AVDL - Avadel Pharmaceuticals: A Resilient Buy; A Comprehensive Assessment Of Potential Prospects

2023-08-21 23:20:12 ET

Summary

• Avadel's Q2 2023 earnings report shows promising growth and FDA endorsement of Lumryz for narcolepsy treatment.
• Lumryz has seen positive commercialization with high prescriber enrollments and reimbursement successes.
• Avadel presents potential growth avenues in exploring new markets and maintains a robust financial position.
• Coupled with promising early launch data and a compelling cash runway, we maintain a buy rating moving forward.

Reason for the update: Q2 2023 Earnings Update:

Avadel Pharmaceuticals (AVDL) provided a promising Q2 2023 earnings report and corporate update that revealed an encouraging trajectory. In consonance with our thesis on Avadel's burgeoning prospects, a cornerstone development has been the FDA's endorsement of Lumryz on June 5th for treating excessive daytime sleepiness and cataplexy in narcoleptic patients.

Notably, Lumryz didn't merely secure FDA approval; it was considered clinically superior to the prevailing twice-nightly oxybate products. This commendation comes with the privilege of a seven-year orphan drug exclusivity, underscoring the drug's unique therapeutic advantage vs. conventional twice-nightly oxybate.

Launch Performance, Metrics, and Reimbursements.

Lumryz's commercialization has been met with positivity, evidenced by over 1,000 prescriber enrollments in its REMS certification within two months of launch (very high enrollment and prescriber enthusiasm that usually signals a successful launch in our experience), a significant leap from June's 625. This robust response is largely attributed to high-volume oxybate prescribers. Furthermore, we note that the RYZUP service has grown substantially, with patient enrollments surging to 400 compared to 140 in June . On the reimbursement frontier, Avadel has achieved laudable successes; for example, CVS Health's strategic decisions have carved out a streamlined coverage pathway for Lumryz (more strategic partners would increase the accessibility of the drug). This development, combined with the previously acquired ESI coverage on the national preferred formulary (Lumryz can get reimbursed more easily without step-edits and prior authorizations), signifies the company's accelerating momentum in the pharmaceutical landscape.

Literature update: American Academy of Sleep Medicine and the Sleep Research Society presentation

Avadel Presents Data at SLEEP 2023 Highlighting ON-SXB's Potency in Treating Narcolepsy

At the prestigious 37th annual joint meeting of the American Academy of Sleep Medicine and the Sleep Research Society, Avadel unveiled compelling data for its once-nightly sodium oxybate (ON-SXB), FT218, in two distinct abstracts.

Abstract 319: Cataplexy Response with FT218

• Key Findings :
  • The Phase III REST-ON trial illustrated that narcolepsy type 1 (NT1) patients treated with ON-SXB experienced notable reductions in cataplexy episodes, with significance levels being statistically robust.
  • A subsequent post-hoc responder analysis further delineated improvements, signifying the drug's effectiveness in substantially reducing weekly cataplexy episodes.
  • By the first week at a 4.5g dosage, ON-SXB administration culminated in a >25% reduction in cataplexy episodes for about 43.8% participants, significantly outperforming the placebo.
  • Of note, nearly 10% of participants on the ON-SXB 7.5g and 9g dosage were completely free of cataplexy episodes.

Abstract 320: Application of AASM Clinical Significance Thresholds

• Key Insights :
  • This analysis was crafted around AASM clinical significance thresholds (CSTs), gauging ON-SXB's influence on narcolepsy symptoms.
  • Highlighting the prowess of ON-SXB in enhancing sleep latency and reducing excessive daytime sleepiness and cataplexy, the results were substantial.
  • ON-SXB, at dosages of 6g, 7.5g, and 9g, consistently outstripped the placebo, underscoring potential benefits in tackling the debilitating effects of narcolepsy.

Conclusion : These analytical revelations from the Phase III REST-ON trial bode well for Avadel's ON-SXB, solidifying its profile as a promising candidate for treating excessive daytime sleepiness and cataplexy in narcoleptic patients.

Anticipated Growth Avenues

Avadel isn't resting on its laurels. We believe the market is underestimating the company's efforts around initiatives that are underway to explore the idiopathic hypersomnia market by developing a low-sodium oxybate formulation and expanding to the pediatric narcolepsy segment. These ventures could unlock vast new revenue streams.

Robust Financial Position

Avadel's financial health remains robust, with cash and cash equivalents reported at $160.5 million as of June 30, 2023. The recent acquisition of $30 million from RTW further consolidates its financial position. Although we highlight that there's a $21.2 million convertible note maturation in October, the company's projections seem optimistic; with existing reserves and anticipated royalty streams, Avadel expects to effectively support Lumryz's launch and pivot towards cash flow breakeven in the near term (considering quarterly cash burn of ~$30-50m (Q1-Q2) and accelerating revenue as shown below).

Risks

While Avadel's prospects appear promising, it's crucial to acknowledge potential risks. The pharmaceutical industry is inherently volatile, with regulatory challenges, competitive pressures, and unforeseen R&D setbacks. Lumryz's relative novelty in the market also presents uncertainties in terms of long-term acceptance and unforeseen side effects. Additionally, the company's ventures into idiopathic hypersomnia and pediatric narcolepsy will require extensive investments, which could strain financial resources.

Conclusion

Net-net, in weighing the potent dynamics of Lumryz's promising launch performance, stellar reimbursement progress, and Avadel's robust financial position against the inherent industry risks, our stance remains clear: Avadel presents a compelling de-risked investment opportunity as the company moves toward positive cashflow status.

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