HRMY - Avadel Pharmaceuticals: Real-World Data Supports Market Opportunity For Lumryz

2023-03-12 13:42:22 ET

Summary

• Avadel Pharmaceuticals' Lumryz has the potential to transform the narcolepsy treatment market.
• Avadel estimates that the total potential patient population for Lumryz could be greater than 30,000, with a market opportunity of over $3.0 billion annually.
• Recent real-world data highlights the risk of accidental dosing errors with immediate-release twice-nightly oxybate, further emphasizing the need for a once-at-bedtime treatment option.
• Avadel's innovative approach to developing medications that address patient challenges, combined with a strong financial position, makes it an attractive investment opportunity in the biopharmaceutical industry.

Avadel Pharmaceuticals (NASDAQ: AVDL ) is a biopharmaceutical company involved in the treatment of narcolepsy. With their innovative solutions, they have developed Lumryz, which only requires narcoleptic adults to take a single dose at bedtime for the treatment of excessive daytime sleepiness.

Avadel's focus on once-at-bedtime dosing and novel drug delivery technology set them apart. Additionally, the recent tentative approval of Lumryz by the FDA and the favorable ruling by the United States Court of Appeals for the Federal Court provides a positive outlook for the company. As the demand for safer and more convenient treatment options increases, Avadel's Lumryz has the potential to become the preferred treatment option for patients with narcolepsy. For these reasons, I assign a Buy on AVDL stock.

Financials

The company's R&D expenses have been declining , primarily attributed to lower costs related to the manufacture of Lumryz and lower compensation costs. This is a positive sign as it shows that the company is becoming more efficient in its R&D process, which is critical for a biopharmaceutical company. It means that Avadel is utilizing its resources effectively, and is not wasting money on unnecessary expenditures.

Secondly, SG&A expenses have also decreased, primarily due to lower costs in marketing, compensation, medical affairs, and consulting fees. The decrease in SG&A expenses shows that Avadel is focusing on cost control , which is a positive sign for investors. The company is spending its resources where it matters most, and this is a sign of a well-managed business.

Avadel maintained a healthy cash position of $106.5 million as of September 30th, 2022 which could be invested toward R&D, acquisitions, or debt repayment. In addition, their convertible debts due at $26.4 million in February 2023 and $117.4 million in October 2023 are a small portion compared to their total assets.

An Overview of Lumryz

The company's lead product candidate , FT218 (marketed as Lumryz), only requires narcoleptic adults to take a single dose at bedtime for the treatment of excessive daytime sleepiness. The company's innovative drug delivery technology is leveraged in FT218, which makes it a unique offering in the market.

The company's pivotal Phase 3 REST-ON study completed in March 2020 demonstrated statistically significant results in EDS, overall assessment of the patient's functioning, and reduction in overall cataplexy attacks for all doses evaluated in comparison to the placebo. The study's success is a significant milestone for the company, and it demonstrates that FT218 is an effective treatment option for narcolepsy patients.

The company has also received orphan drug designation for FT218 from the FDA, which is an important milestone for the drug's development. The designation provides Avadel with various benefits, including tax credits and a seven-year market exclusivity period, which provides the company with a competitive advantage.

The Pressing Need for One-Dose Oxybate

Avadel has released real-world data that details the dangers of unintentional dosing errors associated with immediate-release oxybate taken twice per night. The company's publication emphasizes the significance of creating and marketing an extended-release oxybate product that can be taken only once per night. The information was derived from post-market safety surveillance data from the FDA Adverse Event Reporting System (FAERS), which examined reports of suspected dosing errors.

Oxybate is designed to be taken twice nightly; first at bedtime, then again 2.5 - 4 hours later. 541 reported cases of accidental early administration have been noted, with 177 exhibiting serious outcomes that have been further analyzed. Several cases show that taking oxybate early on can result in serious side effects like CNS depression, respiratory depression, or bradycardia. What is especially worrying is that approximately 22% of these cases necessitated immediate medical care or a visit to the ER, with a further 27% of these even requiring hospitalization.

Avadel Submits Amendment For Final Approval

Avadel Pharmaceuticals has submitted a revised application to the U.S. Food and Drug Administration seeking the final approval of Lumryz . This action comes in the wake of the United States Court of Appeals for the Federal Court's unanimous 3-0 panel decision on February 24, which affirmed the previous ruling mandating Jazz Pharmaceuticals to remove its REMS Patent from the FDA's Orange Book. Jazz made the request to delist the patent on February 28.

Avadel's main focus has been to introduce Lumryz to the market as a treatment for narcolepsy-related EDS or cataplexy, and they are now closer to achieving their goal. The company believes that Lumryz could potentially benefit more than 30,000 patients and become the preferred treatment for individuals suffering from narcolepsy-related EDS or cataplexy. The current market for narcolepsy treatment with twice-nightly oxybate is valued at around $1.8 billion and caters to approximately 16,000 patients in the United States.

Avadel Pharmaceuticals estimates that between 10,000 and 15,000 patients have discontinued their twice-nightly oxybate use in the last three years, due to issues with middle-of-the-night dosing. Additionally, an analysis of US claims data shows that approximately 3,000 new patients begin consuming oxybate medication each year, a number which is expected to increase by 25 to 50 percent after launching Lumryz. Given the estimated potential patient population, the annual market opportunity could be above $3 billion.

Not Out of the Woods Yet: FT218 Future Risks

While Avadel's FT218 has shown promising results in its Phase 3 study and received orphan drug designation from the FDA, there are still potential obstacles that could prevent the therapy from making it to market.

One potential issue is safety concerns. While the Phase 3 study demonstrated statistically significant results in EDS and reduction in cataplexy attacks, there may still be adverse effects that were not captured in the study. Furthermore, the long-term safety and efficacy of FT218 have yet to be established, and unexpected safety issues could arise during post-marketing surveillance.

Another potential issue is competition from existing therapies. Although FT218's once-nightly dosing offers an advantage over existing twice-nightly formulations, other companies may introduce competing therapies with similar dosing schedules. Furthermore, established therapies may have a loyal patient base that is resistant to switching to a new medication.

Lastly, regulatory hurdles could also prevent FT218 from making it to market. While the orphan drug designation provides Avadel with certain benefits, the FDA may still require additional data or may not approve the therapy for commercialization.

Concerning the market as a whole, there is a major risk in the limited size of the patient population for narcolepsy; as a rare disorder, its associated patient population is naturally small. This ultimately restricts the potential revenue that can be derived from narcolepsy treatments. Despite the prospect of expansion in the years ahead, the narcolepsy treatment market will most likely remain comparatively tiny when compared to other therapeutic avenues. This limited patient population can create a challenging pricing environment as smaller populations result in higher costs per patient. Even if FT218 is successful, Avadel must ensure it does not fall to pricing pressure in such a small market as new innovations in narcolepsy therapeutics are inevitably made in the coming years.

Competition Over a Niche Market

Jazz Pharmaceuticals’ (NASDAQ: JAZZ ) leading product is Xyrem , which is for the treatment of cataplexy or EDS in adult narcolepsy patients. This brand has been approved by FDA since 2002 and is well-known in the market.

Avadel's Lumryz offers an advantage over Jazz's Xyrem, due to decreased dosing requirements. This could result in fewer dosing errors, adverse events, and healthcare costs when compared to taking two doses of Xyrem.

Harmony Biosciences (NASDAQ: HRMY ), on the other hand, has a product line focused on the treatment of central nervous system ((CNS)) disorders, including narcolepsy. Their leading product is Wakix , a histamine H3-receptor antagonist for the treatment of EDS in adult patients with narcolepsy. Wakix is taken once daily and is a non-scheduled drug , which makes it easier to prescribe and obtain than controlled substances like Xyrem. Avadel's Lumryz, in comparison to Wakix, has demonstrated better data in its trials thus far. Lumryz's delivery technology is designed to optimize the absorption and distribution of the drug, which can result in a more consistent and effective treatment option for patients with narcolepsy.

In terms of market capitalization, Avadel is smaller than both Jazz Pharmaceuticals and Harmony Biosciences, with a current market capitalization of roughly $600 million. However, Avadel's innovative technology and unique dosing schedule with Lumryz offer an advantage over its larger competitors. Additionally, with the potential market opportunity for Lumryz estimated to be in excess of over $3.0 billion annually , Avadel has significant growth potential in the narcolepsy treatment market.

Conclusion

The current market conditions may be challenging, with unfavorable valuation metrics; however, the biotech industry has historically been driven more by growth than value. This makes Avadel Pharmaceuticals' potential market opportunity of over $3 billion annually, coupled with strategic partnerships and a robust pipeline, an attractive option for long-term investors.

Furthermore, Avadel has a competitive advantage over its rivals through its drug delivery technology, as well as an investigational formulation that is designed to be taken once at bedtime. This singular approach addresses common patient issues with current treatments and is expected to make Lumryz the go-to treatment for those suffering from narcolepsy-related EDS or cataplexy.

Overall, Avadel Pharmaceuticals offers an appealing biopharmaceutical solution to improve the lives of patients through unique medication development. Their strong portfolio of drug candidates coupled with a focus on patient-centric care makes this company a promising prospect for any investor looking to diversify into the biotechnology arena in a niche market.

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