentative approval is an important step toward a final approval. By granting tentative approval, the FDA has validated the clinical and safety profile of LUMRYZ and confirms that LUMRYZ is approvable as a once-at-bedtime therapy for eligible patients living with narcolepsy, which we believe is a meaningful derisking regulatory event for the company.

LUMRYZ has a demonstrably strong clinical profile with an improved dosing regimen that, per our extensive research, is preferred by patients and sleep specialists. This, along with our comprehensive launch strategy, gives us the confidence in the potential significant role LUMRYZ can play in the $3 billion-plus market opportunity.

Further and perhaps most importantly, receiving tentative approval confirms that the potential latest date we could receive a final approval decision for LUMRYZ is after expiry of the REMS patent, which is June 17, 2023, or just 10 months and 8 days from today. As previously stated, we are and will continue to aggressively pursue legal and regulatory strategies with a clear objective of potentially leading to a final approval decision prior to June 2023 and, depending on timing and results of these legal actions, possibly by the end of this year.

In this regard, we filed a motion in the U.S. District Court for the District of Delaware to delist the REMS patent from the FDA's Orange Book on June 23, as we do not believe the substance of the REMS patent qualifies as an eligible Orange Book listable patent. A court order requiring the patent holder to delist the REMS patent from the Orange Book could provide a pathway for a final approval of LUMRYZ prior to June 2023.

As the court previously stated that a claim construction hearing is required before ruling on the motion to delist, the next step in this process is the Markman or claim construction hearing, which is scheduled for August 31. Additionally, we recently announced that we filed an Administrative Procedure Act lawsuit against FDA alleging that their decision requiring us to file a patent certification on the REMS patent was arbitrary, capricious and contrary to applicable law.

In this lawsuit, we are asking the court to vacate the FDA's patent certification decision and order FDA to take final action on the LUMRYZ NDA within 14 days after vacating their decision.

A successful outcome in this APA suit could also lead to a potential final approval of LUMRYZ prior to June of 2023. An accelerated briefing schedule order has been approved by the court, and we currently expect this case to be heard at the end of September 2022.

In addition to these opportunities to accelerate a potential final approval, we are also focusing on launch preparation activities that will shorten the time to launch following final approval. This includes completion of manufacturing and primary packaging for our commercial supply and operationalizing our REMS program both in advance of a final approval and before the end of this calendar year.

In summary, we are well positioned to execute on all of these priorities to potentially accelerate bringing LUMRYZ to a final approval prior to June 2023 and subsequent launch as soon as possible thereafter. As you will hear next, Jennifer will provide details on the data we presented this quarter at SLEEP 2022. And following, Richard will give an update on our launch readiness actions now with the tentative approval in hand.

With that, I'll turn the call over to Jennifer.

Thanks, Greg, and good morning.

As Greg said, this was an important quarter for Avadel. Tentative approval for LUMRYZ is a significant milestone that validates its efficacy and safety profile and also has facilitated us starting our REMS build-out, which will shorten our time to launch following final approval. Furthermore, we had a strong presence at SLEEP 2022 with considerable interest in the body of evidence supporting LUMRYZ, as described in our 9 posters.

The poster that we had the most engagement with described the new interim data on dosing and titration from the ongoing RESTORE open-label extension switch study of our LUMRYZ drug candidate. 62% of participants switching from twice-nightly oxybate formulations had a stable dose equal to their starting dose, which will help clinicians understand that switching to LUMRYZ is a straightforward process.

Additionally, participants not currently taking oxybate formulations or oxybate naive participants reached a stable dose with 2 to 4 dose titrations within 4 weeks. This is particularly relevant as we hear anecdotes of patients having to spend months trying to find a stable and consistent dosing regimen of twice-nightly oxybate.

We also presented updated results from patient preference and the nocturnal adverse event questionnaire with patients switching from twice-nightly oxybate in the RESTORE study. These interim data confirmed previous data we have presented showing that a high proportion of patients switching from twice-nightly oxybate formulations experience difficulty in taking the second dose, with nearly 2/3 reporting accidentally missing their second dose at least once in the past 3 months and more than 80% of those reporting that they experienced worse narcolepsy symptoms the next day.

Also consistent with data we have previously presented, 92.5% stated a preference for the once-nightly dosing regimen. As we talk about RESTORE, I want to highlight that we have extended this study so participants can stay in RESTORE through FDA approval and up to launch of LUMRYZ to then transition to commercially available product. I have had the opportunity to speak directly with a number of participants in RESTORE, who have expressed their gratitude for this extension specifically because they don't want to go back to waking up in the middle of the night after successfully taking Avadel's investigational once-at-bedtime sodium oxybate.

Going back to our posters, we had 5 post hoc posters from REST-ON, which continue to reinforce the strong efficacy demonstrated in this pivotal trial, including in subgroups of both NT1 and NT2 and those with and without concomitant stimulant on measures of disrupted nighttime sleep.

Lastly, we published results from our second discrete choice experiment, or DCE. As some may recall, we have published the results of our first DCE in patient preference and adherence, which clearly showed that the most important driver of patient choice for sodium oxybate is a single bedtime dose. The second DCE was expanded to include clinicians and the mixed salt oxybate and affirmed our first DCE. Patients clearly placed the highest priority of treatment selection among the 3 oxybate profile for once at bedtime dosing.

For the 100 clinicians participating in the DCE, the data also demonstrated that the most important driver of clinician choice is once at bedtime dosing. The SLEEP meeting provided us the opportunity to connect directly with KOLs and explain the delay in FDA decision on approval of LUMRYZ. We have been communicating extensively with both the medical and patient communities following the tentative approval, including a fact sheet available at avadel.com about what this means and a letter to the community reiterating our commitment to bringing LUMRYZ to patients.

We recognize patients with narcolepsy will be critical in shared decision-making with their clinicians. To that end, we were thrilled to publish a plain language summary in future neurology, describing the primary results from our pivotal trial, so people with narcolepsy can access these results. The totality of the data we continue to present supports the robust clinical efficacy, the well-established safety profile, ability to switch from twice-nightly oxybate and patient preference of LUMRYZ.

Now that we have the tentative approval secured, the community is even more eager to see this potential treatment option receive final FDA approval and made available to patients.

We are proud of all of our hard work that continues to drive LUMRYZ forward. I will now turn the call over to Richard to provide details on the commercial opportunity and our preparations for launch. Richard?

Thank you, Jennifer. With the tentative approval in hand, we are well positioned to continue to advance our launch preparations, as we work towards bringing once-at-bedtime LUMRYZ to adults with narcolepsy. Despite a longer-than-anticipated time for the final approval of LUMRYZ, one thing that has not changed is the fundamental belief in the potential for this drug candidate to help patients manage their excessive daytime sleepiness or cataplexy, while also providing them with an opportunity for a more natural sleep-wake cycle.

It has been an amazing journey spending time (inaudible) community, sleep specialists, medical societies and patient organizations. Throughout the year, we made significant progress in expanding our reach with sleep specialists through major congresses like, World Sleep in March and the SLEEP 2022 Conference in June along with one-on-one meetings.

This year alone, we estimate that we have been in front of over 1,000 people from the narcolepsy community. As a reminder, less than 1,600 sleep specialists make up 80% of the current overall oxybate prescription volume. As we get ready to transition from the summer to the fall, we are also preparing for a number of meetings and conferences that will give us continued exposure to patient organizations and sleep specialists.

We have both the American Neurological Association and CHEST meetings to continue to engage with sleep specialists this October along with key patient advocacy organization meetings in the next couple of months.

We also continue to see strong interest in our disease education campaign, Narcolepsy Disrupts. In June, we began to make a sleep diary available that helps patients charge how they are managing their narcolepsy. And we have already shipped more than 3,000 to individuals across the country. After assessing all that we have accomplished to date with Narcolepsy Disrupts, we anticipate launching additional enhancements in the early fall.

Our actions this year have really put Avadel on the map with our key stakeholders, as a patient's first company, who will not relent until we can bring a new treatment option to people with narcolepsy. For the payers, we have made very good progress in our conversations this year. Now with the tentative approval in hand and, more importantly, the outer battery of a final approval decision now just over 10 months away, we are accelerating our actions with payers, including the 3 GPOs and the affiliate PBMs that represent over 85% of commercially insured lives.

Our team has done excellent work in establishing the clinical value proposition of once-at-bedtime LUMRYZ. And now we look to forward -- we look forward to advancing contract discussions. The reception has been very positive, as the payers look to gain post-approval access to a new therapy that we believe can go beyond the limitations of the current standards of care.

Now we continue to be nimble and dynamic in our readiness planning to ensure that we are ready to fully launch at the earliest time after receipt of a final approval.

We retained relationships with our key partners, where the work takes the longest to prepare for launch. With the REMS requirements from the FDA being finalized, our program build-out is in full motion. The same can be said for the work being done by our team in advancing our commercial launch supply.

For product fulfillment, our patient services center will be ready to go live upon final approval. And now we will look to finalize our specialty pharmacy distribution agreements, as we head towards a potential final approval.

In summary, the collective work that we have done across REMS, supply, distribution and fulfillment has put us on track to launch as soon as we can once we have final FDA approval for LUMRYZ. We know that once at bedtime LUMRYZ has the potential to address significant unmet need with patients and that our market research and data analytics shows the market potential for LUMRYZ to be roughly double that of the current twice-nightly oxybate market with more than 30,000 potential eligible narcolepsy patients.

Recall, the total patient population consists of 3 key segments: first, approximately 16,000 actively treated twice nightly patients; second, an estimated 10,000 to 15,000 potential patients previously treated with oxybate, who have discontinued therapy; and third, roughly 3,000 new oxybate patient starts. And in this segment, we expect robust yearly growth of 25% to 50% per year in the future.

All 3 patient segments have expressed high levels of interest in LUMRYZ. And physicians and patient groups both have indicated that once at bedtime dosing is the most important attribute in choosing an oxybate.

We are a forward-looking team. And now with the outer boundary timing for a final approval decision just over 10 months away, we are fully focused on executing our plans to deliver LUMRYZ to patients as effectively and as quickly as we can. I look forward to providing more updates on future calls.

Now let me turn the call to Tom for an update on the company's financials. Tom?

Thank you, Richard. I'll provide a few highlights for the quarter and also note that full financial results are available in the press release and the 10-Q.

I'll start with the balance sheet, where we reported $104.1 million of cash, cash equivalents and marketable securities as of June 30, 2022. Also as of June 30, we had approximately $17 million of tax refunds pending, of which $10 million was received in July. We currently expect that the remaining $7 million will be received in the second half of 2022.

As a reminder, earlier this year, we completed an exchange and 8-month maturity extension of approximately 80% of $143.8 million of convertible notes. As a result, $117.4 million now matures in October 2023, and $26.4 million will mature in February of 2023.

R&D expenses were $4.5 million in the quarter ended June 30, 2022, compared to $6.8 million for the same period in 2021. The period-over-period decrease was due primarily to lower purchases of active pharmaceutical ingredients used in the manufacture of LUMRYZ. SG&A expenses were $21.8 million in the quarter ended June 30, 2022, compared to $15.2 million for the same period in 2021. The period-over-period increase is primarily the result of fees associated with the exchange of the convertible notes.

Higher legal and compensation costs were mostly offset by the reversal of previously accrued expenses due to the restructuring. This quarter, we recorded a restructuring charge of $3.6 million primarily for severance benefits associated with the reduction in the company's workforce. The workforce reduction will be completed during the third quarter 2022, and we expect to reduce quarterly cash operating expenses, excluding inventory purchases to $12 million to $14 million.

Income tax expense was $30.2 million in the quarter ended June 30, 2022, compared to income tax benefit of $3.8 million for the same period in 2021. Income tax expense this quarter is due primarily to the valuation allowance recorded against deferred tax assets. The valuation allowance is noncash and does not impact our ability to utilize NOLs in the future when the company begins to generate taxable income.

Net loss for the second quarter of 2022 was approximately $63.4 million or $1.07 per diluted share compared to net loss of approximately $19.6 million or $0.33 per diluted share in the same period in 2021. Finally, with $104 million of cash on hand at June 30, the $10 million of tax refunds received in July and the $7 million of tax refunds still to be received, together with the cost reductions we implemented, we believe that the cash runway extends to at least the middle of 2023.

And with the tentative approval now granted and as we progress toward a final approval decision that could occur by June 2023 or earlier, we will seek opportunities to strengthen the balance sheet and ensure we have the capital resources available to prepare for the launch of LUMRYZ into what we believe is a greater than $3 billion market opportunity.

I'll now turn the call back to Greg for closing remarks.

Thanks, Tom. To summarize, we are pleased but certainly not satisfied with our recent milestone of receiving tentative approval for LUMRYZ, marking a critical step for Avadel.

With tentative approval in hand, we are committed to keep moving forward to unlock LUMRYZ's clear and intuitive value proposition with a once-at-bedtime treatment that could be transformative for people with narcolepsy by providing the potential of an uninterrupted night sleep while also managing daytime symptoms of narcolepsy.

We look forward to keeping you up to date on our continued progress with our regulatory and legal actions as well as our ongoing efforts to prepare for and shorten the time to commercial launch upon receipt of final approval.

With that, we will open the call for questions, and I'll turn it back to the operator.

(Operator Instructions) Our first question comes from François Brisebois with Oppenheimer.

Just -- all right, so the time lines have changed a little bit. We've been tracking. We've got the potential REMS expiration. But you mentioned -- just between the filing of the lawsuit and the Markman hearing and what can come of that, you mentioned possibly having news by the end of '22. I just wanted to make sure I understood what that referred to. And also maybe hearing about -- I believe it was a lawsuit by the end of September, so maybe if you could just kind of put it all together and just make sure we know what to expect for a potentially earlier approval decision than June of '23. .

Yes. Thanks, Frank. So both of them being the Markman hearing leading into the motion to delist on one track and, on the other track, the APA action against FDA. So taking the first one, again, in that proceeding -- in that case, we have asked the court assuming they agree with our position on the actual REMS patent, not being eligible -- not being listed eligible -- Orange Book eligible to be listed, we are asking the court to order the delisting of that.

Upon receipt of that delisting, we would then facilitate the process to, in essence, refile the necessary documents with FDA seeking their approval to move from a tentative approval to a final approval.

So obviously, the Markman hearing is on August 31. We certainly are seeking to have the motion to delist heard as quickly thereafter as possible. And depending on the timing of those decisions, whenever that occurs, that will set the time frame for us to then file the necessary documentation with the FDA to convert the tentative approval to final approval, which, again, per FDA guidance, generally speaking in that situation, is recommended anywhere from 2 months to 6 months. So depending upon when that occurs and how quickly the FDA acts on that setting could create a situation where a final approval decision could be had, depending on when that final delisting motion occurs.

On the APA case, what has occurred is a briefing schedule has been agreed to, which is -- we'll go through basically the middle of September. And currently, tentatively, that hearing is expected to be heard at the end of September. And again, what we're requesting from the court there is, if they agree with our position, that they vacate the requirement, the decision to require certification and ask the FDA to make a final decision within 14 days.

So depending upon how long from the hearing to when the judge makes the final decision or ruling on that, if they rule in our favor, then a final decision could occur as early as 14 days after that point in time.

So again, both of those potentially provide windows where if the decisions happen relatively efficiently and they go in our favor, a decision could potentially occur prior to the end of the year.

Perfect. That's very helpful. And then just maybe more for Richard. On the payer side, you guys obviously are doing a lot of work there. I was just wondering, any thoughts -- would you share any thoughts strategically of maybe giving out samples for free just to make sure that based on the fact that you have to titrate this medication, it can take time. In these patients, there is a high discontinuation rate for these types of medicines. Any thoughts about from the script being prescribed to getting in the patient's hand to make sure that happens as quickly as possible, thoughts about just giving out some samples for free to make sure that patients get access quickly.

Yes. Frank, thanks for the question. It's an interesting thought. The one thing we are absolutely focused in on is making sure we can get patients a great experience with LUMRYZ as fast as possible upon final approval. So through our patient services center, we will offer a bevy of services. If it's a quick-start programs where you're waiting for insurance and other things for applicable patients, to ensure that patients can get the experience with LUMRYZ with -- obviously, once they've been certified as quickly as possible.

So we do know those initial experiences are going to be absolutely pivotal for us, which is why we have invested so heavily in ensuring that our patient services center will have not only that but other services aimed at both patients themselves and the offices as well.

So it's a good idea, Frank. There's obviously some legalities we'd have to work through, but we are working on making sure that we have a full suite of services to ensure that patients can get on therapy as fast as possible.

Our next question comes from Oren Livnat with H.C. Wainwright.

I have a couple. Just can you remind us upon FT218 or LUMRYZ tentative approval, did you get or do you expect to receive in due course, an indication regarding potential orphan exclusivity of your own product for -- that would apply to any future once-nightly sodium oxybate? I have a follow-up, sir. .

Yes. Thanks, Oren. Again, as we've shared in the past, this is a topic we've had engagement with during the pendency of the review with FDA and fundamentally believe that the orphan exclusivity review was by and large complete, although not decided upon formally because, technically, until there's a basis for a timing for a final decision, the FDA just isn't going to make that final decision -- that formal decision until the time is right.

And there's a lot of reasons for that, including that things could change in the marketplace or whatnot between now and that point in time. That being said, what's been communicated to us in our tentative approval letter -- which I do believe is online now, you'll see what was noted in that approval letter was the REMS patent as we previously identified as the issue that we need to climb over.

So again, from our perspective, in our discussions with FDA, although not a formal decision, this issue is the same as it was prior to missing the PDUFA date and whatnot. And we believe both in the context of the robustness of our submission on the basis of clinical superiority that we provided to be granted orphan drug exclusivity. But as we've also stated based upon the statute, we don't necessarily believe orphan drug exclusivity is required to be granted a full and final approval.

Okay. And as we think about the launch scenarios and the timing to launch, Francois touched on this, but what -- how long do you think it would take to actually get this product out the door, which includes having to enroll physicians and REMS, et cetera, post approval? And if you were approved in fall or year-end, how many months do you think it would take to actually get some scripts rolling through the system and maybe even revenue producing? .

Richard, do you want to start on that? .

Yes. So on the great news with the tentative approval on hand under Jen's leadership, the REMS program is in full build-out right now as well. So previously, that would have been viewed as sort of one of the long poles in the tent. But now with us having the TA, that's going forward, so our belief is our work will be shortly after -- very shortly after our final approval, that will be up and going. And obviously, once the REMS is up and going, we can actually begin to certify both physicians and patients.

So depending on timing, we'll either have time to do that a little bit before product is out there or it will be done concurrently. So that one element has really shrunk down a significant part of our prelaunch readiness here. So -- but it will still take us potentially a few months from the final approval before the first product is shipped out.

Greg, would you like to add on to that?

Yes, I think that's right. I think, Oren, the best way to think about it is, in the scenario where good news comes early and we have that as a tailwind and we're building toward a launch date on the back of an approval, there are certain things that will continue to be worked on that otherwise would have been completed, if we go all the way until June of next year. So I think in the scenario where an approval comes by the end of this year, we may be launching a few months after that into the early part of next year into perhaps even depending on when the approval comes in the early part of maybe Q2.

Unlike if a launch, if it goes all the way until after June 17, then we're likely -- towards the end of Q2 before final approval, we're obviously likely launching in the subsequent quarter.

Okay. And just if I may, you talked about your increased optimism for the oxybate market growth potentially with several different buckets. Given all that work you've done in the interim, what's the latest view on the resources necessary to successfully launch the product, realize sort of those ambitions? What sort of footprint, marketing, I guess, just -- you probably wouldn't comment on total cost, but just as we try to understand the magnitude of investment necessary.

Go ahead, Richard.

Yes. No, Oren, it's a great question. I mean the 1 thing that's always really key for us to think about for the narcolepsy market is it's relatively compact, right? Once again, we know that as far as the treater base of oxybate prescribers are concerned for narcolepsy, there's only about 5,000, and 1,600 make up 80% of the total oxybate volume. So for us, it's been -- it's relatively compact.

Our initial plans are still about the same where we're probably focusing at around 50 representatives that will allow us to cover that entire universe and add some. We've really invested very heavily in our data analytics platform so that we can really effectively target the right physicians at the right time. And a lot of the work that we've done up to this point is our foundation going forward, which is a great base for us. Everything from our disease education with Narcolepsy Disrupts to the engagement that we had with patients digitally, we have this to build upon.

So the great news for us is I don't think it's like we need a massive bolus. We're just going to keep building upon what we have. Clearly, we're going to have to spend more to hire sales force again and things like that. But the fact that this is a compact marketplace and then from making good inroads into those -- that core, there's clearly room to expand in the future. But that's what makes this marketplace, from my perspective, really attractive to execute on, as we don't have to do like multiple things. We can really focus on the physician engagement, the patient engagement and the payer engagement. And we've got great plans going against all 3 segments.

Our next question comes from Ami Fadia with Needham.

This is Eason Lee on for Ami. Just 2 from us. Maybe first, I'm curious, ahead of kind of the August 31 Markman hearing, is there any read-through that we could get from that in terms of potentially getting a favorable rule in regards to the delisting counterclaim?

And then maybe second, we just love your latest thoughts kind of on pricing of LUMRYZ and kind of in this market in general given the entry of authorized generics looking like they'll kind of start off in the beginning of next year.

Yes, thanks. As it relates to kind of any read-through from that perspective, it's probably not appropriate for us to speak on any of those specifics relative to this ongoing litigation other than the fact that when it comes to this specific 9, 6, 3 grams patent, again, I think what we're -- what we believe based upon the components of the patent that it is a computer system patent given it describes things such as processors and servers and screenshots and whatnot and believe that, that is not a listable -- Orange Book listable patent, which really is tied to formulation or method of use of that specific product, and therefore, again, we've asserted this because we believe in our position. And we look forward to the first step in this process in just a few weeks from now to advance it.

As it relates to pricing and the market dynamics, I'll turn it over to Richard.

Yes, Eason, thanks for the question. So obviously, when it comes to the marketplace, first and foremost, we've seen the oxybate market to be relatively flat as far as narcolepsy is concerned. And all of our plans that we've made in prelaunching our post-approval plans, have actually been contemplating an AG in the marketplace. Now we don't really see the AG significantly impacting the potential for once-at-bedtime LUMRYZ at all. We've made plans whether not they make some further inroads or not here as well.

But regardless, when it comes to AG, it's always remember -- important to remember that it's still going to be a twice-nightly product, as are all the current oxybate as well. And we believe our work that we've done with the payers has really been to establish a clinical value proposition of the once-at-bedtime LUMRYZ as well.

So we definitely take that into account as well. We don't anticipate them really having significant pricing erosion, but we'll adjust our plans with whatever goes on there. And also keep in mind, the AG is really generally not attractive to payers as far as really increasing the uptake off of our assumptions today.

And as far as your question on pricing, we've stated right from the beginning, our goal with payers is to be sort of in a parity access position with the best of oxybates overall. And so our pricing, we've always stated to be sort of in the zone of where we believe the branded oxybates will be in the future as well.

Our next question comes from Chris Howerton with (inaudible).

This is A.J. for Chris at Jefferies. A quick housekeeping question. Do you have a target budget for API stocking? I just see it was the only item excluded from your expenditure guidance.

Tom, do you want to answer that?

You broke up a little bit. Your question was do we have guidance on the amount of our API purchases? .

Yes. .

Yes, we're not providing a specific guidance around that. The API purchases are included in our R&D costs at this point.

Okay. Got you. And a quick follow-up question on the Narcolepsy Disrupts program. Do you have an update on what kind of engagement you're seeing with patients? .

Yes. No, we've seen really great enrollment so far. We're closing at about 6,000 individuals who are registering to our program. And I think, as I mentioned during the prepared remarks, what's been really cool to sort of see is we offered what we deem as a very simple but a very essential tool around a sleep diary. And in the first sort of month and a bit, we had over 3,000 individuals request getting it.

So our discussions with the patients, our engagement has been very good. And as I mentioned as well, we're sort of looking to sort of have a larger revamp to sort of take that next wave of engagement, as we go into the early part of fall. But so far, we're super pleased with the impact that the campaign has really had and the continued engagement and dialogue that we're having with patients online.

Our next question comes from David Amsellem with Piper Sandler.

So most of my questions have been answered, but I did want to ask you a couple of questions on commercialization. Number one, can you talk through where you think early adoption is going to come from? And in particular, do you expect that most of your earlier patients will have had exposure to the Xyrem authorized generic before they get on LUMRYZ? So that's number one.

Number two is, as you look at your IP runway, just makes sense for you to run a registration quality study in idiopathic hypersomnia. Is that something that's in the cards?

Thanks, David. Richard, do you want to take the first one? .

Sure. Great question, David. So as far as early adoption is concerned, I mean, first, I sort of think about it from the prescriber base. And clearly, our assumption is we'll have the earliest adoption from the most experienced oxybate prescribers. We know that there is less than 500 physicians that account for over 50% of the oxybate volume in the marketplace right now as well.

And actually, what we see in our market research is a great opportunity for patients who are currently on twice-nightly oxybate discontinued in de novo. But if you think about the switch patients themselves, we actually know that current Xywav patients tend to be the earliest adopters of innovative new therapies. So we absolutely do see a good opportunity for patients there to be attracted to the LUMRYZ value proposition, as are the current Xyrem patients where potentially that -- which makes the most intuitive sense.

And as far as the AG is concerned, like I said, we still see it having limited impact in the marketplace. Now clearly, we'll have -- likely have some time to see that. But we absolutely do see the switch from existing twice nightly oxybate is being a relatively large segment in the oxybate experienced physicians. We also see that opportunity with patients who tried twice nightly but are no longer on them for various reasons. And we also do believe we're going to get a good share of the de novo patients because, as many physicians have told me, when you offer the chance to not have to wake up in the middle of night with de novo patients, it's a pretty clear value proposition as well.

So we feel fortunate that we know that we have a great opportunity of the switch patients, but we absolutely sort of see the opportunity for growth in all 3 of those patient segments overall.

And Greg, I'll turn the IP question back to you.

Yes. Thanks, David. It's an important question because what's next is an important consideration for us in terms of how do we build the franchise around the innovation that is once-nightly LUMRYZ. And I think the short answer is there's a tremendous amount of interest from the clinician community to want to study a true once-nightly dose, once a bedtime administration for IH patients.

So yes, I think in short, we're evaluating that very seriously. We've done a tremendous amount of work in terms of understanding what that trial design could be like and whether or not should we consider a registration quality study or whatnot. I think you'll hear more about that as we go forward, but it is an important consideration, as one of the tools in terms of building out the full value of LUMRYZ, whether that's in IH or whether that's in the work we're doing with the additional formulation work as well on our own low-sodium formulation -- no sodium formulations.

The next question comes from Adam Evertts with LifeSci Capital.

Question on the commercial side. On Jazz's earnings call, they reported that there are more patients on Xywav and Xyrem. Of course, part of that is the idiopathic hypersomnia indication for Xywav. Just curious if that impacts your commercial strategy, perhaps messaging or otherwise.

Yes. And thanks for the question. Yes, you're right. I think what they reported is more patients for Xywav overall. But if we actually look at the narcolepsy market, it's still slightly tilt towards Xyrem. The good news for us is we see the opportunity uniquely favorable for both of those segments. As I mentioned before, what we -- our research tells us is, in general, Xywav patients with narcolepsy tend to be earlier adopters, younger patients, who have been diagnosed with narcolepsy for last year's seeking more new innovative therapies as well. So we believe that bodes very well for the value proposition of LUMRYZ once it's available in the market as well.

And then once again -- so it likely will be a bifurcated market between Xyrem and Xywav patients as far as oxybates are concerned. For the Xyrem patients, our value proposition is probably the clearest and most intuitive overall there as well. So going from twice at night to a once at bedtime therapy, that, in essence, is the same sort of compound. So we believe we're really well positioned for both.

And a lot of it is also going to be driven by some of the patient engagement that we have overall as well. So despite the fact that there's about a 50-50 split in the marketplace right now, we believe we're positioned for both of those segments very well in addition to the discontinued patients and the de novo patients as well.

Fantastic. I appreciate that. And then one quick clarification. I think I know the answer to this, but will we get any more color on the label or we'll need to wait until full approval to see any more details there?

Yes, it won't be released until a final approval, Adam. But our view on it, where it stands today, it's in really good shape and, I think, gives us something really good to work within the marketplace.

The next question comes from Marc Goodman with SVB Securities.

This is Madhu on for Marc, similarly to the previous participant, I think most of my questions have been answered. But maybe just a follow-up on the last question. Do you expect any additional edits to the label or REMS upon the request for final approval?

Not at this time. We don't -- we believe that's complete. I would say that that's our expectation, unless new information or new data is learned during the pendency of the tentative approval period. But at this stage, we would expect that to be in its final form. .

Next question comes from Matt Kaplan with Ladenburg Thalmann.

This is Raymond in for Matt. Just 2 quick questions. Impressive data showing that dosing is a key factor in patient preference. I was just wondering to ask, just digging deeper, is there alignment between patients and clinicians on the relative preference for sodium content in making treatment choice? And is that something maybe a patient education campaign or that might be helped in aligning patients with clinicians? And my second question is do you expect any update from RESTORE study later this year? Or is that more of a next year?

Jen, can you handle those?

Yes, absolutely. Thank you for the question. So the poster that we had presented at SLEEP on the discrete choice experiment shows that both patients and clinicians do not place the same value on the sodium content, as they do on the dosing frequency. So that came through very clearly for those patients and clinicians that the #1 driver of treatment selection is the dosing frequency in preference of a once at bedtime dose as compared to twice-nightly dosing.

As far as it pertains to RESTORE, yes, we will be presenting more data at the upcoming congresses, both the CHEST and ANA Congress that are being held mid-October. We will have posters that continues to update our open-label data from RESTORE.

The next question comes from Chase Knickerbocker with Craig-Hallum.

Just first for me, can you speak a bit to how your REMS program and the existing oxybate REMS would have to interact and would there have to be some cooperation between 2 of you to ensure oxybate patients properly managed between the 2 programs? If you could just speak to any challenges here as you are building out your REMS program sort of around there, so that would be helpful here.

Yes. Thanks, Chase. I think the first answer to that question is that upon a final approval, both REMS programs are going to have to communicate with each other and cooperate. So it's not just theirs cooperating with ours or ours cooperating with theirs. Both companies are going to have the requirement to ensure a patient only has one active oxybate prescription at a time.

There is a process for which the FDA is approved and how that's going to work on our part. That's part of our REMS program and our design. And if you look at our tentative approval letter online, you'll see that components of the REMS document -- the REMS program has been provided by FDA. And inclusive of that is Section 9, which is a section that basically requires us to report how the other party is responding to -- and the timeliness of those response -- the response in our inquiries to determine if a patient has an active prescription or not.

Our assumption is that will be reciprocal on their side as well, but I don't know that for sure. But clearly, there is a mechanism to report the responsiveness of the other REMS program to FDA at their request.

Awesome. That's helpful color. Then just last for me, can you provide some details of what specific business functions were cut or reduced in the workforce reduction and cost optimization or what will need to be added or added back upon full approval? .

Yes, I would say there was no area that was spared, so to speak, from that standpoint. And I would characterize it in really a couple of ways. The first way is, in part, it was part of the G&A organization that was built to prepare for an onboarding of a significant expansion of headcount in the organization, more than a doubling of it by far as we would -- as we were heading towards a potential final approval. And clearly, those aren't physicians we need in place right now, although the infrastructure and systems have been built to support that in the future.

And then secondly, I would say it's roles where -- there are certain roles that we've done a lot of work to get ready for launch, and now it is ready to go, and there's no really active work that's required from those functions. So we've made the decision on those sorts of roles to let them go but really keep critical roles that we need to continue to execute to shorten the time from approval -- from final approval to launch.

Next question comes from Paul Matteis with Stifel.

This is James on for Paul. I just wanted to understand the exact steps behind getting a full approval. It sounds like from the press release, you'll receive full approval kind of immediately following the expiry of the REMS patent. And I guess is that the case? Or is there anything that needs to happen at the FDA first? For example, will they need to make a decision on ODE following patent expiry? And I guess, what's the risk that could cause a further delay?

Yes. As previously shared, there is a process. If we're heading toward the situation where June 17 is the expiry of the patent and that's the last remaining item for us to move to from a tentative approval to a final approval decision, we would begin the process in notifying the FDA and filing all of our related documentation well in advance of that per FDA guidance such that upon that expiry or shortly thereafter, we would expect a final decision to be made on LUMRYZ.

So I think the short answer to the question is, not speaking directly for how long after June 17 that will occur, but we will take the necessary steps to file the necessary documentation and request the FDA to begin the process to make whatever final decision needs to be made to convert from a tentative approval to final approval in advance of that such that when that patent expires, the FDA should be in a position to do so.

This concludes our question-and-answer session. I would like to turn the conference back over to Greg Divis for any closing remarks.

Thank you, operator. Thank you, everyone, for joining us today. We look forward to keeping you up to date on our progress on a number of these fronts, in these matters and wish you a great rest of the day and look forward to any follow-up necessary. Take care. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.