AVADEL PHARMACEUTICALS PLC - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number: 001-37977

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AVADEL PHARMACEUTICALS PLC

(Exact name of registrant as specified in its charter)

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Ireland						98-1341933
(State or Other Jurisdiction of Incorporation)						(I.R.S. Employer Identification No.)

10 Earlsfort Terrace

Dublin 2 D02 T380

Ireland

(Address of Principal Executive Office and Zip Code)

+353-1-901-5201

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares*	AVDL	The Nasdaq Global Market
Ordinary Shares, nominal value $0.01 per share**	N/A

*American Depositary Shares may be evidenced by American Depositary Receipts. Each American Depositary Share represents one (1) Ordinary Share.

** Not for trading, but only in connection with the listing of American Depositary Shares on The Nasdaq Global Market.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	☐
Non-accelerated filer	þ	Smaller reporting company	þ
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

At May 2, 2023, 76,768,391 ordinary shares, nominal value $0.01 each, of the Company were outstanding.

TABLE OF CONTENTS


		Page #
Cautionary Note Regarding Forward Looking Statements		3

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32

NOTE REGARDING TRADEMARKS

We own various trademark registrations and applications, and unregistered trademarks, including AVADELTM, LUMRYZTM, MICROPUMPTM, LIQUITIMETM, and MEDUSATM. All other trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective holders. Solely for convenience, the trademarks and trade names in this Quarterly Report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

From time to time, we may use our website, LinkedIn or our Twitter account (@AvadelPharma) to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at www.avadel.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, our LinkedIn posts or our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.

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Cautionary Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but are not always, made through the use of words or phrases such as “may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “continue,” and similar expressions, or the negative of these terms, or similar expressions. Accordingly, these statements involve estimates, assumptions, risks and uncertainties which could cause actual results to differ materially from those expressed in them.

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•The ability of LUMRYZ to be successfully commercialized and gain market acceptance;

•Our ability to successfully launch and commercialize LUMRYZ (sodium oxybate) in the United States (“U.S.”) for the treatment of cataplexy or excessive daytime sleepiness (“EDS”) in adults with narcolepsy;

•Our plans with respect to our commercial infrastructure and marketing, market access and commercial activities;

•Our ability to maintain and receive additional regulatory approvals for LUMRYZ in any other jurisdictions outside the U.S., and any related restrictions, limitations, and/or warnings in the label of LUMRYZ;

•Our expectations regarding the rate and degree of market acceptance for LUMRYZ;

•Our ability to enter into strategic partnerships for the commercialization, manufacturing and distribution of LUMRYZ in the U.S.;

•Our reliance on a single lead product, LUMRYZ;

•Our dependence on a limited number of suppliers for the manufacturing of LUMRYZ and certain raw materials used in LUMRYZ and any failure of such suppliers to deliver sufficient quantities of these raw materials, which could have a material adverse effect on our business, including commercialization of LUMRYZ in the U.S.;

•Our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other indebtedness, issuance of equity, royalty-based financings, or through strategic financing or commercialization partnerships;

•Our expectations regarding the pricing and reimbursement of, and the extent to which patient assistance programs are utilized for, LUMRYZ;

•Our expectations about the potential market size and market participation for LUMRYZ;

•Our expectations regarding litigation related to LUMRYZ;

•Our expectations regarding the timing and results of our cost structure optimization efforts, including the estimated charges and costs expected to be incurred and projected cost savings in connection with such cost structure optimization efforts;

•Our expectations regarding our cash runway lasting through the anticipated commercial launch of LUMRYZ in the U.S.;

•Our ability to continue to service our Exchangeable Senior Notes due April 2027 (the “April 2027 Notes”) and our Exchangeable Senior Notes due October 2023 (the “October 2023 Notes”, together with the April 2027 Notes, the “Notes”), including making the ongoing interest payments on the Notes, settling exchanges of the Notes in cash or completing any required repurchases of the Notes;

•The potential impacts of COVID-19, inflation and rising interest rates on our business and future operating results;

•Our ability to hire and retain key members of our leadership team and other personnel; and

•Competition existing today or that may arise in the future.

These forward-looking statements are neither promises nor guarantees of future performance due to a variety of risks and uncertainties and other factors more fully discussed in the “Risk Factors” section in Part I, Item 1A of the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2023 and the risk factors and cautionary statements described in our subsequent filings with the SEC. Given these uncertainties, readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to revise any forward-looking statements to reflect events or developments occurring after the date of this Quarterly Report, even if new information becomes available in the future.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
		2023		2022


Operating expenses:

Research and development expenses		$	3,830	$	6,991
Selling, general and administrative expenses		24,468		21,635
Total operating expense		28,298		28,626
Operating loss		(28,298)		(28,626)
Investment and other income (expense), net		193		(104)
Interest expense		(3,259)		(2,017)

Loss before income taxes		(31,364)		(30,747)
Income tax benefit		(580)		(4,323)
Net loss		$	(30,784)	$	(26,424)

Net loss per share - basic		$	(0.48)	$	(0.45)
Net loss per share - diluted		(0.48)		(0.45)

Weighted average number of shares outstanding - basic		63,886		58,824
Weighted average number of shares outstanding - diluted		63,886		58,824

See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
		2023		2022

Net loss		$	(30,784)	$	(26,424)
Other comprehensive loss, net of tax:
Foreign currency translation income (loss)		175		(185)
Net other comprehensive income (loss), net of income tax benefit of $0 and $330, respectively		140		(917)
Total other comprehensive income (loss), net of tax		315		(1,102)
Total comprehensive loss		$	(30,469)	$	(27,526)

See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	83,391	$	73,981
Marketable securities	17,532		22,518


Research and development tax credit receivable	2,283		2,248
Prepaid expenses and other current assets	6,264		2,096
Total current assets	109,470		100,843
Property and equipment, net	782		839
Operating lease right-of-use assets	1,475		1,713
Goodwill	16,836		16,836

Research and development tax credit receivable	1,245		1,232
Other non-current assets	10,931		11,322
Total assets	$	140,739	$	132,785

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Current portion of long-term debt	$	20,515	$	37,668
Current portion of operating lease liability	871		960
Accounts payable	10,023		7,890
Accrued expenses	7,683		7,334

Proceeds received in advance of Series B Preferred Shares issuance	40,000		—
Other current liabilities	269		1,941
Total current liabilities	79,361		55,793
Long-term debt	93,139		91,614

Long-term operating lease liability	638		780
Other non-current liabilities	5,767		5,743
Total liabilities	178,905		153,930

Shareholders’ (deficit) equity:
Preferred shares, nominal value of $0.01 per share; 50,000 shares authorized; 488 issued and outstanding at March 31, 2023 and 488 issued and outstanding at December 31, 2022	5		5
Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 64,478 issued and outstanding at March 31, 2023 and 62,878 issued and outstanding at December 31, 2022	644		628
Additional paid-in capital	603,215		589,783
Accumulated deficit	(616,004)		(585,220)
Accumulated other comprehensive loss	(26,026)		(26,341)
Total shareholders’ (deficit) equity	(38,166)		(21,145)
Total liabilities and shareholders’ (deficit) equity	$	140,739	$	132,785

See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)

Three Months Ended March 31, 2023


	Ordinary shares			Preferred shares			Additional		Accumulated		Accumulated other comprehensive		Total shareholders’
	Shares	Amount		Shares	Amount		paid-in capital		deficit		loss		(deficit) equity
Balance, December 31, 2022	62,878	$	628	488	$	5	$	589,783	$	(585,220)	$	(26,341)	$	(21,145)
Net loss	—	—		—	—		—		(30,784)		—		(30,784)
Other comprehensive income	—	—		—	—		—		—		315		315
Issuance of common stock under at-the-market offering program, net of issuance costs	1,564	16		—	—		11,897		—		—		11,913
Amortization of deferred issuance costs	—	—		—	—		(16)		—		—		(16)

Vesting of restricted shares	22	—		—	—		—		—		—		—
Employee share purchase plan share issuance	14	—		—	—		29		—		—		29
Share-based compensation expense	—	—		—	—		1,522		—		—		1,522
Balance, March 31, 2023	64,478	$	644	488	$	5	$	603,215	$	(616,004)	$	(26,026)	$	(38,166)

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AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)

Three Months Ended March 31, 2022


	Ordinary shares			Preferred shares			Additional paid-in		Accumulated		Accumulated other comprehensive		Total shareholders’
	Shares	Amount		Shares	Amount		capital		deficit		loss		(deficit) equity
Balance, December 31, 2021	58,620	$	586	488	$	5	$	549,349	$	(447,756)	$	(23,940)	$	78,244
Net loss	—	—		—	—		—		(26,424)		—		(26,424)
Other comprehensive loss	—	—		—	—		—		—		(1,102)		(1,102)
Exercise of stock options	275	3		—	—		1,903		—		—		1,906
Vesting of restricted shares	119	1		—	—		(1)		—		—		—
Employee share purchase plan share issuance	18	—		—	—		103		—		—		103
Share-based compensation expense	—	—		—	—		2,505		—		—		2,505
Balance, March 31, 2022	59,032	$	590	488	$	5	$	553,859	$	(474,180)	$	(25,042)	$	55,232

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AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022

Cash flows from operating activities:
Net loss	$	(30,784)	$	(26,424)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	588		259
Amortization of debt discount and debt issuance costs	1,873		312
Changes in deferred taxes	—		(4,323)
Share-based compensation expense	1,522		2,505
Other adjustments	(1)		669
Net changes in assets and liabilities


Prepaid expenses and other current assets	(4,131)		(2,058)
Research and development tax credit receivable	—		(19)
Accounts payable & other current liabilities	468		(5,613)
Accrued expenses	348		2,314
Other assets and liabilities	(116)		(1,667)
Net cash used in operating activities	(30,233)		(34,045)

Cash flows from investing activities:


Proceeds from sales of marketable securities	15,295		44,341
Purchases of marketable securities	(10,229)		(2,090)
Net cash provided by investing activities	5,066		42,251

Cash flows from financing activities:
Proceeds received in advance of Series B Preferred Shares Issuance	40,000		—
Payments for February 2023 Notes	(17,500)		—
Proceeds from issuance of shares off the at-the-market offering program	11,913		—
Proceeds from stock option exercises and employee share purchase plan	29		2,009
Net cash provided by financing activities	34,442		2,009

Effect of foreign currency exchange rate changes on cash and cash equivalents	135		(50)

Net change in cash and cash equivalents	9,410		10,165
Cash and cash equivalents at January 1,	73,981		50,708
Cash and cash equivalents at March 31,	$	83,391	$	60,873

Supplemental disclosures of cash flow information:
Interest paid	$	3,050	$	5,531
Income taxes paid	$	—	$	—

See accompanying notes to unaudited condensed consolidated financial statements

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AVADEL PHARMACEUTICALS PLC

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1: Summary of Significant Accounting Policies

Nature of Operations. Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is a biopharmaceutical company. The Company is registered as an Irish public limited company. The Company’s headquarters are in Dublin, Ireland with operations in Dublin, Ireland and St. Louis, Missouri, United States (“U.S.”).

The Company’s lead product, LUMRYZ, formally known as FT218, is an extended-release formulation of sodium oxybate indicated to be taken once at bedtime for the treatment of cataplexy or excessive daytime sleepiness (“EDS”) in adults with narcolepsy. On May 1, 2023, LUMRYZ was approved by the U.S. Food and Drug Administration (“FDA”). In approving LUMRYZ, the FDA approved a risk evaluation and mitigation strategy (“REMS”) for LUMRYZ to help ensure that the benefits of the drug in the treatment of cataplexy and EDS in narcolepsy outweigh the risks of serious adverse outcomes resulting from inappropriate prescribing, misuse, abuse, and diversion of the drug. Under this REMS, healthcare providers must be specially certified, pharmacies, practitioners, or health care settings that dispense the drug must be specially certified and the drug must be dispensed to patients with documentation of safe use conditions. The FDA also granted Orphan Drug Exclusivity (“ODE”) to LUMRYZ for a period of seven years until May 1, 2030.

Outside of LUMRYZ, the Company continues to evaluate opportunities to expand its product portfolio. As of the date of this Quarterly Report, the Company does not have any other commercialized products in its portfolio.

Liquidity and Going Concern. The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has a recent history of generating losses and negative cash flows from operations, an accumulated shareholders’ deficit as of the date of these unaudited condensed consolidated financial statements and approximately $83,391 of cash and cash equivalents and $17,532 of marketable securities available for use to fund its operations, debt service and capital requirements. The Company’s ability to generate revenue is expected to start following the commercial launch of LUMRYZ in the U.S., which is dependent, in part, on the Company’s ability to successfully complete its commercialization efforts and on market acceptance of LUMRYZ in the U.S.

On March 29, 2023, the Company and Avadel CNS Pharmaceuticals, LLC, an indirect wholly-owned subsidiary of the Company (“Avadel CNS”) entered into a royalty purchase agreement with RTW Investments, L.P. that could provide the Company up to $75,000 of royalty financing in two tranches. The first tranche of $30,000 is available subject to the Company’s first shipment of LUMRYZ. The second tranche is available to use, at the Company’s election, upon achieving quarterly net revenue of $25,000. The second tranche will expire on August 31, 2024, if the quarterly net revenue target is not reached and if it is not used by the Company by that time.

At March 31, 2023, the Company had outstanding $117,375 aggregate principal amount of its 4.50% exchangeable senior notes due October 2023 (the “October 2023 Notes”). Over the course of April 3 and April 4, 2023, Avadel Finance Cayman Limited, a Cayman Islands exempted company and an indirect wholly-owned subsidiary of the Company (the “Issuer”), completed an exchange of $96,188 of its $117,375 October 2023 Notes for $106,268 of a new series 6.0% exchangeable notes due April 2027 (the “April 2027 Notes”) (the “2023 Exchange Transaction”). The remaining $21,187 aggregate principal amount of the October 2023 Notes will maintain a maturity date of October 2, 2023.

On April 3, 2023, the Company completed the sale of ordinary shares, nominal value $0.01 per share (“Ordinary Shares”) in the form of American Depositary Shares (“ADSs”) and Series B Non-Voting Convertible Preferred Shares (“Series B Preferred Shares”) in an underwritten public offering. The Company received net proceeds from the equity financing of $135,125, of which $40,000 was received on March 31, 2023 and $95,125 was received on April 3, 2023. The $40,000 of net proceeds received prior to the completed public offering was included in the unaudited condensed consolidated balance sheet as proceeds received in advance of Series B Preferred Shares issuance at March 31, 2023.

As a result of the 2023 Exchange Transaction and the public offering, the Company has concluded that cash on hand provides sufficient capital to meet the Company’s operating, debt service and capital requirements for the next twelve months following the date of this Quarterly Report.

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At-the-Market Offering Program

On February 5, 2020, the Company entered into an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) with respect to an at-the-market offering program (“ATM Program”) under which the Company may offer and sell its ADSs (such ADSs sold under the ATM Program, “ATM ADSs”) through Jefferies as its sales agent. The Company agreed to pay Jefferies a commission up to 3.0% of the aggregate gross sales proceeds of such ATM ADSs. The initial aggregate offering price of the ATM Program was up to $50,000 of ADSs pursuant to its prospectus, dated February 14, 2020, included with the Company’s Registration Statement on Form S-3 (File No. 333-236258) (the “2020 Prospectus”). In August 2022, the Company filed an additional prospectus, dated September 12, 2022, included with the Company’s new Registration Statement on Form S-3 (File No. 333-267198) (the “2022 Prospectus”), in order to allocate up to $100,000 in additional ADSs to the ATM Program. The 2020 Shelf Registration expired on February 14, 2023.

Pursuant to the Sales Agreement, the Company had issued and sold 1,564 ADSs during the quarter ended March 31, 2023, resulting in net proceeds to the Company of approximately $11,913. The Company may offer and sell up to an additional $96,064 of ADSs under the ATM Program that remain available for sale pursuant to the 2022 Prospectus.

Basis of Presentation. The unaudited condensed consolidated balance sheet as of March 31, 2023, which is derived from the prior year 2022 audited consolidated financial statements, and the interim unaudited condensed consolidated financial statements presented herein, have been prepared in accordance with U.S. GAAP, the requirements of Form 10-Q and Article 10 of Regulation S-X and, consequently, do not include all information or footnotes required by U.S. GAAP for complete financial statements or all the disclosures normally made in an Annual Report on Form 10-K. Accordingly, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2022 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 29, 2023.

The unaudited condensed consolidated financial statements include the accounts of the Company and subsidiaries and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. All intercompany accounts and transactions have been eliminated. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.

NOTE 2: Fair Value Measurement

The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, the Company uses fair value extensively when accounting for and reporting certain financial instruments, when measuring certain contingent consideration liabilities and in the initial recognition of net assets acquired in a business combination. Fair value is estimated by applying the hierarchy described below, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.

ASC 820, Fair Value Measurements and Disclosures, defines fair value as a market-based measurement that should be determined based on the assumptions that marketplace participants would use in pricing an asset or liability. When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may generally use one or each of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

As a basis for considering the assumptions used in these techniques, the standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

•Level 1 - Quoted prices for identical assets or liabilities in active markets.

•Level 2 - Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

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•Level 3 - Unobservable inputs that reflect estimates and assumptions.

The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying unaudited condensed consolidated balance sheets:


	As of March 31, 2023						As of December 31, 2022
Fair Value Measurements:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Marketable securities (see Note 3)
Mutual and money market funds	$	17,532	$	—	$	—	$	22,518	$	—	$	—



Total assets	$	17,532	$	—	$	—	$	22,518	$	—	$	—

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. During the periods ended March 31, 2023 and December 31, 2022, respectively, there were no transfers in and out of Level 1, 2, or 3. During the three months ended March 31, 2023 and 2022, respectively, the Company did not recognize any allowances for credit losses.

Some of the Company’s financial instruments, such as cash and cash equivalents and accounts payable, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

Debt

The Company estimates the fair value of its $117,375 aggregate principal amount of its October 2023 Notes based on interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities or recent trading prices obtained from brokers (a Level 2 input). The estimated fair value of the October 2023 Notes at March 31, 2023 is $124,418. See Note 4: Long-Term Debt for additional information regarding the Company’s debt obligations.

NOTE 3: Marketable Securities

The Company has investments in available-for-sale debt securities which are recorded at fair market value. The change in the fair value of available-for-sale debt investments is recorded as accumulated other comprehensive loss in shareholders’ (deficit) equity, net of income tax effects. As of March 31, 2023, the Company considered any decreases in fair value on its marketable securities to be driven by factors other than credit risk, including market risk.

The following tables show the Company’s available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of March 31, 2023 and December 31, 2022, respectively:


	March 31, 2023
Marketable Securities:	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value

Mutual and money market funds	$	19,281	$	—	$	(1,749)	$	17,532



Total	$	19,281	$	—	$	(1,749)	$	17,532


	December 31, 2022
Marketable Securities:	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value

Mutual and money market funds	$	24,407	$	—	$	(1,889)	$	22,518



Total	$	24,407	$	—	$	(1,889)	$	22,518

The Company determines realized gains or losses on the sale of marketable securities on a specific identification method. The Company reflects these gains and losses as a component of investment and other income (expense), net in the accompanying unaudited condensed consolidated statements of loss.

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The Company recognized gross realized gains of $1 and $304 for the three months ended March 31, 2023 and 2022, respectively. These realized gains were offset by realized losses of $61 and $790 for the three months ended March 31, 2023 and 2022, respectively.

The Company has classified its investment in available-for-sale marketable securities as current assets in the consolidated balance sheets as the securities need to be available for use, if required, to fund current operations. There are no restrictions on the sale of any securities in the Company’s investment portfolio.

Total gross unrealized losses and fair value of the Company’s marketable securities at March 31, 2023 are driven by factors other than credit risk. The Company does not intend to sell the investments and it is not more likely than not that it will be required to sell the investments before recovery of their amortized cost bases.

NOTE 4: Long-Term Debt

Long-term debt is summarized as follows:


	March 31, 2023		December 31, 2022
Principal amount of 4.50% exchangeable senior notes due October 2023	$	117,375	$	117,375
Principal amount of 4.50% exchangeable senior notes due February 2023	—		17,500
Less: unamortized debt discount and issuance costs, net	(3,721)		(5,593)
Net carrying amount of debt	113,654		129,282


Less: current maturities, net of $672 and $1,019 unamortized debt discount and issuance costs, respectively	20,515		37,668
Long-term debt	$	93,139	$	91,614

For the three months ended March 31, 2023 and 2022, the total interest expense was $3,259 and $2,017, respectively, with coupon interest expense of $1,386 and $1,617 for each period, respectively, and the amortization of debt issuance costs and debt discount of $1,873 and $312 for each period, respectively.

February 2023 Notes

On February 16, 2018, the Issuer issued $125,000 aggregate principal amount of its February 2023 Notes in a private placement (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In connection with the Offering, the Issuer granted the initial purchasers of the February 2023 Notes a 30-day option to purchase up to an additional $18,750 aggregate principal amount of the February 2023 Notes, which was fully exercised on February 16, 2018. Net proceeds received by the Company, after issuance costs and discounts, were approximately $137,560. The February 2023 Notes were the Company’s senior unsecured obligations and ranked equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness and effectively junior to any of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness.

October 2023 Notes

On April 5, 2022, the Issuer completed the exchange of $117,375 of its February 2023 Notes for a new series of its October 2023 Notes (the “2022 Exchange Transaction”). The remaining $26,375 aggregate principal amount of the February 2023 Notes were not exchanged and maintained a maturity date of February 1, 2023. On November 4, 2022, the Company repurchased $8,875 of its February 2023 Notes and on the maturity date of February 1, 2023, the Company repaid, with cash on hand, the remaining $17,500 aggregate principal amount of its February 2023 Notes.

The Company accounted for the October 2023 Notes as a modification to the February 2023 Notes. The Company paid $4,804 in fees to note holders of the October 2023 Notes that are amortized over the remaining term of the October 2023 Notes. The Company paid approximately $5,450 in fees to third parties that were expensed as part of the completed 2022 Exchange Transaction. Additionally, the fair value of the unseparated, embedded conversion feature increased by $5,508, which reduced the carrying amount of the convertible debt instrument as an unamortized debt discount, with a corresponding increase in additional paid-in capital. The $5,508 is amortized over the remaining term of the October 2023 Notes as a component of interest expense.

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The October 2023 Notes are exchangeable at the option of the holders at an initial exchange rate of 92.6956 ADSs per $1 principal amount of 2023 Notes, which is equivalent to an initial exchange price of approximately $10.79 per ADS. Such initial exchange price represents a premium of approximately 20% to the $8.99 per ADS closing price on The Nasdaq Global Market on February 13, 2018. Upon the exchange of any October 2023 Notes, the Issuer will pay or cause to be delivered, as the case may be, cash, ADSs or a combination of cash and ADSs, at the Issuer’s election.

The Company, at its option, may redeem for cash all of the October 2023 Notes if the last reported sale price (as defined by the indenture) of the ADSs has been at least 130% of the Exchange Price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice to redeem the October 2023 Notes.

April 2027 Notes

Over the course of April 3 and April 4, 2023, the Issuer completed an exchange of $96,188 of its $117,375 October 2023 Notes for $106,268 of new April 2027 Notes. The remaining $21,187 aggregate principal amount of the October 2023 Notes will maintain a maturity date of October 2, 2023. Due to the 2023 Exchange Transaction, the $96,188 principal amount of the October 2023 Notes is classified as long-term debt, net of unamortized debt discount and issuance costs, as of March 31, 2023.

Holders of the April 2027 Notes may convert their April 2027 Notes, at their option, only under the following circumstances prior to the close of business on the business day immediately preceding January 15, 2027, under the circumstances and during the periods set forth below and regardless of the conditions described below, on or after January 15, 2027 and prior to the close of business on the business day immediately preceding the maturity date:

•Prior to the close of business on the business day immediately preceding January 15, 2027, a holder of the April 2027 Notes may surrender all or any portion of its April 2027 Notes at an initial exchange rate (the “Exchange Rate”) of 102.3018 ADSs of the Company (each of which represents as of the date hereof one ordinary share of the Company, nominal value $0.01 per share (the “Ordinary Shares”)) per $1,000 principal amount of the April 2027 Notes (so long as the principal amount of such holder’s April 2027 Notes not exchanged is at least $200,000), which is equal to an initial exchange price of approximately $9.78 per ADS. Upon exchange, the April 2027 Notes may be settled in cash, ADSs, or a combination of cash and ADSs, at the Issuer’s election. The Exchange Rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Following a “Make-Whole Fundamental Change” (as defined in the Indenture) or upon the Issuer’s issuance of a notice of redemption, the Issuer will increase the Exchange Rate for a holder who elects to exchange its April 2027 Notes in connection with such “make-whole fundamental change” or during the related redemption period in certain circumstances. In addition, the Issuer will increase the Exchange Rate for a holder who elects to exchange its April 2027 Notes prior to January 15, 2027 or whose April 2027 Notes are subject to a Mandatory Exchange (as defined below) in certain circumstances.

•The Issuer may cause the then outstanding principal amount of the April 2027 Notes to be exchanged, in whole but not in part, at its option (the “Mandatory Exchange”), prior to the close of business on January 15, 2027, if the last reported sale price of the ADSs has been at least 130% of the exchange price then in effect on (x) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date that the Issuer provides notice of the Mandatory Exchange in accordance with the Indenture (the “Mandatory Exchange Notice Date”); and (y) the trading day immediately before such Mandatory Exchange Notice Date, at the then prevailing Exchange Rate, subject to adjustment described above. The Issuer may settle Mandatory Exchanges in cash, ADSs, or a combination of cash and ADSs, at the Issuer’s election. Accrued and unpaid interest, if any, on April 2027 Notes subject to Mandatory Exchange to, but excluding, the exchange date in respect of the Mandatory Exchange shall be paid by the Issuer to holders of the April 2027 Notes in cash concurrently with the delivery of the other exchange consideration

The Issuer may redeem for cash all of the April 2027 Notes in connection with certain tax-related events at a redemption price equal to 100% of the principal amount of the April 2027 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date, but may not otherwise redeem the April 2027 Notes. No sinking fund is provided for the April 2027 Notes, which means that the Company is not required to redeem or retire the April 2027 Notes periodically.

The Company considered the guidance in ASC 815-15, Embedded Derivatives, to determine if this instrument contains an embedded feature that should be separately accounted for as a derivative. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. The Company determined that this exception applies due, in part, to the Company’s ability to settle the October 2023 Notes in cash, ADSs or a combination of cash and ADSs, at the Company’s option. The Company has therefore applied the guidance provided by ASC 470-20, Debt with Conversion and Other Options, as amended by ASU 2020-06.

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Royalty Financing Agreement

On March 29, 2023, the Company and Avadel CNS entered into a royalty purchase agreement with RTW Investments, L.P. that could provide the Company up to $75,000 of royalty financing in two tranches. The first tranche of $30,000 is available subject to the Company’s first shipment of LUMRYZ. The second tranche is available to use, at the Company’s election, upon achieving quarterly net revenue of $25,000. The second tranche will expire on August 31, 2024, if the quarterly net revenue target is not reached and if it is not used by the Company by that time.

NOTE 5: Income Taxes

The income tax benefit was $580 for the three months ended March 31, 2023 resulting in an effective tax rate of 1.8%. The income tax benefit was $4,323 for the three months ended March 31, 2022 resulting in an effective tax rate of 14.1%. The change in the effective tax rate for the three months ended March 31, 2023, when compared to the same period in 2022, is primarily driven by the valuation allowances recorded against net deferred tax assets established in the second quarter of 2022.

The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on its deferred tax assets. Given the weight of objectively verifiable historical losses from operations, the Company recorded a full valuation allowance on its deferred tax assets. The Company will be able to reverse the valuation allowance when it has shown its ability to generate taxable income on a consistent basis in future periods. The valuation allowance does not have an impact on the Company's ability to utilize any net operating losses or other tax attributes to offset cash taxes payable as these items are still eligible to be used.

NOTE 6: Other Assets and Liabilities

Various other assets and liabilities are summarized as follows:


Prepaid Expenses and Other Current Assets:	March 31, 2023		December 31, 2022

Prepaid and other expenses	$	5,384	$	1,523
Other	542		228
Guarantee from Armistice	269		276
Income tax receivable	69		69
Total	$	6,264	$	2,096


Other Non-Current Assets:	March 31, 2023		December 31, 2022

Right of use assets at contract manufacturing organizations	$	10,392	$	10,686
Guarantee from Armistice	433		495
Other	106		141

Total	$	10,931	$	11,322


Accrued Expenses	March 31, 2023		December 31, 2022

Accrued professional fees	$	5,709	$	4,040
Accrued compensation	1,581		1,613
Accrued restructuring	246		473
Accrued outsourced contract manufacturing costs	147		1,208

Total	$	7,683	$	7,334


Other Current Liabilities:	March 31, 2023		December 31, 2022

Guarantee to Deerfield	$	269	$	277
Other	—		15
Accrued interest	—		1,649
Total	$	269	$	1,941

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Other Non-Current Liabilities:	March 31, 2023		December 31, 2022

Tax liabilities	$	5,333	$	5,246
Guarantee to Deerfield	434		497
Total	$	5,767	$	5,743

NOTE 7: Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during each period. Diluted net loss per share is calculated by dividing net loss - diluted by the diluted number of shares outstanding during each period. Except where the result would be anti-dilutive to net loss, diluted net loss per share would be calculated assuming the impact of the conversion of the 2023 Notes, the conversion of the Company’s preferred shares, the exercise of outstanding equity compensation awards, and ordinary shares expected to be issued under the Company’s Employee Share Purchase Plan (“ESPP”).

The Company has a choice to settle the conversion obligation under the 2023 Notes in cash, shares or any combination of the two. The Company utilizes the if-converted method to reflect the impact of the conversion of the 2023 Notes, unless the result is anti-dilutive. This method assumes the conversion of the 2023 Notes into shares of the Company’s ordinary shares and reflects the elimination of the interest expense related to the 2023 Notes.

The dilutive effect of the stock options, restricted stock units, preferred shares and ordinary shares expected to be issued under the Company’s ESPP has been calculated using the treasury stock method.

A reconciliation of basic and diluted net loss per share, together with the related shares outstanding in thousands is as follows:


	Three Months Ended March 31,
Net Loss Per Share:		2023		2022

Net loss		$	(30,784)	$	(26,424)



Weighted average shares:
Basic shares		63,886		58,824
Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes		—		—

Diluted shares		63,886		58,824

Net loss per share - basic		$	(0.48)	$	(0.45)
Net loss per share - diluted		$	(0.48)	$	(0.45)

Potential ordinary shares of 12,463 and 17,696 were excluded from the calculation of weighted average shares for the three months ended March 31, 2023 and 2022, respectively, because either their effect was considered to be anti-dilutive or they were related to shares from performance share unit awards (“PSUs”) for which the contingent vesting condition had not been achieved. For the three months ended March 31, 2023 and 2022, the effects of dilutive securities were entirely excluded from the calculation of net loss per share as a net loss was reported in these periods.

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NOTE 8: Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022, respectively, net of tax effects:


	Three Months Ended March 31,
Accumulated Other Comprehensive Loss:		2023		2022

Foreign currency translation adjustment:
Beginning balance		$	(24,452)	$	(23,855)
Net other comprehensive income (loss)		175		(185)
Balance at March 31,		$	(24,277)	$	(24,040)

Unrealized loss on marketable debt securities, net
Beginning balance		$	(1,889)	$	(85)
Net other comprehensive income (loss), net of income tax benefit of $0 and $330, respectively		140		(917)
Balance at March 31,		$	(1,749)	$	(1,002)
Accumulated other comprehensive loss at March 31,		$	(26,026)	$	(25,042)

The effect on the Company’s unaudited condensed consolidated financial statements of amounts reclassified out of accumulated other comprehensive loss was immaterial for all periods presented.

NOTE 9: Commitments and Contingencies

Litigation

The Company is subject to potential liabilities generally incidental to its business arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, employment, compliance and other matters that arise in the ordinary course of business. The Company accrues for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. At March 31, 2023 and December 31, 2022, there were no contingent liabilities with respect to any litigation, arbitration or administrative or other proceeding that are reasonably likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, cash flows or liquidity.

First Jazz Complaint

On May 12, 2021, Jazz Pharmaceuticals, Inc. (“Jazz”) filed a formal complaint (the “First Complaint”) initiating a lawsuit in the United States District Court for the District of Delaware (the “Court”) against Avadel Pharmaceuticals plc, Avadel US Holdings, Inc., Avadel Management Corporation, Avadel Legacy Pharmaceuticals, LLC, Avadel Specialty Pharmaceuticals, LLC, and Avadel CNS Pharmaceuticals, LLC (collectively, the “Avadel Parties”). In the First Complaint, Jazz alleges the sodium oxybate product (“Proposed Product”) described in the NDA owned by Avadel CNS Pharmaceuticals, LLC (“Avadel CNS”) will infringe at least one claim of U.S. Patent No. 8731963, 10758488, 10813885, 10959956 and/or 10966931 (collectively, the “patents-in-suit”). The First Complaint further includes typical relief requests such as preliminary and permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses.

On June 3, 2021, the Avadel Parties timely filed their Answer and Counterclaims (the “Avadel Answer”) with the Court in response to the First Complaint. The Avadel Answer generally denies the allegations set forth in the First Complaint, includes numerous affirmative defenses (including, but not limited to, non-infringement and invalidity of the patents-in-suit), and asserts a number of counterclaims seeking i) a declaratory judgment of non-infringement of each patent-in-suit, and ii) a declaratory judgment of invalidity of each patent-in-suit.

On June 18, 2021, Jazz filed its Answer (“Jazz Answer”) with the Court in response to the Avadel Answer. The Jazz Answer generally denies the allegations set forth in the Avadel Answer and sets forth a single affirmative defense asserting that Avadel has failed to state a claim for which relief can be granted.

On June 21, 2021, the Court issued an oral order requiring the parties to i) confer regarding proposed dates to be included in the Court’s scheduling order for the case, and ii) submit a proposed order, including a proposal for the length and timing of trial, to the Court by no later than July 21, 2021.

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On July 30, 2021, the Court issued a scheduling order establishing timing for litigation events including i) a claim construction hearing date of August 2, 2022, and ii) a trial date of October 30, 2023.

On October 18, 2021, consistent with the scheduling order, Jazz filed a status update with the Court indicating that Jazz did not intend to file a preliminary injunction with the Court at this time. Jazz further indicated that it would provide the Court with an update regarding whether preliminary injunction proceedings may be necessary after receiving further information regarding the FDA’s action on Avadel CNS’s NDA.

On January 4, 2022, the Court entered an agreed order dismissing this case with respect to Avadel Pharmaceuticals plc, Avadel US Holdings, Inc., Avadel Specialty Pharmaceuticals, LLC, Avadel Legacy Pharmaceuticals, LLC, and Avadel Management Corporation. A corresponding order was entered in the two below cases on the same day.

On February 25, 2022, Jazz filed an amended Answer to the Avadel Parties’ Counterclaims (“the Jazz First Amended Answer”). The Jazz First Amended Answer is substantially similar to the Jazz Answer except insofar as it adds an affirmative defense for judicial estoppel and unclean hands. Corresponding amended answers were filed in the two below cases on the same day.

On June 23, 2022, Avadel CNS filed a Renewed Motion for Judgment on the Pleadings, with respect to its counterclaim against Jazz seeking to have U.S. Patent No. 8731963 (the “REMS Patent”) delisted from the Orange Book and seeking to have the motion resolved concurrent with the parties’ Markman hearing on August 31, 2022. On July 7, 2022, Jazz filed a response it styled as Objections to Avadel CNS’ Motion for Judgment on the Pleadings. On July 14, 2022, Avadel CNS replied to Jazz’s response, and on July 21, 2022, Avadel CNS requested oral argument on its delisting motion simultaneous with the Markman hearing. On August 24, 2022, the Court ordered Jazz to respond substantively to Avadel CNS’ motion, which Jazz did on August 26, 2022. Avadel CNS filed its reply on August 28, 2022.

On August 23, 2022, the Markman hearing was postponed. On September 7, 2022, the case was reassigned to a new judge, and the Markman hearing was held on October 25, 2022. At the Markman hearing, Avadel CNS reiterated its request for an expedited hearing on the Renewed Motion for Judgment on the Pleadings for the delisting of the REMS Patent. On October 28, 2022, the Court granted Avadel CNS’ request and scheduled the hearing for November 15, 2022.

The Court held the Markman hearing on November 15, 2022 and issued a claim construction ruling on November 18, 2022. Also on November 18, 2022 the Court granted Avadel’s Renewed Motion for Judgment on the Pleadings and ordered Jazz to request delisting of the REMS Patent from the Orange Book. On November 22, 2022, Jazz appealed that decision and on December 14, 2022, the Federal Circuit issued a stay of the delisting order until further notice. Oral argument was held February 14, 2023. On February 24, 2023, the United States Court of Appeals for the Federal Court affirmed the previous ruling from the Court, ordering the delisting of the REMS Patent from the Orange Book, which has since occurred. On March 7, 2023, in response to a joint stipulation filed by the parties, the Court issued an order dismissing Jazz’s infringement claims against the Avadel Parties relating to the REMS Patent as well as Avadel Parties’ noninfringement and invalidity counterclaims relating to the REMS Patent.

On March 15, 2023, the parties submitted a Stipulation and Proposed Order Modifying the Case Schedule to accommodate additional claim construction proceedings. That stipulation remains pending before the Court. On April 26, 2023 the parties filed their Supplemental Joint Claim Construction Brief.

Second Jazz Complaint

On August 4, 2021, Jazz filed another formal complaint (the “Second Complaint”) initiating a lawsuit in the Court against the Avadel Parties. In the Second Complaint, Jazz alleges the Proposed Product described in the NDA owned by Avadel CNS will infringe at least one claim of U.S. Patent No. 11077079. The Second Complaint further includes typical relief requests such as preliminary and permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses.

On September 9, 2021, the Avadel Parties timely filed their Answer and Counterclaims (the “Second Avadel Answer”) with the Court in response to the Second Complaint. The Second Avadel Answer generally denies the allegations set forth in the Second Complaint, includes numerous affirmative defenses (including, but not limited to, non-infringement and invalidity of the patent-in-suit), and asserts a number of counterclaims seeking i) a declaratory judgment of non-infringement of the patent-in-suit, and ii) a declaratory judgment of invalidity of the patent-in-suit.

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On October 22, 2021, the Court issued an oral order stating that this case should proceed on the same schedule as the case filed on May 12, 2021.

On September 7, 2022, the case was reassigned to a new judge.

Third Jazz Complaint

On November 10, 2021, Jazz filed another formal complaint (the “Third Complaint”) initiating a lawsuit in the Court against the Avadel Parties. In the Third Complaint, Jazz alleges the Proposed Product described in the NDA owned by Avadel CNS will infringe at least one claim of U.S. Patent No. 11147782. The Third Complaint further includes typical relief requests such as preliminary and permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses. This case will proceed on the same schedule as the cases associated with the First and Second Complaints above.

On December 21, 2021, the Court entered a revised schedule for the First, Second and Third Complaints, setting a new claim construction date of August 31, 2022.

On January 7, 2022, Avadel CNS timely filed its Answer and Counterclaims (the “Third Avadel Answer”) with the Court in response to the Third Complaint. The Third Avadel Answer generally denies the allegations set forth in the Third Complaint, includes numerous affirmative defenses (including, but not limited to, non-infringement and invalidity of the patent-in-suit), and asserts a number of counterclaims seeking i) a declaratory judgment of non-infringement of the patent-in-suit, and ii) a declaratory judgment of invalidity/unenforceability of the patent-in-suit.

On September 7, 2022, the case was reassigned to a new judge.

Fourth Jazz Complaint

On July 15, 2022, Jazz filed another formal complaint (the “Fourth Complaint”) initiating a lawsuit in the Court against Avadel CNS. In the Fourth Complaint, Jazz alleges the Proposed Product described in the NDA owned by Avadel CNS will infringe at least one claim of the REMS Patent, which was asserted in the First Complaint. The FDA required Avadel CNS to file a Paragraph IV certification against the REMS Patent, which Avadel CNS did under protest, consistent with its Renewed Motion for Judgment on the Pleadings for the delisting of the REMS Patent from the Orange Book, which was later ordered to be delisted in the above First Jazz Complaint action. Avadel CNS provided the required notice of its Paragraph IV certification to Jazz, and Jazz reasserted the REMS Patent in a separate action following receipt of that notice. The Fourth Complaint further includes typical relief requests such as preliminary and permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses.

On September 7, 2022, the case was reassigned to a new judge.

On September 21, 2022, Jazz served the Fourth Complaint. On October 21, 2022, Avadel CNS timely filed its Answer and Counterclaims (the “Fourth Avadel Answer”) with the Court in response to the Fourth Complaint. The Fourth Avadel Answer generally denies the allegations set forth in the Fourth Complaint, includes numerous affirmative defenses (including, but not limited to, non-infringement and invalidity of the patent-in-suit), and asserts a number of counterclaims for i) a declaratory judgment of non-infringement of the patent-in-suit, ii) a declaratory judgment of invalidity/unenforceability of the patent-in-suit, iii) delisting of the patent-in-suit from the Orange Book; iv) monopolization under the Sherman Antitrust Act of 1890 (the “Sherman Act”); and v) attempted monopolization under the Sherman Act.

On December 9, 2022, Jazz filed a Motion to Dismiss Avadel’s Antitrust Counterclaims. Avadel filed its opposition brief on December 27, 2022, and Jazz filed its reply brief on January 6, 2022. On January 11, 2023, Avadel filed a request for oral argument on the motion, which is still pending.

On March 6, 2023, the parties filed a stipulation of dismissal, dismissing Jazz’s claims with respect to the REMS Patent and Avadel’s related non-infringement and invalidity counterclaims. The Court entered that stipulation on March 7, 2023.

Avadel Complaint

On April 14, 2022, Avadel CNS and Avadel Pharmaceuticals plc (collectively the “Avadel Plaintiffs”) filed a formal complaint (the “Avadel Complaint”) initiating a lawsuit in the Court against Jazz and Jazz Pharmaceuticals Ireland Ltd. (collectively, the “Jazz Parties”). In the Avadel Complaint, the Avadel Plaintiffs allege that the Jazz Parties breached certain confidential disclosure agreements and misappropriated certain of the Avadel Plaintiffs’ trade secrets. The Avadel Complaint further

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includes typical relief requests such as injunctive relief, monetary damages and attorneys’ fees, costs and expenses, as well as seeking correction of inventorship of certain Jazz patents, for which the Jazz Parties claim ownership, to include former Avadel Plaintiffs’ scientists.

On June 2, 2022, Jazz answered the Avadel Complaint. The Answer generally denies the allegations set forth in the Avadel Complaint and includes various affirmative defenses.

On July 8, 2022, Jazz filed a Motion for Judgment on the Pleadings seeking to have all Counts dismissed for failure to state a claim upon which relief can be granted. The Avadel Plaintiffs’ response to that Motion was filed with the Court on July 29, 2022. Jazz’s reply was filed with the Court on August 5, 2022. On February 2, 2023, the Court held a hearing on Jazz’s Motion for Judgment on the Pleadings.

On September 7, 2022, the case was reassigned to a new judge.

On February 2, 2023, the Court held a hearing on Jazz’s Motion for Judgment on the Pleadings.

Administrative Procedure Act Complaint

On July 21, 2022, Avadel CNS filed an Administrative Procedure Act suit against the FDA, the U.S. Department of Health and Human Services, the Secretary of Health and Human Services and the Commissioner of Food and Drugs (the “Federal Defendants”) in the United States District Court for the District of Columbia (the “DC Court”) related to the NDA for LUMRYZ (sodium oxybate). This suit alleges that the FDA’s decision requiring Avadel CNS to file a patent certification concerning the REMS Patent was arbitrary, capricious and contrary to law and asks the DC Court to vacate the FDA’s decision and order the FDA to take final action on the LUMRYZ NDA. On July 28, 2022, the DC Court granted Jazz’s unopposed motion to intervene in the case to defend the FDA’s decision. The DC Court also entered an expedited briefing schedule governing Avadel CNS’s motion for preliminary injunction or, in the alternative, summary judgment, and the Federal Defendant’s and Jazz’s oppositions to that motion and anticipated cross-motions for summary judgment. On August 19, 2022, the Federal Defendants and Jazz filed their combined oppositions to Avadel CNS’s motion for preliminary injunction or, in the alternative, summary judgment, and cross-motions for summary judgment. On September 2, 2022, Avadel CNS filed its combined reply in support of its motion for preliminary injunction or, in the alternative, summary judgment, and opposition to the cross-motions for summary judgment. On September 14, 2022, the Federal Defendants and Jazz filed their replies in support of their cross-motions for summary judgment. On October 7, 2022, the DC Court heard oral arguments of Avadel CNS’s motion and the Federal Defendants and Jazz’s cross-motions. On November 3, 2022, the DC Court issued its opinion determining that Avadel CNS is not entitled to seek relief under the APA because of the availability of adequate alternative relief in the Court, specifically, in the form of its counterclaim to have the REMS Patent delisted from the FDA’s Orange Book described above in the section regarding the First Jazz Complaint.

Material Commitments

Other than commitments disclosed in Note 11: Contingent Liabilities and Commitments to the Company's consolidated financial statements included in the 2022 Annual Report on Form 10-K, there were no other material commitments outside of the normal course of business.

Guarantees

The fair values of the Company’s guarantee to Deerfield Capital L.P. (“Deerfield”) and the guarantee received by the Company from Armistice Capital Master Fund, Ltd. largely offset and when combined are not material.

Deerfield Guarantee

In connection with the Company’s February 2018 divestiture of its pediatric assets, including four pediatric commercial stage assets – Karbinal™ ER, Cefaclor, Flexichamber™ and AcipHex® Sprinkle™ (“FSC products”), to Cerecor, Inc. (“Cerecor”), the Company guaranteed to Deerfield a quarterly royalty payment of 15% on net sales of the FSC products through February 6, 2026 (“FSC Product Royalties”), in an aggregate amount of up to approximately $10,300. Given the Company’s explicit guarantee to Deerfield, the Company recorded the guarantee in accordance with ASC 460. The balance of this guarantee liability was $703 at March 31, 2023. This liability is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield.

Armistice Guarantee

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In connection with the Company’s February 2018 divestiture of the pediatric assets, Armistice Capital Master Fund, Ltd., the majority shareholder of Cerecor, guaranteed to the Company the FSC Product Royalties. The Company recorded the guarantee in accordance with ASC 460. The balance of this guarantee asset was $702 at March 31, 2023. This asset is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield noted above.

NOTE 10: Restructuring Costs

2022 Corporate Restructuring Plan

In June 2022, the Company announced a plan to optimize its cost structure to reduce total quarterly cash operating expenses, excluding inventory purchases.

The Company’s cost structure optimization efforts included a nearly 50% reduction in its workforce that was completed at the end of August 2022 (the “2022 Corporate Restructuring Plan”).

The following table sets forth activities for the Company’s 2022 Corporate Restructuring Plan obligations as of March 31, 2023:


2022 Corporate Restructuring Plan Obligation:	2023

Balance of 2022 Corporate Restructuring Plan accrual at January 1,	$	435
Charges for employee severance, benefits and other costs	—
Payments	(228)
Other adjustments	—
Balance of 2022 Corporate Restructuring Plan accrual at March 31,	$	207

The 2022 Corporate Restructuring Plan liabilities of $207 are included in the unaudited condensed consolidated balance sheet in accrued expenses at March 31, 2023.

NOTE 11: Subsequent Events

Over the course of April 3 and April 4, 2023, the Issuer completed an exchange of $96,188 of its $117,375 October 2023 Notes. The $96,188 of notes were exchanged for $106,268 of a new series of 6.0% exchangeable notes due April 2027 (the “April 2027 Notes”). The remaining $21,187 aggregate principal amount of the October 2023 Notes will mature October 2, 2023.

On April 3 2023, the Company completed the sale of ordinary shares, nominal value $0.01 per share (“Ordinary Shares”) in the form of ADSs and Series B Preferred Shares in an underwritten public offering. The Company issued 4,706 Series B Preferred Shares and 12,205 of its ADSs and received net proceeds from the equity financing of $135,125, of which $40,000 was received on March 31, 2023 and $95,125 was received on April 3, 2023.

On May 1, 2023, LUMRYZ was approved by the FDA. At that time, the FDA granted Orphan Drug Exclusivity (“ODE”) to LUMRYZ for a period of seven years until May 1, 2030.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis

(In thousands, except per share data)

(Unaudited)

You should read the discussion and analysis of our financial condition and results of operations set forth in this Item 2 together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties, and reference is made to the “Cautionary Note Regarding Forward-Looking Statements” set forth immediately following the Table of Contents of this Quarterly Report on Form 10-Q for further information on the forward looking statements herein. In addition, you should read the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2023 and Part II, Item 1A in this Quarterly Report on Form 10-Q for a discussion of additional important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report.

Overview

General Overview

Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is a biopharmaceutical company. Our lead product, LUMRYZ, formerly known as FT218, is an extended-release formulation of sodium oxybate indicated to be taken once at bedtime for the treatment of cataplexy or excessive daytime sleepiness (“EDS”) in adults with narcolepsy.

Outside of our lead product, we continue to evaluate opportunities to expand our product portfolio. As of the date of this Quarterly Report, LUMRYZ is the only commercialized product in our portfolio.

LUMRYZ

Our lead product LUMRYZ was approved by the United States (“U.S.”) Food and Drug Administration (“FDA”) in May 2023 for the treatment of cataplexy or EDS in adults with narcolepsy. In approving LUMRYZ, the FDA approved a risk evaluation and mitigation strategy (“REMS”) for LUMRYZ to help ensure that the benefits of the drug in the treatment of cataplexy and EDS in narcolepsy outweigh the risks of serious adverse outcomes resulting from inappropriate prescribing, misuse, abuse, and diversion of the drug. Under this REMS, healthcare providers must be specially certified, pharmacies, practitioners, or health care settings that dispense the drug must be specially certified and the drug must be dispensed to patients with documentation of safe use conditions. Additionally, with its approval, the FDA also granted seven years of orphan drug exclusivity to LUMRYZ for the treatment of cataplexy or EDS in adults with narcolepsy due to a finding of clinical superiority of LUMRYZ relative to currently marketed oxybate treatments. In particular, FDA found that LUMRYZ makes a major contribution to patient care over currently marketed, twice-nightly oxybate treatments by providing a once-nightly dosing regimen that avoids nocturnal arousal to take a second dose. We are advancing our preparations for the commercial launch of LUMRYZ. For example, on March 15, 2023, we were notified by the FDA that we are permitted to conduct certain pre-launch activities including the importation of foreign manufactured product under the Pre-launch Activities Importation Request (“PLAIR”) Program.

With respect to clinical data generated for LUMRYZ, we conducted a Phase 3 clinical trial of LUMRYZ (the “REST-ON trial”), which was a randomized, double-blind, placebo-controlled study that enrolled 212 patients who received at least one dose of LUMRYZ or placebo, and was conducted in clinical sites in the U.S., Canada, Western Europe and Australia. The last patient’s last visit was completed at the end of the first quarter of 2020, and positive top line data from the REST-ON trial was announced on April 27, 2020. Patients who received 9 g of once-at-bedtime LUMRYZ, the highest dose administered in the trial, demonstrated statistically significant and clinically meaningful improvement compared to placebo across the three co-primary endpoints of the trial: maintenance of wakefulness test (“MWT”), clinical global impression-improvement (“CGI-I”), and mean weekly cataplexy attacks. The lower doses assessed, 6 g and 7.5 g, also demonstrated statistically significant and clinically meaningful improvement on all three co-primary endpoints compared to placebo. We observed the 9 g dose of once-at-bedtime LUMRYZ to be generally well-tolerated. Adverse reactions commonly associated with sodium oxybate were observed in a small number of patients (nausea 1.3%, vomiting 5.2%, decreased appetite 2.6%, dizziness 5.2%, somnolence

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3.9%, tremor 1.3% and enuresis 9%), and 3.9% of the patients who received 9 g of LUMRYZ discontinued the trial due to adverse reactions.

In January 2018, the FDA granted LUMRYZ orphan drug designation for the treatment of narcolepsy, which made LUMRYZ eligible for certain development and commercial incentives, including potential U.S. market exclusivity for up to seven years. With the approval of LUMRYZ on May 1, 2023, the FDA also granted seven years of orphan drug exclusivity to LUMRYZ for the treatment of cataplexy or EDS in adults with narcolepsy. That orphan exclusivity will continue until May 1, 2030. Additionally, thirteen LUMRYZ-related U.S. patents have been issued having expiration dates spanning from mid-2037 to early-2042, and there are additional patent applications currently in development and/or pending at the U.S. Patent and Trademark Office (“USPTO”), as well as foreign patent offices.

In July 2020, we announced that the first patient was dosed in our open-label extension (“OLE”)/switch study of LUMRYZ as a potential treatment for cataplexy or EDS in patients with narcolepsy (“RESTORE”). The RESTORE study is examining the long-term safety and maintenance of efficacy of LUMRYZ in patients with narcolepsy who participated in the REST-ON study, as well as dosing and preference data for patients switching from twice-nightly sodium oxybate to once-at-bedtime LUMRYZ, regardless of whether they participated in REST-ON. In May 2021, inclusion criteria were expanded to allow for oxybate naïve patients to enter the study.

New secondary endpoints from the REST-ON trial were presented at the American Academy of Neurology, beginning April 17, 2021. The first poster described LUMRYZ improvements in disturbed nocturnal sleep (“DNS”), defined in REST-ON as the number of shifts from stages N1, N2, N3, and rapid eye movement (“REM”) sleep to wake and from stages N2, N3, and REM sleep to stage N1. LUMRYZ also decreased the number of nocturnal arousals as measured on polysomnography. Improvements in DNS were further supported by post-hoc analyses demonstrating increased time in deep sleep (N3, also known as slow wave sleep), and less time in N1. A second poster described the statistically significant improvements in the Epworth Sleepiness Scale (“ESS”), both the quality of sleep and the refreshing nature of sleep, and a decrease in sleep paralysis. These clinically relevant improvements were observed for all doses, beginning at week 3, for the lowest 6 g dose, compared to placebo. LUMRYZ did not demonstrate significant improvement for hypnagogic hallucinations compared to placebo.

Additional data supportive of the efficacy findings in REST-ON were presented at the 35th Annual Meeting of the Associated Professional Sleep Societies, a joint meeting of the American Academy of Sleep Medicine and the Sleep Research Society, also known as SLEEP 2021, beginning June 10, 2021. New data included post-hoc analyses demonstrating endpoints improvements, regardless of concomitant stimulant use, in both narcolepsy Type 1 (“NT1”) or Type 2 (“NT2”). Additionally, a post-hoc analysis showed that LUMRYZ was associated with decreased body mass index compared to placebo, which may be relevant as people with narcolepsy often have co-morbid obesity. In August 2021, the primary results from the REST-ON trial were published by Kushida et al. in the journal SLEEP.

New data was presented at the American College of Chest Physicians annual meeting (“CHEST”), beginning October 17, 2021, including additional post-hoc analyses from the REST-ON trial, demonstrating a greater proportion of patients receiving LUMRYZ experienced reductions in weekly cataplexy attacks and improvement in mean sleep latency compared to placebo, as well as the results of a discrete choice experiment, indicating that the overall driver of patient preference between sodium oxybate treatments is a once-at-bedtime, versus twice-nightly, formulation.

New data was presented at World Sleep 2022 Congress in March 2022, in Rome, Italy. A total of eight posters were presented, including five new post-hoc analyses from the REST-ON trial. Most notably, the post-hoc analyses showed that LUMRYZ demonstrated improvement in subjective measures of daytime sleepiness, sleep quality and refreshing nature of sleep as early as week 1 with the 4.5 g starting dose, with even greater improvement at week 2 soon after starting the 6 g dose compared to placebo. Additional post-hoc analyses, stratified by narcolepsy type, as well as concomitant stimulant use, or without stimulants, demonstrated positive results that are generally consistent with previously reported positive endpoints from REST-ON and add to the existing body of evidence for LUMRYZ.

In addition, the results of a discrete choice experiment (“DCE”) were presented, which showed that once-at-bedtime dosing, when compared to twice-nightly dosing, was the most important attribute driving both patient and clinician preference for overall oxybate product choice, as well as patient quality of life and reduction of patient anxiety/stress; dosing frequency (twice-nightly versus once-at-bedtime) was also viewed as a more important attribute as compared to other attributes assessed, including sodium content. Accompanying the DCE was a background survey for both patients and clinicians, which showed that dosing frequency was noted as a significant stressor by both patients and clinicians. The World Sleep 2022 presentations also included the first presentation of an interim safety analysis from the ongoing RESTORE study, which showed that LUMRYZ has generally been well-tolerated, with some patients receiving therapy for more than 18 months.

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Additional peer-reviewed publications have included data on improvement on DNS, the first DCE and a Plain Language Summary reviewing sodium oxybate and cardiovascular health, which did not identify a signal of cardiovascular disease in the twenty years that sodium oxybate has been available. At the annual SLEEP Congress in June 2022, nine posters were presented, including five post-hoc analyses from REST-ON which support the following:

•A low number-needed-to-treat to achieve effectiveness across all three evaluated doses, as well as effect sizes, showing a moderate-to-high effect for improving MWT, ESS, and number of cataplexy attacks;

•Confirmation via various statistical methods to handle missing data that LUMRYZ improved cataplexy and EDS symptoms versus placebo;

•Confirmation of benefit for NT1 and NT2 for DNS and ESS;

•Confirmation of benefit for subgroups taking stimulants and those without stimulants for DNS and ESS; and

•Early efficacy (Week 1 and Week 2) for ESS, refreshing nature of sleep and quality of sleep.

In addition, interim data from RESTORE were presented demonstrating that a high proportion of patients switching from twice-nightly sodium oxybate formulations had difficulty in taking the second dose, with a high proportion (92.5%) stating a preference for the once-at-bedtime dosing regimen and that most participants (62%) switching from twice-nightly sodium oxybate formulations had a stable dose equal to their starting dose; participants not currently taking sodium oxybate formulations or oxybate naive reached a stable dose with 2–4 dose titrations within four weeks.

Additional peer-review publications have included a relative bioavailability pharmacokinetics (“PK”) study and a Plain Language Summary of the primary REST-ON trial results.

We believe LUMRYZ has the potential to demonstrate improved dosing compliance, safety and patient satisfaction over the current standards of care for cataplexy or EDS in patients with narcolepsy.

Key Business Trends and Highlights

In operating our business and monitoring our performance, we consider a number of performance measures, as well as trends affecting our industry as a whole, which include the following:

•Healthcare and Regulatory Reform: Various health care reform laws in the U.S. may impact our ability to successfully commercialize our products and technologies. The success of our commercialization efforts may depend on the extent to which the government health administration authorities, the health insurance funds in the E.U. Member States, private health insurers and other third-party payers in the U.S. will reimburse consumers for the cost of healthcare products and services.

•Competition and Technological Change: Competition in the pharmaceutical and biotechnology industry continues to be intense and is expected to increase. We compete with academic laboratories, research institutions, universities, joint ventures, and other pharmaceutical and biotechnology companies, including other companies developing niche branded or generic specialty pharmaceutical products or drug delivery platforms. Furthermore, major technological changes can happen quickly in the pharmaceutical and biotechnology industries. Such rapid technological change, or the development by our competitors of technologically improved or differentiated products, could render our products, product candidates, or drug delivery platforms obsolete or noncompetitive.

•Pricing Environment for Pharmaceuticals: The pricing environment continues to be in the political spotlight in the U.S. As a result, the need to obtain and maintain appropriate pricing for pharmaceutical products may become more challenging due to, among other things, the attention being paid to healthcare cost containment and other austerity measures in the U.S. and worldwide.

•Generics Playing a Larger Role in Healthcare: Generic pharmaceutical products will continue to play a large role in the U.S. healthcare system. As such, we expect to see generic competition for our products in the future.

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•Access to and Cost of Capital: We have a recent history of generating losses from operations and expect to continue generating losses until we are able to commercially launch LUMRYZ, and generate revenues sufficient to generate positive cash flow from operations. Similar to other businesses in our industry and at our stage of development, we will continue to rely on external sources of capital to fund our business. The process of raising capital and associated cost of such capital for a company of our financial profile can be difficult and potentially expensive. If the need were to arise to raise additional capital, access to that capital may be difficult, expensive and/or dilutive and, as a result, could create liquidity challenges for us.

•Continuing Net Loss from Operations: LUMRYZ is the only commercialized product in our portfolio. We will incur substantial expenses to continue our preparations for commercial launch of LUMRYZ.

Impact of COVID-19

We continue to actively monitor the COVID-19 pandemic, as well as new variants of the virus and recent increases in case numbers, and have taken measures to mitigate the potential impacts to our employees and business, such as continuing to offer a work from home policy. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. Despite vaccination efforts, future developments and impact on our operations remain uncertain and cannot be predicted with confidence, including the duration of the COVID-19 pandemic, new variants of the virus, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in extending continued business disruptions.

2022 Corporate Restructuring Plan

In June 2022, we announced a plan to optimize our cost structure to reduce total quarterly cash operating expenses to between $12,000 and $14,000, excluding inventory purchases, by the quarter ended December 31, 2022. The targeted reduction in cash operating expenses, together with cash, cash equivalents and marketable securities currently on hand, was implemented to extend our cash runway to the middle of 2023.

Our cost structure optimization efforts included a nearly 50% reduction in our workforce (the “2022 Corporate Restructuring Plan”). See Note 10: Restructuring Costs to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

At-the-Market Offering Program

In February 2020, we entered into an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) with respect to an at-the-market offering program (“ATM Program”) under which we may offer and sell our ADSs (and such ADSs sold under the ATM Program, “ATM ADSs”) through Jefferies as our sales agent. We agreed to pay Jefferies a commission up to 3.0% of the aggregate gross sales proceeds of such ATM ADSs. The initial aggregate offering price of the ATM Program was up to $50,000 of ADSs pursuant to its prospectus, dated February 14, 2020, included with our Registration Statement on Form S-3 (File No. 333-236258) (the “2020 Shelf Registration”). In August 2022, we filed an additional prospectus, dated September 12, 2022, included with our new Registration Statement on Form S-3 (File No. 333-267198) (the “2022 Shelf Registration”), in order to allocate up to $100,000 in additional ADSs to the ATM Program. The 2020 Shelf Registration expired on February 14, 2023.

Pursuant to the Sales Agreement, we issued and sold 1,564 ADSs during the quarter ended March 31, 2023, resulting in net proceeds to us of approximately $11,913.

Financial Highlights

Highlights of our consolidated results for the three months ended March 31, 2023 are as follows:

•Operating loss was $28,298 for the three months ended March 31, 2023, compared to operating loss of $28,626 for the three months ended March 31, 2022. Selling, general and administrative expenses increased in the current period by $2,833, driven by higher legal costs of approximately $2,000, costs related to financing activities of approximately $1,300 and higher consulting fees of approximately $800, offset by lower compensation costs of $1,000. Research and development expenses decreased in the current period by $3,161, driven by lower active pharmaceutical ingredients (“API”) purchases during the current period of approximately $2,600.

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•Net loss was $30,784 for the three months ended March 31, 2023, compared to net loss of $26,424 in the same period last year.

•Diluted net loss per share was $0.48 for the three months ended March 31, 2023, compared to diluted net loss per share of $0.45 in the same period last year.

•Cash and marketable securities increased $4,424 to $100,923 at March 31, 2023, from $96,499 at December 31, 2022. The increase in cash during the three months ended March 31, 2023 was driven primarily by net cash provided by financing activities of $34,442, which included approximately $40,000 of proceeds received in advance of Series B Preferred Shares issuance for the public offering and $11,913 of net proceeds from the sale of ADSs through the ATM Program, offset by $17,500 of payments for the February 2023 Notes, and net cash provided by investing activities of $5,066 due to net proceeds received from the excess of sales over purchases of marketable securities.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could be significantly different from these estimates.

Our significant accounting policies are described in Note 1 of the audited consolidated financial statements included in our Annual Report Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies” section of the Management’s Discussion & Analysis in our 2022 Form 10-K.

Results of Operations

The following is a summary of our financial results (in thousands, except per share amounts) for the three months ended March 31, 2023 and 2022, respectively:



	Three Months Ended March 31,				Change
					2023 vs. 2022
Comparative Statements of Loss	2023		2022		$		%


Operating expenses:

Research and development expenses	$	3,830	$	6,991	$	(3,161)	(45.2)	%
Selling, general and administrative expenses	24,468		21,635		2,833		13.1	%
Total operating expense	28,298		28,626		(328)		(1.1)	%
Operating loss	(28,298)		(28,626)		328		1.1	%
Investment and other income (expense), net	193		(104)		297		(285.6)	%
Interest expense	(3,259)		(2,017)		(1,242)		61.6	%
Loss before income taxes	(31,364)		(30,747)		(617)		2.0	%
Income tax benefit	(580)		(4,323)		3,743		(86.6)	%
Net loss	$	(30,784)	$	(26,424)	$	(4,360)	16.5	%
Net loss per share - diluted	$	(0.48)	$	(0.45)	$	(0.03)	6.7	%

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	Three Months Ended March 31,				Change
					2023 vs. 2022
Research and Development Expenses:	2023		2022		$		%

Research and development expenses	$	3,830	$	6,991	$	(3,161)	(45.2)	%

Research and development expenses decreased $3,161 or 45.2% during the three months ended March 31, 2023 as compared to the same period in the prior year. This decrease was driven by lower active pharmaceutical ingredients (“API”) purchases during the current period of approximately $2,600.



	Three Months Ended March 31,				Change
					2023 vs. 2022
Selling, General and Administrative Expenses:	2023		2022		$		%

Selling, general and administrative expenses	$	24,468	$	21,635	$	2,833	13.1	%

Selling, general and administrative expenses increased $2,833 or 13.1% during the three months ended March 31, 2023 as compared to the same period in the prior year, driven by higher legal costs of approximately $2,000, costs related to financing activities of approximately $1,300 and higher consulting fees of approximately $800. The increase in selling, general and administrative expense was offset by lower compensation costs of approximately $1,000.



	Three Months Ended March 31,				Change
					2023 vs. 2022
Interest Expense	2023		2022		$		%

Interest Expense	$	(3,259)	$	(2,017)	$	(1,242)	61.6	%

Interest expense increased $1,242 or 61.6% during the three months ended March 31, 2023 as compared to the same period in the prior year. Interest expense increased by approximately $900 due to amortization of the $5,500 of debt discount related to the change in the fair value of the conversion feature of the October 2023 Notes. In addition, interest expense increased by $600 due to amortization of the $4,800 of debt issuance fees paid to note holders that participated in the Exchange Transaction in April 2022. These fees are amortized over the life of the October 2023 Notes. See Note 4: Long-Term Debt to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further details for further details.



	Three Months Ended March 31,						Change
							2023 vs. 2022
Income Tax Benefit:	2023			2022			$		%

Income tax benefit	$	(580)		$	(4,323)		$	3,743	86.6	%
Percentage of loss before income taxes	1.8		%	14.1		%

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Liquidity and Capital Resources

Our cash flows from operating, investing and financing activities, as reflected in the unaudited condensed consolidated statements of cash flows, are summarized in the following table:



	Three Months Ended March 31,				Change
					2023 vs. 2022
Net cash (used in) provided by:	2023		2022		$		%

Operating activities	$	(30,233)	$	(34,045)	$	3,812	11.2	%
Investing activities	5,066		42,251		(37,185)		(88.0)	%
Financing activities	34,442		2,009		32,433		1,614.4	%

Operating Activities

Net cash used in operating activities was $30,233 and $34,045 for the three months ended March 31, 2023 and 2022. Net cash used in operating activities for the three months ended March 31, 2023 was driven by net loss of $30,784 and unfavorable changes in working capital of $3,431, offset by favorable non-cash adjustments of $3,982. For the three months ended March 31, 2022, net cash used in operating activities was driven by net loss of $26,424 and a $7,043 unfavorable change in working capital.

Investing Activities

Net cash provided by investing activities was $5,066 and $42,251 for the three months ended March 31, 2023 and 2022, respectively. Net cash provided by investing activities for the three months ended March 31, 2023 was due to net proceeds received from the excess of sales over purchases of marketable securities of $5,066. Net cash provided by investing activities for the three months ended March 31, 2022 was due to net proceeds received from the excess of sales over purchases of marketable securities of $42,251.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2023 of $34,442 related to proceeds received in advance of Series B Preferred Shares issuance for the public offering of $40,000 and net proceeds from the sale of ADSs through the ATM Program of $11,913, offset by payments for the February 2023 Notes of $17,500. Net cash provided by financing activities for the three months ended March 31, 2022 of $2,009 related to proceeds from stock option exercises and ESPP issuances.

Risk Management

The adequacy of our cash resources depends on the outcome of certain business conditions including the cost of our LUMRYZ commercial launch plans, our cost structure, and other factors set forth in “Risk Factors” within Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on March 29, 2023. To complete the LUMRYZ commercial launch plans we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate our business. Our assumptions concerning the outcome of certain business conditions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash and marketable securities balances which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business. Additionally, we are unable to estimate the near or long term impacts of COVID-19 and inflation, which may have a material adverse impact on our business.

We have a recent history of generating losses and negative cash flows from operations, an accumulated shareholders’ deficit as of the date of these unaudited condensed consolidated financial statements and approximately $83,391 of cash and cash equivalents and $17,532 of marketable securities available for use to fund its operations, debt service and capital requirements. Our ability to generate revenue is expected to start following the commercial launch of LUMRYZ in the U.S., which is dependent, in part, on our ability to successfully complete our commercialization efforts and on market acceptance of LUMRYZ in the U.S.

On March 29, 2023, we entered into a royalty purchase agreement with RTW Investments, L.P. that could provide the Company up to $75,000 of royalty financing in two tranches. The first tranche of $30,000 is available subject to the Company’s

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first shipment of LUMRYZ. The second tranche is available to use, at the our election, upon achieving quarterly net revenue of $25,000. The second tranche will expire on August 31, 2024, if the quarterly net revenue target is not reached and if it is not used by the Company by that time.

At March 31, 2023, we had outstanding $117,375 aggregate principal amount of its 4.50% exchangeable senior notes due October 2023 (the “October 2023 Notes”). Over the course of April 3 and April 4, 2023, we completed an exchange of $96,188 of our $117,375 October 2023 Notes for $106,268 of a new series 6.0% exchangeable notes due April 2027 (the “April 2027 Notes”) (the “2023 Exchange Transaction”). The remaining $21,187 aggregate principal amount of the October 2023 Notes will maintain a maturity date of October 2, 2023.

On April 3, 2023, we completed the sale of ordinary shares, nominal value $0.01 per share (“Ordinary Shares”) in the form of ADSs and Series B Non-Voting Convertible Preferred Shares (“Series B Preferred Shares”) in an underwritten public offering. We received net proceeds from the equity financing of $135,125, of which $40,000 was received on March 31, 2023 and $95,125 was received on April 3, 2023. The $40,000 of net proceeds received prior to the completed public offering was included in the unaudited condensed consolidated balance sheet as proceeds received in advance of Series B Preferred Shares issuance at March 31, 2023.

As a result of the 2023 Exchange Transaction and public offering, we have concluded that cash on hand provides sufficient capital to meet our operating, debt service and capital requirements for the next twelve months following the date of this Quarterly Report.

Other Matters

Litigation

We are subject to potential liabilities generally incidental to our business arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, employment, compliance and other matters that arise in the ordinary course of business. We accrue for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. At March 31, 2023 and December 31, 2022, there were no contingent liabilities with respect to any litigation, arbitration or administrative or other proceeding that are reasonably likely to have a material adverse effect on our consolidated financial position, results of operations, cash flows or liquidity. For information regarding legal proceedings we are involved in, see Note 9: Commitments and Contingencies - Litigation to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We are subject to interest rate risk as a result of our portfolio of marketable securities. The primary objectives of our investment policy are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and competitive yield. Although our investments are subject to market risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or certain types of investment. Our investment policy allows us to maintain a portfolio of cash equivalents and marketable securities in a variety of instruments, including U.S. federal government and federal agency securities, European Government bonds, corporate bonds or commercial paper issued by U.S. or European corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, tax-exempt obligations of states, agencies, and municipalities in the U.S. and Europe, and equities. A hypothetical 50 basis point change in interest rates would not result in a material decrease or increase in the fair value of our securities due to the general short-term nature of our investment portfolio.

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Foreign Exchange Risk

We are exposed to foreign currency exchange risk as the functional currency financial statements of a non-U.S. subsidiary is translated to U.S. dollars. The assets and liabilities of this non-U.S. subsidiary having a functional currency other than the U.S. dollar is translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a component of accumulated other comprehensive loss in shareholders’ (deficit) equity. The reported results of this non-U.S. subsidiary will be influenced by their translation into U.S. dollars by currency movements against the U.S. dollar. Our primary currency translation exposure is related to one subsidiary that has functional currencies denominated in euro. A 10% strengthening/weakening in the rates used to translate the results of our non-U.S. subsidiaries that have functional currencies denominated in euro as of March 31, 2023 would have had an immaterial impact on net loss for the three months ended March 31, 2023.

Transactional exposure arises where transactions occur in currencies other than the functional currency. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the balance sheet date and the resulting gains and losses are reported in investment and other (expense) income, net in the consolidated statements of loss. As of March 31, 2023, our primary exposure is to transaction risk related to euro net monetary assets and liabilities held by subsidiaries with a U.S. dollar functional currency. Realized and unrealized foreign exchange gains and losses resulting from transactional exposure were immaterial for the three months ended March 31, 2023.

Inflation Risk

Inflation generally affects us by increasing our costs of labor and supplies and the costs of our third parties we rely on for the development, manufacture and supply of our product candidates. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended March 31, 2023. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to an impact on the costs to conduct clinical trials, the costs to prepare for the commercialization of LUMRYZ, labor costs we incur to attract and retain qualified personnel, and other operational costs. Inflationary costs could adversely affect our business, financial condition and results of operations.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of March 31, 2023.

Other Changes in Internal Controls

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS.

The information contained in Note 9: Commitments and Contingencies - Litigation to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference herein.

ITEM 1A. RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 29, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.


Exhibit No.						Description

3.1						Certificate of Designation of Series B Non-Voting Convertible Preferred Shares of Avadel Pharmaceuticals plc, dated March 29, 2023. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-37977) filed with the SEC on March 30, 2023)
4.1						Indenture, dated as of April 3, 2023, by and between Avadel Finance Cayman Limited, the Company and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-37977) filed with the SEC on April 5, 2023)
4.2						Form of 6.00% Exchangeable Senior Note due 2027 (included in Exhibit 4.1, which is incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-37977) filed with the SEC on April 5, 2023)
10.1						Form of Exchange Agreement by and between Avadel Finance Cayman Limited, the Company and certain holders of the 2023 Notes (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37977) filed with the SEC on March 29, 2023)
10.2						Purchase and Sale Agreement, dated March 29, 2023, between Avadel CNS Pharmaceuticals, LLC, the Company, Flamel Ireland Ltd., and RTW Royalty II DAC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-37977) filed with the SEC on March 30, 2023
31.1*						Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) promulgated under the Exchange Act
31.2*						Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) promulgated under the Exchange Act
32.1**						Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH*						Inline XBRL Taxonomy Extension Schema Document
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

______________________

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AVADEL PHARMACEUTICALS PLC
	(Registrant)

Date: May 4, 2023	By:	/s/ Gregory J. Divis
		Gregory J. Divis
		Chief Executive Officer
		(Duly Authorized Officer and Principal Executive Officer)





Date: May 4, 2023	By:	/s/ Thomas S. McHugh
		Thomas S. McHugh
		Senior Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

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