AVDL - Avadel: Sleeping Soundly Why We're Giving A 'Buy' Rating Ahead Of Lumryz Launch

2023-04-19 08:20:09 ET

Summary

• We maintain a Buy rating for Avadel Pharmaceuticals.
• We expect FDA approval of Lumryz in May and a potential launch in June.
• Recent financing initiatives provide AVDL with a robust cash runway and an established sales force to support Lumryz's launch.
• Risks include Lumryz approval delays, limited market traction, negative FDA action, and a limited track record in commercialization.

We maintain a buy rating into May PDUFA

Based on recent positive newsflows, we reiterate a buy rating on Avadel Pharmaceutical ( AVDL ), including the favorable Delaware District Court ruling on the '963 patent delisting and the expected FDA final approval of Lumryz in early May.

Please read our initiation article for a more detailed analysis of the company's platform and technology. We remind readers that Lumryz (FT218) is AVDL's primary product candidate. It is an extended-release formulation of sodium oxybate that is taken once nightly and currently undergoing investigation. Lumryz is intended to treat excessive daytime sleepiness and cataplexy in adults diagnosed with narcolepsy. We continue to find Lumryz's once-nightly dosing schedule offers a clinically significant convenience advantage compared to other sodium oxybates (i.e., Jazz's Xyrem) and will be well positioned to capture a $200-300M peak sales opportunity moving forward.

Lumryz approval is expected in May

Based on the submission of a minor amendment on March 2023, we believe AVDL's Lumryz will receive the FDA's stamp of approval around early May, and launch is expected in 1-2 months post-approval.

Furthermore, we note that several recent developments have enhanced Avadel's preparedness for a potential Lumryz launch. These developments include an equity offering, an RTW royalty agreement, and a convertible notes exchange, which raised approximately $165 million in cash and delayed the maturity of AVDL's $96m convertible debt until 2027. Additionally, AVDL will gain access to $45 million upon achieving quarterly sales of at least $25 million by 2Q24. We see this net positive for the company as it can provide a robust cash runway for a couple of years and support Lumryz's launch, expected in June 2023.

The company has noted that they have established a 50-person sales force and 12 field reimbursement managers, which we believe would be an adequate enough sales force to market the product considering the drug's clear clinical advantage around convenience, concentrated prescriber base (~5,000 prescribers for 100% market penetration) and payer value proposition supported by RWE studies. We believe real-world outcomes studies further support Lumryz's clinical value proposition and will be instrumental in AVDL's discussions with payers to secure a more straightforward reimbursement pathway and pricing.

Risks

1. Risk of Lumryz approval delays beyond the 2Q23 launch timeline.
2. Lumryz may not gain significant traction in the market, more than what the market expects due to the potential entrance of generics to the market.
3. Negative FDA action could impact the success of Lumryz.
4. The company has a limited track record in commercialization, and the early sales ramp could be underwhelming.

Summary

We maintain our "Buy" rating for Avadel Pharmaceuticals based on positive catalysts, including the expected FDA approval of Lumryz in May and a potential launch in June. We build high conviction in AVDL's market preparedness. Lumryz is AVDL's primary product candidate, offering a once-nightly dosing convenience advantage compared to other sodium oxybates. Recent financing initiatives have provided AVDL with a robust cash runway and an established sales force to support Lumryz's launch. Real-world outcomes studies further support Lumryz's clinical value proposition, and we believe they will be influential in AVDL's discussions with payers for a more straightforward reimbursement pathway. However, risks such as potential Lumryz approval delays, limited market traction, negative FDA action, and the company's limited track record in commercialization could impact the success of Lumryz.

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