Avadel Pharmaceuticals (NASDAQ: NASDAQ:AVDL) has reported significant progress in the second quarter of 2024, with a net revenue of $41.5 million and a patient base of over 1,900 for their narcolepsy treatment, LUMRYZ. The company has also commenced a Phase 3 clinical trial for LUMRYZ in idiopathic hypersomnia and is awaiting FDA decision on its use in pediatric narcolepsy. With a robust increase in revenue from the previous quarter and a positive outlook for operating income, Avadel is comfortably on track to meet the annual revenue consensus.
Key Takeaways
- Avadel Pharmaceuticals reported a net revenue of $41.5 million in Q2 2024.
- Over 1,900 patients are on therapy with LUMRYZ, a treatment for narcolepsy.
- The company has started a Phase 3 trial for LUMRYZ in idiopathic hypersomnia.
- FDA approval for pediatric use of LUMRYZ is pending.
- Avadel expects to generate operating income in Q3 and for the rest of 2024.
- Annual revenue consensus of approximately $168 million is within reach.
Company Outlook
- Avadel anticipates positive adjusted operating income in Q3 and beyond.
- The company is well-resourced to maximize the launch of LUMRYZ.
- A strong cash conversion outlook is expected, with breakeven anticipated this year.
Bearish Highlights
- Operating expenses in Q2 were at $51.5 million, including a nonrecurring $5 million expense.
- Early discontinuation rates for LUMRYZ are higher but are expected to stabilize.
Bullish Highlights
- Gross profit in Q2 stood at $38.7 million, a substantial increase from the previous quarter.
- Strong patient demand is driving revenue growth for LUMRYZ.
- The company is confident in its intellectual property position and market growth opportunities.
Misses
- There was no mention of specific misses during the call.
Q&A Highlights
- The pediatric market for LUMRYZ represents about 5% of the overall market.
- Educational awareness for pediatric narcolepsy is expected to mirror adult strategies.
- LUMRYZ is seen as a potential game-changer in pediatric sleep disorders.
- The company is poised to capture market share in idiopathic hypersomnia, with 23% of patients in a study taking a single dose of a competing product.
In conclusion, Avadel Pharmaceuticals has delivered a strong performance in the second quarter of 2024, driven by the success of LUMRYZ. The company is optimistic about future growth and market opportunities, especially with the potential expansion into idiopathic hypersomnia and pediatric narcolepsy treatment. With a focus on maximizing the value of LUMRYZ and a confident stance on their financial and market position, Avadel is poised for continued success in the upcoming quarters.
Full transcript - Avadel Pharmaceuticals PLC (AVDL) Q2 2024:
Operator: Greetings, and welcome to Avadel Pharmaceuticals' Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Austin Murtagh with Precision AQ. Thank you. You may begin.
Austin Murtagh: Good morning, and thank you for joining us on our conference call to discuss Avadel's second quarter 2024 results. 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 and uncertainties are described in Avadel's public filings under the Exchange Act included in the Form 10-K for the year ended December 31, 2023, which was filed on February 29, 2024, 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; Richard Kim, Chief Commercial Officer; Dr. Jennifer Gudeman, Senior Vice President of Medical and Clinical Affairs; and Tom McHugh, Chief Financial Officer. At this time, I'll turn the call over to Greg.
Greg Divis: Thank you, Austin. Good morning, everyone, and thank you for joining us for this quarterly update. Following my opening remarks, Richard will provide an update on our launch progress, Jennifer will walk through our Phase 3 idiopathic hypersomnia or IH clinical trial, Tom will then review our second quarter financial results and we will conclude with a question-and-answer session. The second quarter marked the one-year anniversary of introducing LUMRYZ to the market, and I'm immensely proud of the work done by our team and the impact we have made within the narcolepsy community. From the start, we recognized that oxybate-eligible patients deserve a once-at-bedtime treatment option that address their needs where first-generation oxybates fell short. Our team's relentless determination in serving people with narcolepsy has been the driving force behind our tremendous progress. Since launch last year, we have seen our pre-approval market insights materialize in real time, which when combined with the strong foundation we have built only reinforces our confidence in the significant opportunity that LUMRYZ offers in our pursuit of its potential $1 billion-plus opportunity. Specifically, we point to the following: we have seen consistent strong uptake from patients switching from the twice-nightly, first-generation oxybate products, the majority coming from the mixed-salts formulation; demand is growing from both naive patients and patients who have previously tried and discontinued twice-nightly oxybates, a patient segment many had discounted; and the launch of LUMRYZ has resulted in the expansion of new oxybate prescribers who have previously never written an oxybate script and, additionally, physicians who are now treating more patients with oxybates, specifically with LUMRYZ, than prior to our launch, resulting in new patients coming into the oxybate market that prior to LUMRYZ were not accessible or potentially interested. These important data points only confirm what our research informed us, that the oxybate market opportunity for LUMRYZ is both significantly larger than that of the first-generation oxybate and is unique primarily to LUMRYZ alone. With that, we are pleased to report that there were more than 1,900 patients on therapy at June 30, and we generated $41.5 million in net revenue during the second quarter of 2024. Additionally, as Tom will cover during his review, based upon how we exited Q2, we currently expect that we will generate operating income in Q3, an important financial milestone we will have achieved during the first full calendar year of launch. As announced last week, we dosed our first patient in our Phase 3 REVITALYZ trial, evaluating LUMRYZ's potential benefit in the adult IH population. Based on feedback from physicians and experts in the field, we believe LUMRYZ has strong potential to improve care for those living with IH through its unique extended release formulation. In addition, we are expecting a potential approval decision by the FDA for our supplemental New Drug Application for LUMRYZ's use in the pediatric narcolepsy population. The target action date is set for September 7. If approved, we believe LUMRYZ has the potential to address the needs of both pediatric narcolepsy patients, who could benefit from a full therapeutic dose of an oxybate given in a once-at-bedtime formulation; and the caregivers who currently have to awaken in the middle of the night, night after night, to administer a second dose of a first-generation oxybate to their children. Lastly, we continue our development work on a potential no- or low-sodium, once-at-bedtime oxybate formulation with a target profile that is bioequivalent to LUMRYZ. As previously stated, we expect to have an update by the end of 2024. In summary, after one year of launch and with an eye on the future, we believe LUMRYZ is well positioned in its pursuit to become the preferred oxybate among patients and providers as we continue to positively impact the multibillion-dollar oxybate market opportunity. I'll now turn the call over to Richard for details on our commercial developments. Richard?
Richard Kim: Thank you and good morning, everyone. As Greg mentioned, it's hard to believe that we have one year of launch behind us and what a year it's been. It has been amazing to witness LUMRYZ's transformative impact among people with narcolepsy, their families and health care providers. Let me start with our new key piece of metric. As of the end of Q2, there were more than 1,900 patients on therapy. Additionally, for our leading indicators that we have provided quarterly since launch through June 30, approximately 3,800 patients were enrolled in our RYZUP patient support program and more than 2,400 total patients had initiated therapy. With our second quarter numbers, you can see that we have continued the momentum with our launch and that there has been no slowdown in quarter-over-quarter patient demand for LUMRYZ. Now, looking at our patient dynamics. We continue to have strong representation across our three patient segments including, those switching from or previously discontinued twice-nightly oxybates and those new to oxybates. As expected at this stage, switch patients still make up a significant portion of patients on LUMRYZ. At the same time, it's been especially encouraging to see more new-to-oxybate patients being prescribed LUMRYZ. Now, this in addition to LUMRYZ's use in previously discontinued, twice-nightly oxybate patients along with, new writers for LUMRYZ who have previously never prescribed an oxybate are important data points validating our market research that LUMRYZ can grow the oxybate market beyond its size from when it was just first-generation oxybates. Now, our data continues to indicate, there are more than 4,500 HCPs who make up the current oxybate-prescribing universe. Importantly, from these HCPs almost 500 make up 50% of the total oxybate prescription volume. And to date, 85% of that group have written for LUMRYZ. We are pleased with our continued capture of high-volume oxybate prescribers, as they represent a core component of our launch strategy. Transitioning to product fulfillment, our overall pull-through process continues to deliver with over 700 new patient starts in the second quarter. These results are attributable to a number of factors including robust payer coverage, strong execution from our field reimbursement and RYZUP teams, along with HCPs continuing to gain clinical experience prescribing LUMRYZ. Looking to the second half of the year. We have built a strong foundation, we believe will support LUMRYZ's ongoing uptake in the narcolepsy community. In particular, demand for LUMRYZ continues to be strong and our fulfillment systems are working to get patients initiated efficiently. Paired with early signs that the oxybate market is growing, we remain highly confident in our belief that LUMRYZ is on track to become the preferred oxybate in the narcolepsy market. And now, I will turn the call over to Jen to discuss the recent dosing of the first patient in our Phase III IH study.
Jennifer Gudeman: Thank you, Richard. Since the introduction of LUMRYZ, we have heard from patients and providers repeatedly about the transformative relief LUMRYZ has brought to their lives. LUMRYZ has not only provided patients with the opportunity for an uninterrupted night sleep, but we also often hear about what they characterize as a restored ability to live their lives on their own terms. While we have been serving the narcolepsy community for more than a year with LUMRYZ, people living with IH have been severely constrained in a lack of approved treatment. In April, an externally led patient-focused drug development meeting was held with the FDA in SLEEP consortium, to inform patient needs for IH treatment. Among more than 800 individuals living with IH, nearly two-thirds of respondents stated that their IH symptoms were not controlled or were poorly controlled. Patient testimonials underscore the need for additional therapeutics. Physicians and patients have been vocal in their demand to see LUMRYZ evaluated for IH, due to the deep sleep inertia associated with IH and we are now answering their call. We are excited to have recently dosed the first patient in our clinical trial evaluating LUMRYZ for IH, as it is the first step to potentially bringing this important therapy to patients. Our study known as REVITALYZ, is a double-blind placebo-controlled, randomized withdrawal, multicenter Phase III study to evaluate the efficacy and safety of LUMRYZ as a once-nightly dose in IH patients. Enrollment of approximately 150 participants will include both those switching from first-generation immediate-release oxybates, as well as those not on oxybate therapy at baseline. Our primary efficacy endpoint is to demonstrate a change in the Epworth Sleepiness Scale score, which is administered at week 14, after a two-week double-blind randomized withdrawal period. Our key secondary endpoints are the Patient Global Impression of Change in the idiopathic hypersomnia severity scale, which is a validated multi-domain assessment of key IH symptoms. The primary efficacy analysis will occur after the 14-week portion of REVITALYZ is completed, and the study will be followed by an open-label extension. Initiating REVITALYZ is a key milestone for Avadel and most importantly, for the IH patient and medical community. We have seen the positive impact that LUMRYZ has had on narcolepsy and are working diligently toward expansion in IH. I'll turn the call over to Tom for a review of our financial results.
Tom McHugh: Thank you, Jen. Before I begin, please note that full financial results are available in the press release issued this morning and the 10-Q. I will also be reviewing non-GAAP financial results, which can be found on our Investor Relations website at investors.avadel.com. I'll start with our top line results. In the quarter ended June 30, 2024, we reported net revenue of $41.5 million and gross profit of $38.7 million, both of which represent a greater than 50% increase from the quarter ended March 31, 2024. The increase in net revenue was driven primarily by continued strong patient demand for LUMRYZ. Additionally, we estimate that there was about four weeks of inventory in the channel at the end of June versus approximately three weeks at March 31. Turning to operating expenses. We reported $51.5 million of GAAP operating expenses for the second quarter, which includes a nonrecurring expense of $5 million related to the previously announced mandatory exchange of the company's American Depository Shares and termination of the American Depository Receipt program. As a result of the mandatory exchange, Avadel was added to the Russell 3000 Index at the beginning of July. The second quarter also included $6.5 million of non-cash charges comprised of stock-based compensation of $5.5 million and depreciation and amortization of $1 million. After adjusting for these items, which totaled $11.5 million, remaining cash operating expenses were approximately $40 million. We expect that for the remainder of 2024 recurring quarterly cash operating expenses will be in the range of $40 million to $45 million and non-cash operating expenses will be in the range of $5 million to $7 million. With respect to the balance sheet, we had $71.4 million of cash, cash equivalents and marketable securities as of June 30. The use of cash during the second quarter included the $5 million of expense related to the termination of the American Depository Receipt program. I'll finish my remarks with a few comments regarding our expectations for the remainder of 2024. We continue to pay close attention to the sell-side estimates. And at this time, we are comfortable with the current revenue consensus of approximately $168 million for the full year including the possibility that it could be higher if actual results such as the rate of increase in reimbursed patients, the total number of reimbursed patients who are treated with LUMRYZ and net pricing outperform the assumptions currently used by the sell-side analysts. Lastly with respect to our time line to reaching breakeven, we were very close to achieving this during the second quarter, when comparing $38.7 million of gross profit to approximately $40 million of recurring cash operating expenses, which resulted in an adjusted operating loss of approximately $1.2 million. Based on our current plans and assumptions, we expect that adjusted operating income will be positive, beginning in the third quarter and continue to be positive for the remainder of 2024. Our expectations regarding adjusted operating income are based on a number of factors including the number of reimbursed patients on LUMRYZ, net pricing of LUMRYZ and recurring cash operating expenses. And with that I will turn the call back to Greg for closing remarks.
Greg Divis: Thank you, Tom. Before we wrap up, I want to take a moment to comment on our publicly reported launch metrics and what to expect moving forward. This quarter we added a new metric: the total number of patients on therapy. With the full year of launch now behind us going forward we intend to report only this patient metric and of course, revenue, as we believe these two metrics are the most important as our launch matures. We believe we are well positioned to execute our business priorities including our ongoing launch of LUMRYZ and our life-cycle management opportunities both of which are focused on our primary business objectives, maximizing the full value of LUMRYZ. So in conclusion, we're very pleased with our progress and our growth thus far recognizing that we have much more to accomplish. We thank you for your support and look forward to providing future updates on our progress. And with that, we will open the call for questions. Operator?
Operator: Thank you. At this time we will conduct the question-and-answer session [Operator Instructions] Our first question comes from the line of Andrew Tsai of Jefferies. Your line is now open.
Andrew Tsai: Hi. Good morning. Congrats on the strong launch and appreciate you sharing the metrics. Thanks for taking our question. So the first one is if we were to take another look at data cut as of July or even early August, how does the slope of uptake looks so far? Should we be factoring in some kind of summer seasonality due to holidays occasions this quarter? Or should we expect slope of patient additions and so forth to remain unchanged or even increase this quarter? Thanks.
Greg Divis: Thanks, Andrew. I think we would qualitatively characterize it as our trends remain consistent. As we've seen to date, this is our first summer that we've been in the marketplace. So whether there's seasonality or not, we'll have a chance to assess that for LUMRYZ specifically as we get through the period. But at this point, I think we would describe it as continuing to be consistent as to what we've seen.
Andrew Tsai: Great. And then secondly speaking of just the slope being consistent, pediatric could be approved in a month from now. So that's 5% of the current oxybate users. So is it fair to assume there could be a nice little bolus coming from that approval? Or could the uptake in the subpopulation be slower than what we're thinking? Thanks.
Greg Divis: Yeah. I think as we think about it, it's an important addition to our label because we hear quite a lot from parents who wake up in the middle of night, night after night. Again, it's a relatively small patient population. So I think over time, we have an opportunity to both convert patients as well as potentially even expand the use in the pediatric market over time based upon some of our insights. I think as we think about the balance of 2024, it's modestly or marginally incremental at this point but longer term we think it's really important.
Andrew Tsai: Great. Thank you so much.
Operator: Thank you. Our next question comes from the line of François Brisebois of Oppenheimer. Your line is now open.
François Brisebois: Hi. Thanks for taking the questions. I was just wondering in terms of reimbursement where we stand now and just the impact there of if you kind of cut it as a revenue per patient? And obviously, I appreciate the new metric and the look back at that new metric and what it meant. But if we're thinking about revenue per patient, is there any impact expected from reimbursement here in the second half?
Greg Divis: Maybe Richard you can cover reimbursement and Tom kind of value per patient.
Richard Kim: Frank, thanks for the question. Yeah, we're super pleased with how our market access team has performed. Today, we have about 85% of commercially covered lives where our LUMRYZ policy exists. So it's been really strong which has really helped to drive us being able to get patients initiated. So Tom, do you want to sort of take the revenue per patient?
Tom McHugh: Yeah. So thanks, Frank. The revenue per patient last quarter we had talked about exiting the quarter at about $120,000 per reimbursed patient. We've seen some improvement in that. That net pricing heading into Q2, let's say it's natural to some extent because Q1 is pretty heavily impacted by gross net adjustments. So we're -- we do see some improvement in Q2.
Greg Divis: I think the only other comment I would add regarding reimbursement is that the other segment of our business which represents 15% to 20% of enrollments are really noncommercial, predominantly Medicare and Medicaid. And as we get into 2025 where a lot of those decisions will be made for LUMRYZ which we weren't eligible in 2024 especially for Medicare, we'll get a better sense of how our coverage evolves beyond the commercial coverage as we go closer to the end of this calendar year.
François Brisebois: Thank you. And then maybe just lastly in terms of new prescribers to oxybate that weren't prescribers before the 4,000 or greater than 4,500 I know it's concentrated, but did you guys approach these docs? Is it surprising that these docs who never prescribed oxybates for over 20 years have started based on the once-nightly? Is it just more awareness? Where do these docs come from?
Greg Divis: Richard?
Richard Kim: Thanks, Frank. So for the vast majority of those providers, we have not called on them. So I think this really speaks to the really tremendous value proposition that LUMRYZ brings. And in our prelaunch market research when we tested our profile with high-use narcolepsy prescribers who don't use oxybate, half of them said with the profile of LUMRYZ they would want to prescribe LUMRYZ compared to what they haven't done with the first-generation oxybates. So we think it's a really positive sign and something for us to build upon going forward.
Greg Divis: Yeah. I'll just add to Richard's comments is that it's really interesting to us that we're getting demand without any really true effort on our part directly in terms of promotion. So it's something we're evaluating to see if it's there's some more we can do there for sure.
François Brisebois: Great. Thank you and congrats.
Operator: Thank you. Our next question comes from the line of Ami Fadia of Needham & Company. Your line is now open.
Ami Fadia: Hi. Good morning. Thanks for taking my question. Can you give us a sense of what percent of patients that are currently on LUMRYZ either came from one of the other oxybates versus previously discontinued and as well as never on oxybate before? Any updates? And then if you could give us any updates on pull-through at the payer level across the three GPOs that you have contracts with perhaps any color on Humana (NYSE:HUM) or some of the other Optum plans would be helpful. Thank you.
Greg Divis: Richard?
Richard Kim: Yes, thanks for the question, Ami. So as far as sort of like percentage of switch versus sort of never on an oxybate before, the biggest chunk of our patients that we have right now are still being sourced from switch patients from first-generation oxybate with the highest percentage of those being from the mixed salt overall as well. So what we are seeing at the same time though is that the new-to-oxybate patients are starting to increase their representation as well. I mean we really see that as a very positive sign really to sort of continue to support the value proposition of LUMRYZ. So, the biggest chunk is still SWITCH patients, but we are starting to see a bit of an increase in the representation of new patients tired of the oxybates. And as far as the GPO representation is concerned, I think traditionally what we start to see is the Zinc CVS Emisar and the -- Ascent Emisar are the biggest chunk with Optum being smaller. And I think what we're seeing in general is the channel is being representative of the size of those GPO contracts with the Zinc being the largest Ascent being the second largest and then the Emisar-Optum business being the smallest of the three. So, pretty consistent with the sizing opportunity of those three contracts that we have.
Greg Divis: Yes, I think the only other comment I would add to that is that I think it's fair to say that the significant majority of the lives underneath those GPO umbrellas have established policy coverage decisions now not all of them with regards to LUMRYZ. So, I think getting to your question we've got policy coverage decisions in place and pulled through those through the GPO contracts.
Ami Fadia: Okay, great. If I may ask one more question can you just sort of walk us through or give us an update on the cadence of when you expect decisions from the ongoing IP cases? And specifically on the Jazz versus FDA case can you walk us through the upside downside; and how we should think about in a downside scenario the ability to keep LUMRYZ on the market should a decision go in favor of Jazz? Thank you.
Greg Divis: Well, in terms of timing, I think it's our view that the next decision will likely come out of the APA case in D.C. followed by the patent case in Delaware. So, when that is? We don't know and they could come in a different order I guess but that's ultimately at the discretion of the judge from that perspective. And we -- again our position hasn't changed we're very confident in our views. And even if the decision were unexpectedly go against us in that regard, we're prepared to take whatever steps necessary to ensure that LUMRYZ stays on the market to be able to treat patients accordingly and we believe that will be the case. But I'll close out again on the litigation matters that we're highly confident in our position. And I'll remind all of our investors that there's other cases that are coming after this as well including our antitrust case which has been set for November of next year for which we are pursuing requisite damages for the unnecessary delay of LUMRYZ's approval due to the inappropriate listed [indiscernible]. But in terms of timing, it's really at the discretion of the judge and we're prepared to act accordingly.
Ami Fadia: Thank you.
Greg Divis: Thanks Ami.
Operator: Thank you. Our next question comes from the line of David Amsellem of Piper Sandler. Your line is now open.
David Amsellem: Hey thanks. Just a couple for me. I know you're going to have more updates on the low-sodium product. But can you talk to generally the IP situation on that formulation and your level of confidence that you're not going to run a foul of Jazz's intellectual properties surrounding their low-sodium oxybate product? So, that's number one. Then number two is, is it fair to say that with the bioequivalence pathway for that that there's a relatively rapid path to market for that formulation? And then lastly on IH, are you thinking about that opportunity as something where you can expand the market? Or do you see switching away from Xywav to LUMRYZ in the IH setting? Or is it a little bit of both? Thanks.
Greg Divis: Thanks David. I'll try to tick those off one at a time. Again, I think when it comes to our development strategy and our approach to a low- or no-sodium formulation, we have to understand what's in the past landscape for sure. And so we would be pursuing that. Of course you should assume that we're pursuing our direction accordingly in that -- with that being considered appropriately in our development plan. If it was as simple as just formulating something similar to what's in the market today it would have already been done by now from that standpoint. So, again, we're very conscious of what the patent landscape is out there and navigating it appropriately. Number two, on your question about the development pathway using a bioequivalence that ultimately is the decision by the FDA to agree with us on that approach. But we do believe that there is a pathway based upon other products that have been approved that a bioequivalent-only pathway is a viable pathway assuming we can demonstrate bioequivalence and the FDA agrees with that. And lastly, in terms of IH, I think right now you've heard Jen talk about the research and the symposium that the FDA held specifically where 800 patients talked about the need for more therapeutic options. Their symptoms are not controlled with the current available treatments. So, from our perspective just the narcolepsy patients may choose due to the nature of this condition to want to switch to LUMRYZ to be approved. Our view is we think it's important to add another treatment option. We think the nature of this condition is such that a once-a-bedtime option in the form of LUMRYZ is very, very compelling to patients and we hear that all the time in particular from physicians and key opinion leaders who as Jen, I think noted are very, very bullish on the prospects of what LUMRYZ could offer for their patients primarily because these patients struggle with the ability to wake up full stop, right can take their second dose. So again, for us, it's an option for all patients whether they're on therapy today. And what we know today is that there's depending upon what data set you look at there's anywhere from 30,000 to 40,000 patients with a unique diagnosis code related to idiopathic hypersomnia and a small percentage of those are actually being treated with the only FDA-approved drug today. We think LUMRYZ offers a really great option for them as well. So thank you.
Operator: Thank you. Our next question comes from the line of Marc Goodman of Leerink. Your line is now open.
Marc Goodman: Tom, I know you talked about kind of the cost or anything. Can you just give us a sense of free goods? Just how much -- what percent of free goods both the second quarter maybe just the direction you're moving in there and the impact? And just more broadly on the market, what's your sense of the total number of oxybate patients? Like how much did it grow versus before you launched? Thanks.
Tom McCourt: Yeah. Marc, you're a little bit breaking up. So I just want to make sure, your first question is, I believe, the patients who are on free product right?...
Marc Goodman: Yeah.
Tom McCourt: … relative to the total. And then, the second is just how we're viewing the market trending? So...
Marc Goodman: Yeah. How much the markets changed exactly, before you launched then now?
Richard Kim: Yeah. I know. Thanks for the questions, Marc. For us, where we are with LUMRYZ in the launch right now we think the single-most important thing that can happen is HCPs and patients get experience with LUMRYZ. And the feedback thus far has been terrific. And we really see three products as an investment in our launch overall. What we hear from other specialty sort of chronic product launches is sort of free products being used in about that 20% to 25% range of total patient usage. We think that's a pretty good proxy when you think about things. And for our business over 80% of our business is commercial today. I think Greg had commented that part of our business, we would anticipate getting more of our CMS especially Medicare patients being picked up in 2025. So we do believe that things will improve for us. But once again it really comes down to us doing free products as an investment and getting HCP and patient experience and ultimately we are also able to convert some of these patients using our programs either our bridging program or our temporary assist program our permanent affordability programs on to reimburse patients as well. So -- and as far as the overall market size is concerned we've had -- with our claims data provider it's been a little bit messier in the second quarter for us overall. But what we see overall in the marketplace Marc is a few good leading indicators for why we believe the market is growing for oxybates. The first is the previously discontinued patients to twice-nightly oxybates, we believe are uniquely a LUMRYZ opportunity. And we're getting a good portion of those starting an initiating therapy with LUMRYZ. The second is we are getting more new to naive patients initiating on LUMRYZ. That's consistent with the market research that we've heard prior to launch that LUMRYZ would open the doors for more new-to-oxybate patients considering going out on oxybate. The third thing that we talked about earlier was that we are getting unique prescribers who had never prescribed the first-generation oxybates that are now prescribing LUMRYZ as well. So we view these as all early positive signs that the market is growing beyond where the first-generation oxybate market was.
Greg Divis: Yeah. I just want to emphasize a couple of points, Richard made. Again, I'll just restate it. Number one is that, we don't think LUMRYZ is going to dramatically be different in terms of its percentage of free drug versus kind of other products. But what we've seen which I think is a really positive, is we've seen patients when a coverage policy decision comes into play as Richard noted, we've been able to convert them to a in essence a paying patient. So that's something that our team is focused on. And we'll continue to do that. And again, I think, the way I think about the notion of what's happening with the market because kind of the secondary data sources are a little choppy right now is that patients that were getting added to LUMRYZ sources of business were getting added to LUMRYZ, as new starts they're not in the denomination of kind of the legacy market, right? Those patients weren't there before. So from our perspective that is a great sign in terms of what are the prospects one year into launch of what the potential future holds for our ability to really grow this market.
Marc Goodman: Thanks.
Greg Divis: Thank you, Marc.
Operator: Thank you. Our next question comes from the line of Ashwani Verma of UBS. Your line is now open.
Fatima Amanat: Hi. Good morning. It's Fatima, on behalf of Ash Verma at UBS. Thanks for taking my question. Just like very quickly, can you talk about what you are seeing in terms of discontinuation persistence rates? Any change from what we've seen early in the launch? And just a quick second question, are you seeing any impact in the second quarter from Xyrem being removed from certain formularies? Thank you.
Greg Divis: Thank you very much. Richard?
Richard Kim: Yeah. No. Thanks for the questions, Fatima. So as far as discontinuation, what we see holistically is LUMRYZ has lower discontinuation rates than the first-generation oxybates when we compare that at time mesh cohorts of patients through the launch. What we do know historically is discontinuation rates for oxybate tend to be higher earlier in treatment and they tend to subside overtime. And that's also what we see with LUMRYZ once again lower than first-generation oxybates. And the discontinuation rate is probably driven a little bit more from naive patients and previously discontinued patients that do have a higher discontinuation rate than the switch patients do over time. But we've also learned a lot like we have in other components of our launch. We're learning a lot of -- from HCPs and patients. We're learning how to intervene differently when to intervene how to intervene how to specialize things depending on which patient type. So we know that every product does have dropouts and that's true of any chronic medication. But we worked really hard to get these patients started and we're going to be working really hard to make sure that the right patients stay on therapy as well. And as far as your second question about the impact from Xyrem yes I mean, clearly, there was some changes in some formularies that happened earlier this year. We did benefit from some of those patients going on to LUMRYZ. But we also know that our value proposition is very strong against all first-generation twice-daily oxybates. So those switch patients as we mentioned before remain an important source of our business in addition to the other two segments as well as we go forward.
Fatima Amanat: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Oren Livnat of H.C. Wainwright. Your line is now open.
Oren Livnat: Thanks. I appreciate it. Clearly, you have plenty of room to grow in narcolepsy but you're pretty aggressively pushing into IH. And I have just a couple of questions there. First, what's the reasoning behind trying to get in there right away now while that market is maybe not as developed? Is there any reason to maybe let your competitor with twice-nightly continue to make the investments and do the leg work probably the tougher lifting to grow that market first and get oxybate established as a therapy versus getting in there ASAP? And also do you believe you have IP aside a freedom to operate there given I think there's some different labeling on the Xywav side and some of the arguments your competitor is making on that front in court? And I have a follow-up there.
Gregory Divis: Oren, whatever the competitor is doing they're doing it right from that perspective. But it's clear to us and our feedback from physicians and patients that there is an unequivocal need for LUMRYZ in this category in this patient population. And we're not going to wait for someone else to do whatever they're going to do to serve this community and help expand and build our franchise. And regardless of what's in their label or what arguments they make or don't make, it doesn't matter to us, because we believe if we're going to introduce LUMRYZ to this patient population, it will be well received it will serve and have its rightful place and has the opportunity to make a difference. And arguably, we're the market leader in this category as well. So, we believe, we have full rights to operate accordingly. And at the end of the day, the market has spoken to us in the form of patients and physicians, who said, get us LUMRYZ as fast as you can. That's what we're trying to do.
Oren Livnat: Okay. And it's really impressive that you guys are projecting adjusted breakeven next quarter and I think OpEx was actually lower than I had modeled excluding that item this quarter. Can you just talk about -- you're growing revenue really rapidly OpEx not so much or at all now. How does that look going forward? Are you right-sized for continued dramatic growth from here IH aside? Or do you think you need to invest more on this product along with revenues? And also, I'm curious about cash conversion going forward too. Obviously and it's not surprising accounts receivables are accumulating as this product grows rapidly but do you expect that to reverse in the second half?
Gregory Divis: I'll save the second question for Tom. In terms of your comment about do we need to invest more on the launch, here's how we would describe it. Again, we're constantly evaluating our source of business and where opportunities are to try to accelerate the launch of LUMRYZ. I would say that, we are generally well deployed and well resourced to maximize the primary opportunity in LUMRYZ. But we are not the least bit shy of deploying more capital or investing in opportunities, if we believe it has an opportunity to really grow both the speed and the peak of what LUMRYZ can achieve from that standpoint. So it's something, we're always looking at. I will point to the comment that we made earlier today that we're seeing patients go on LUMRYZ from physicians who we are not actively calling on. So we've been trying to understand that and what are the profile of those physicians and is there an opportunity to pursue that more aggressively and accelerate that segment? We believe -- we've always believed longer term that was going to be something we were going to pursue overtime, but it has moved faster maybe than what we had assumed which we think is positive and it's something we're looking at. So I think at the end of the day it doesn't change our outlook in terms of our view on profitability and generating operating income in the second half of this year and going forward. But it does -- it is something we're always looking at because at the end of the day maximizing LUMRYZ is our primary objective.
Tom McHugh: Yes. Oren, thanks for the question. Listen, we believe we're going to hit cash flow breakeven this year. You picked up on a key point and it's not surprising that as we grow our working capital will increase primarily in the form of accounts receivable. But what you see sitting on the balance sheet at June 30, we'll convert to cash in Q3.
Oren Livnat: Perfect. Thanks. Appreciate it.
Tom McHugh: Thanks, Oren.
Operator: Thank you. Our next question comes from the line of Myriam Belghiti of LifeSci Capital. Your line is now open.
Myriam Belghiti: Thank you and congrats on the quarter and launch progress. Just a quick question for me. For the Phase 3 IH study, how should we be thinking about success here? And how do you think LUMRYZ's performance will compare to data shared from the RD-approved product?
Greg Divis: Well again I'll make some comments and Jen feel free to weigh in. I think at the end of the day we have an excellent proxy in terms of narcolepsy in terms of how LUMRYZ performed in our pivotal trial relative to the first-generation oxybates, right? We believe that gives us high confidence that LUMRYZ will be successful in our IH trial that we've initiated. So we're highly confident that we'll demonstrate a highly statistically significant benefit to patients. And from that standpoint we remain highly confident. Anything you want to add to that?
Jennifer Gudeman: The only thing I will add is that the enthusiasm from the investigators who are participating in this trial certainly underscores everything that Greg has said. There is a long-overdue unmet need to be able to provide an extended release form of sodium oxybate for IH which only LUMRYZ will provide if it's approved.
Myriam Belghiti: Got it. Thank you for taking my questions.
Greg Divis: Thanks, Myriam.
Operator: Thank you. Our next question comes from the line of Matt Kaplan of Ladenburg Thalmann. Your line is now open.
Matt Kaplan: Hi. Good morning, guys. Congrats on the strong quarter results. Just to stay on the IH theme a little bit can you talk about maybe it's a little bit early since you just started the trial but the time line for the Phase 3? And then also the regulatory pathway do you think you'll need two studies? Or will one be sufficient for an NDA filing?
Greg Divis: I'll take the first part of that and Jen feel free to weigh in on the second point. Matt, I think you made a good point which is that it's early in the trial. We're just getting our sites initiated -- our early sites initiated. We haven't reached our let's call it our full run rate or steady state. We're very pleased with the fact that in a very short order from a site initiation we've seen patients move into prescreening and patients go on therapy -- go on treatment. So we're -- by the early data points we're excited about that but we haven't reached our -- if you will it's going to take a while before we're at our full capacity. So I think it's difficult to project how long we think it's going to take. We've always said that we believe the best proxy right now is kind of how long it's taken the other products the other oxybate products to get through their Phase 3. And that was let's just call it 15 to 18 months. We think that's the right proxy for us now. And to be clear our assessment our assumptions around that changes we'll be sure to communicate accordingly as and when we're up and running more at kind of full steam and steady state. So in terms of regulatory pathway, Jen?
Jennifer Gudeman: Sure, happy to comment to that. We're very pleased with the engagement that we've had with the FDA. This will be a supplemental New Drug Application. And of course there's the prior precedent where there was only one pivotal trial to achieve approval in idiopathic hypersomnia. So we very much believe that's our pathway as well.
Matt Kaplan: Great. Thanks.
Greg Divis: Thanks, Matt.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Brandon Folkes of Rodman & Renshaw. Your line is now open.
Brandon Folkes: Hi. Thanks for taking my question and congratulations on a very good quarter. Maybe just two follow-ups from earlier questions for me. Just coming back to the pediatric population how does the educational awareness compare in this population to get a patient or to get a caregiver to switch and convince them to move a pediatric patient off a therapy that may not be as good as LUMRYZ, but in their minds may be adequate perhaps compared to what they've tried in the past? And then similarly just given the way base dosing there some sort of focus will the pediatric population be for the sales force given the runway in the added population?
Greg Divis: Thanks, Brandon. Richard, do you want to comment on the pediatric opportunities?
Richard Kim: Yeah. As Greg said earlier the opportunity is about 5% of the overall marketplace today. For us right now when we think about sales force coverage, the vast majority of the pediatric patients are seen by physicians that we call on that treat both adults and pediatric patients today. So incrementally we're only adding a few physicians who are specifically focused on pediatric sleep disorders. So I think our label will be very clear about the ability to switch patients as it is for adults today as well. And we've just heard consistent feedback from providers and families about how this could really be a changer for their families because remember it's not only the patients who have to wake up but it's generally the entire family that's disrupted during the middle of the night. So it's a modest opportunity as far as numbers or percentage is concerned, but we think it's a very important opportunity for us to execute against going forward as well. So we're super excited about the opportunity that lays ahead.
Greg Divis: Yeah. I think the only thing I would add is that, I don't think today where we think it's going -- the market for pediatric patients is going to perform any different than how we see adults today in that physicians see patients in the ordinary course when they come in for their follow-up whether it's three times a year or twice a year or whatever it may be that the opportunity to discuss LUMRYZ will come up. And, of course, it's imperative for us which we'll be doing is doing our related investment in marketing and awareness campaigns to the pediatric population to try to spur patient activation accordingly from a parent's perspective. But again that's no different than I think how we see the adult population today.
Brandon Folkes: Great. Thanks. And then maybe just a follow-up on the discontinuation rate. If I look at the metrics you gave and thanks for all the additional metrics, it looks like we had an additional 700 patients in the shared therapy during the quarter and an additional 500 patients on therapy at the end of the quarter. Is that a fair way to think about obviously there's a lot of moving pieces around that but just at a higher level do you think that at this stage for every 700 patients starting therapy 500 will stay on LUMRYZ?
Greg Divis: Richard?
Richard Kim: Yeah. Thanks Brandon. Right now we're still relatively early on the launch. And as we know historically more discontinuations tend to happen earlier or after a patient initiation. So we haven't really sort of got our full base of steady-state longer term usage. So we think discontinuations are earlier in launch maybe higher represented than they are going to be later on in the launch. So I don't think we've quite got to our steady state so it's a bit dynamic right now. And it's hard to say exactly what's happened in the past will reflect the rates going forward. We know that there will be more discontinuation rates over time, but the rates may be different going forward.
Brandon Folkes: Thanks. Very helpful. And then the last one if I may just on IH. Xywav does have the potential to dose once nightly. Do you believe LUMRYZ will take market share from both the twice-nightly patients and once-nightly IH patients? And so do you have any sense of what percentage of patients, of IH patients are currently making use of that once-nightly dosing on Xywav? And that's it for me. Thank you.
Greg Divis: Thanks. Richard?
Richard Kim: Yeah. What we know right now from the Xywav label is 23% of patients were did take a single dose. Keep in mind those are patients from being in a study who are unable to take the two doses that the study started off with. And also keep in mind that the maximum dose of those patients is six grams that they can take. We know that oxybate use for adults tends to migrate more towards 7.5 to 9 grams of total usage. So it's really one of the predominant things that we hear about our opportunity in IH is that a lot of patients are incapable of waking up to take that second dose. And we believe that the opportunity for LUMRYZ is quite substantial from both those patients who are taking two doses and those patients who may be taking a single dose to potentially have a higher therapeutic option in LUMRYZ as well. So we really see the opportunity within the existing oxybate patients today and as Greg mentioned before to grow beyond that as well.
Brandon Folkes: Great. Thank you very much, and congratulations on the strong execution again.
Greg Divis: Thanks, Brandon.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Greg Divis for closing comments.
Greg Divis: Thank you. And thank you everyone for your time in joining us today on our second quarter 2024 earnings call. We wish you all a great day and look forward to providing updates in the future.
Operator: This does conclude the program. You may now disconnect.
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