AVDL - Avadel Pharmaceuticals: Winning Is Sweet

2023-07-20 15:26:42 ET

Summary

• Avadel Pharmaceuticals plc finally won approval of Lumryz™ (sodium oxybate), despite cutthroat opposition from Jazz Pharmaceuticals plc.
• Potential sales estimate is $3bn.
• Avadel Pharmaceuticals is flying high, as it well should, but I am a buyer on dips.

Avadel Pharmaceuticals plc (AVDL) used to be in my portfolio 2-3 years ago. My last coverage was in June 2022. The one before that was in Oct 2021; between those two articles, I sold out of AVDL in November 2021, when it reached my price target, or PT. Then it went down to less than one fifth of my PT, but I did not buy back. Had I done that, I would have been up 5x, because the stock is back to where it was when I sold out…and then some.

So, what happened with Avadel?

In those days, Avadel was still developing FT218, which I once called a jazz killer, because it was producing better data than Jazz Pharmaceuticals plc's ( JAZZ ) blockbuster xyrem. Xyrem had bad logic; how could a sleep-deprived narcoleptic person, who is taking a pill to get some sleep, wake up in the middle of the night to take a second dose, or else he would get no benefit from even the first dose? That was Xyrem's dosing paradigm; whereas FT218, as it was then known, was dosed once nightly, and had a comparative or better efficacy profile.

Not only so, that second middle-of-the-night dose "created an unnaturally high peak serum concentration or Cmax," which could lead to safety issues. Thus, FT218's safety profile would also have been better. You would think that making a once-nightly dose of an efficacious twice-nightly medicine would be easy. Ask Jazz; it is not. They tried for a number of years, but failed, until along came Avadel with its micropump technology and once-nightly pill.

Avadel had a PDUFA in October 2021, but the FDA delayed it due to what was apparently a staffing issue caused by covid-19. The stock was halved, because the FDA did not clearly say so.

My last coverage was on June 16, 2022, and the stock was at its nadir at that time. This was because after delaying the PDUFA due to a staffing issue, the FDA once again delayed it due to a patent issue. I discussed that "REMS patent issue" in some detail in that article. The story is incredible - the FDA caused Jazz to have a REMS - a risk label - for xyrem because it can potentially be used as a date rape drug. Jazz went ahead and patented this REMS process - a strategy used by a lot of branded drugmakers to block generics. Now, FT218 needs a similar REMS, but it can't use one because that has been patented. It could either appeal to delist it from the Orange Book - a strategy it tried but failed. Or it could wait until June 2023, when this patent expires.

In July 2022, the FDA gave tentative approval to FT218, now known as Lumryz™ (sodium oxybate), to treat excessive daytime sleepiness ((EDS)) or cataplexy in adults with narcolepsy. While this meant that the drug was good for safety, efficacy and so on, the company could not launch it until the patent issue got resolved. In November, the FTC sided with Avadel when it basically said that these REMS patents should not be allowed in the Orange Book, and should not be allowed to hold back generics. A Delaware judge also sided with Avadel, requiring Jazz's REMS patent to be delisted. By February, Jazz had lost its final appeal, and Avadel wanted full approval from the FDA. This lawsuit and the associated story got highlighted when, based on this background, Sens. Maggie Hassan (D-N.H.) and Mike Braun (R-Ind.) brought a bill to block just this sort of REMS situation from occurring.

Finally, on May 1, and a full one-month before Jazz's REMS patent expired, Avadel was granted full approval. Jazz clearly lost the war but won the battle. They were able to delay the Lumryz launch almost until the end. No legislation, no FDA, no FTC could do anything - who said life is fair? Indeed, right after the approval, Jazz sued the FDA with a novel argument. Jazz said that the approval was unlawful - not because of xyrem, but because of xywav. Xywav is a twice-nightly low sodium reformulation of xyrem, and it has an orphan designation. Jazz says lumryz's approval violates the orphan drug exclusivity of xywav. Jazz says :

FDA erred when it determined that once-nightly dosing regimen for Lumryz is a major contribution to patient care and its determination of better efficacy was made without any head-to-head trials of Xywav and Lumryz.

Earlier lawsuits hurt Avadel, but I doubt this one has any chance. The first part of this argument - that the FDA determined that Lumryz is a major contribution to patient care - is futile because this is exactly what is within the FDA's jurisdiction. Jazz can question it and go to court, but the FDA's mandate is not easily questioned. As to the second part, here too, the argument is futile because Jazz has never been able to claim that xywav has any better dosing regimen that xyrem, while lumryz clearly has that. Xywav is just low sodium xyrem, and its marginal utility is elsewhere, in purported lower CV risk. That has nothing to do with once nightly dosing, in which lumryz is the only molecule.

And anyway, since it is now approved, it will not be taken off market while this futile lawsuit runs its course.

Financials

AVDL has a market cap of $1.06bn and a cash balance of $101mn. The company also secured an additional $200mn in capital. R&D expenses were $3.8 million in the quarter ended March 31, 2023, while SG&A expenses were $24.5 million. Add to that the marketing expenses, and AVDL has cash of at least 6 quarters, enough to start a substantial revenue stream.

Bottom Line

Avadel Pharmaceuticals plc stock is now trading far too high, and yet its market cap is only $1bn, where the peak sales estimate of FT218 is over $3bn. I am tempted to take a position, but maybe I will wait for a better price.

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