Avadel Pharmaceuticals PLC

NASDAQ:AVDL

Earnings Call Analysis

Strong Financials with LUMRYZ Growth Potential

In Q4 2023, the company reported $19.5 million in net revenue and closed the last seven months with $28 million. Operating expenses rose to $165 million for the year, up from $98.6 million in 2022, with cash operating expenses at $145 million. Cash reserves stood at $105 million, following a reduction mainly due to operations and note repayments, leaving the company debt-free. They forecast quarterly cash expenses of $40 to $45 million but expect lower net cash used, considering the ongoing LUMRYZ sales. Breakeven is projected with 1,300 to 1,500 reimbursed patients on therapy during 2024. The firm is optimistic about surpassing the anticipated $155 million revenue for 2024 if LUMRYZ's performance exceeds expectations.

Avadel's 2023 Milestones and the Promise of LUMRYZ

Avadel Pharmaceuticals made significant strides in 2023 with the FDA approval and subsequent launch of LUMRYZ for narcolepsy patients, capitalizing on a multibillion-dollar oxybate market. Despite a patent trial, the company asserts this will not impede the commercialization of LUMRYZ. They posted $19.5 million in Q4 net revenue and $28 million for the seven months ending December 31, 2023. Avadel is also pursuing a supplemental new drug application for pediatric use and an idiopathic hypersomnia treatment, potentially enhancing the product's market footprint.

Enrollment and Adoption of LUMRYZ Picks Up Pace

The company observed over 2,200 RYZUP patient enrollments by the end of January, up from 1,900 reported in December, demonstrating growing demand for LUMRYZ. Initiations by new patients are steadily increasing, with an uptick in interest from various patient segments. Specifically, Avadel is witnessing more switches from the first-generation oxybate therapies, signaling strong acceptance of LUMRYZ. The representation of RYZUP-enrolled new patients to oxybate therapy rose in Q4 compared to Q3, indicating widening reach.

Healthcare Providers and Payer Coverage Fueling Growth

Around 1,900 healthcare providers (HCPs) were REM certified by January. Focusing on high-volume prescribers, Avadel reports that more than 70% of the top-tier HCPs, who make up half of the entire oxybate market prescriptions, have prescribed LUMRYZ, bolstering its market position. With recent wins, insurance coverage for LUMRYZ now extends to over 140 million lives, showcasing successful negotiation of payer contracts, including with Anthem and UnitedHealthcare, that open the door for sustainable long-term growth.

Financial Performance and Future Prospects

Total GAAP operating expenses for Q4 2023 amounted to $43.7 million, up from $28.3 million in Q4 2022, mainly driven by launch expenses and increased headcount. Avadel ended the year with $105 million in cash reserves. The company expects cash operating expenses to range from $40 million to $45 million quarterly in 2024, with improved net cash from operations due to continuing sales of LUMRYZ. Avadel aims to reach operating breakeven with 1,300 to 1,500 commercially reimbursed patients on therapy during 2024. Comfortable with the consensus revenue estimate of $155 million for the year, the company could see even higher revenues if LUMRYZ performance exceeds current assumptions.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to Avadel Pharmaceuticals Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce Austin Murtagh with Stern Investor Relations. You may begin.

[Austin Murtagh]

Good morning, and thank you for joining us on our conference call to discuss Avadel's Fourth Quarter and Full Year 2023 earnings.

As a reminder, before we begin, the following presentation includes several matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes statements related to expectations regarding revenue, operating expenses and operating breakeven.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks and uncertainties are described in Avadel's public filings under the Exchange Act included in the Form 10-K for the year ended December 31, 2023, which was filed on February 29, 2024, and subsequent SEC filings. Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise.

For purposes of this conference call, the company made the decision to provide certain leading launch indicators as of January 31, 2024, in order to provide a more current snapshot of its launch progress and in consideration of the update the company provided in early January. Avadel undertakes no obligation to provide intra-quarter results in future quarters.

On the call today are Greg Divis, Chief Executive Officer; Richard Kim, Chief Commercial Officer; and Tom McHugh, Chief Financial Officer.

At this time, I'll turn the call over to Greg.

[Gregory Divis, executive]

Thank you, Austin. Good morning, everyone, and thank you for joining us for our company update and to review Avadel's fourth quarter and full year 2023 results. Following my brief opening remarks, Richard will provide an update on our launch progress, including our key metrics through January 31. Tom will then review our Q4 financial results and provide some commentary regarding 2024. We will conclude with a question-and-answer session.

As most of you are likely aware, it's been a busy several days for Avadel, especially last week with the ongoing patent trial in Delaware, where closing arguments were heard this past Friday, and we are now awaiting the jury's decision. So before we dive into the commercial and business updates announced in our press release this morning, I would like to take a moment to provide some general commentary as it relates to the current and still active patent dispute.

Regardless of the outcome, we don't expect the pending jury decision in the patent trial to impact our ongoing commercial launch or our belief in the potential of LUMRYZ. Given this is an active litigation, we will not provide any further commentary or answer any questions on the trial, the underlying dispute or the pending decision at this time. However, as we have with all key matters, we will provide an update when the trial concludes, and we appreciate your understanding on this point.

2023 was truly a monumental year for Avadel, with final FDA approval, we were able to bring LUMRYZ to the narcolepsy community and execute our initial launch plan, both of which have been transformational for the company and that we have worked towards for many years. In addition to the unmatched achievement of launching LUMRYZ within approximately 1 month of final FDA approval, since launch last June, LUMRYZ has seen strong uptake among patients and prescribers, which has been supported by the positive feedback we've received from the broader narcolepsy community.

Our early launch momentum throughout 2023 has continued into this year, as demonstrated by progress being made across physicians, patients and payers, all of which Richard will provide further details on shortly. Our team's nearly decade-long dedication to advancing LUMRYZ and to the sleep medicine space overall has allowed us to build a foundation for continued growth and the potential expansion of LUMRYZ.

And as such, our priorities as a company remain very crystal clear. First and foremost continues to be our focus on executing our launch strategy and delivering on the promise and the potential of LUMRYZ across the multibillion-dollar oxybate market opportunity. We are proud of the momentum we are building and all we have accomplished thus far. And this is evidenced by the $19.5 million in LUMRYZ net revenue in the fourth quarter and the $28 million for the 7 months ended December 31, 2023.

Our second and near-term opportunity is our potential expansion into the pediatric narcolepsy population. The FDA accepted our supplemental new drug application for LUMRYZ for the treatment of cataplexy or excessive daytime sleepiness in patients between the ages of 7 to 17 with narcolepsy and provided us an action date of September 7, 2024.

We believe approval in the pediatric population will allow LUMRYZ to provide further positive impact to the narcolepsy community and caregivers at large. We have heard directly from parents about the challenges associated with the middle-of-the-night dosing and the burden a twice-nightly dosing regimen may create for the entire family.

We believe LUMRYZ, if approved, for the pediatric population can offer the potential of reducing that treatment burden while also providing an effective treatment for children living with narcolepsy. We look forward to the potential approval and launch later this year.

The next growth opportunity we're pursuing is LUMRYZ for the treatment of idiopathic hypersomnia or IH. When speaking with key opinion leaders in the field, there is a significant need for the use of once at bedtime LUMRYZ for many suffering from the deep sleep inertia associated with IH.

With the current estimated uniquely diagnosed IH patient population of greater than 30,000, we believe LUMRYZ, if approved for the IH indication, will be an important addition to the treatment options for those suffering from this rare sleep disorder, while also providing potentially meaningful upside to the future value of LUMRYZ.

We are currently well advanced in the planning stages to initiate a multicenter randomized controlled trial for IH in the second half of this calendar year, and we intend to provide updates as we reach various important milestones, including when our first patient is enrolled.

And lastly, we are continuing the preclinical development work of a potential no or low sodium once at bedtime oxybate formulation with a target product profile that is bioequivalent to LUMRYZ, and we intend to provide those updates as appropriate as well.

In closing, we ended this year in a strong position with a healthy balance sheet to support our operations and our continued growth. Coupled with the progress already made this year, we believe we are well positioned to expand our reach and impact within the sleep medicine space, and most importantly, continue executing the launch of LUMRYZ.

I am proud of the significant accomplishments and progress our team has delivered over the past year and remain highly confident that we will continue that during the year ahead. We believe we are well positioned to advance LUMRYZ to command a meaningful share of the multibillion-dollar oxybate market and maintain our view that LUMRYZ offers a greater than $1 billion potential market opportunity.

With that, I'll turn the call over to Richard for details on our commercial progress. Richard?

[Richard Kim, executive]

Thanks, Greg, and good morning, everyone. I'm excited to share our launch progress and provide some insight into the trends we saw develop as we ended 2023 and early into this year.

Now, taking a step back and looking at what we achieved this past year, we are so proud to be part of a team that has been able to bring a life-changing treatment to the narcolepsy community. The positive feedback we hear from both people with narcolepsy and healthcare providers every day continues to be an inspiration for us.

Greg touched on this earlier that our LUMRYZ commercial results continue to be strong since we launched last June, and we remain laser-focused on keeping the momentum growing in 2024. Starting with patients, RYZUP enrollments are an important indicator of early launch demand as it is really the first step in the process for patients to receive their LUMRYZ prescription.

We previously stated that as of December 31, there were over 1,900 patients enrolled with RYZUP. Since that time, we've continued to see strong demand with now greater than 2,200 patient enrollments through the end of January.

Turning to patients who have initiated therapy. As of December 31, there were 1,000 patients who had initiated LUMRYZ treatment, and that number grew to greater than 1,200 by the end of January. Typically, the start of the year can be more complicated to initiate new therapies, so we were pleased to see that we did not lose any momentum in getting new LUMRYZ patients started. Importantly, the majority of these patients are commercially reimbursed.

When we look at our available write-up data, we continue to see all 3 patient segments, switch patients from first-generation oxybate, patients who previously tried and discontinued our first-generation oxybate and oxybate-naive patients being well represented. We are seeing the majority of initiations come from patients switching from a first-generation oxybate with more patients coming from the twice-nightly mixed salts products compared to the twice-nightly sodium oxybate products.

For new to oxybate patients, we saw an increase in our overall representation of all RYZUP patients in Q4 compared to Q3. We're also excited that in the next few weeks, we will be rolling out our LUMRYZ brand ambassador program, where people with narcolepsy will begin to tell their stories of how LUMRYZ has transformed their lives. These stories and messages will come out through various forms of media to get these personal messages about LUMRYZ out to the narcolepsy community.

Turning to healthcare providers. As of January 31, there were approximately 1,900 HCPs who were REM certified. As previously stated, although we covered the 4,500-plus HCPs who make up the entire oxybate prescribing universe, we have been spending more time with the 1,600 high-volume prescribers who make up 80% of that total oxybate market.

Of these prescribers, we have focused more of our early efforts on the almost 500 most experienced prescribers who account for 50% of the overall oxybate market, and greater than 70% of these top-tier HCPs have now written a prescription for LUMRYZ. Every week, we have been consistently adding more new and repeat writers.

Additionally, in the fourth quarter, we began our KOL-led speaker programs, as they are a key tactic to drive HCP peer-to-peer LUMRYZ education. For product fulfillment, we continue to make strong progress, demonstrated by the greater than 1,200 patients who have initiated therapy as of January 31.

As our overall reimbursement has grown significantly, we are focused on continuing to have more HCPs leverage RYZUP and our field reimbursement team to get more patients initiated on to LUMRYZ and support them longer term on their LUMRYZ journey. In February, we saw continued improvement in progress with our trends.

That's a nice segue for me to provide an update on our payer progress. We announced that with the signing of the MSR contract we secured all 3 GPO contracts last year within the first 7 months of launch. Now, to start 2024, LUMRYZ is now also covered by Anthem and the UnitedHealthcare National Formulary. LUMRYZ now has coverage policies with greater than 80% of commercially covered lives or over 140 million lives.

With the recent payer wins in hand, positive feedback from sleep specialists and people of narcolepsy, growing momentum in product fulfillment and strong execution from our team, we believe we are well positioned for long-term LUMRYZ growth, and ultimately, for LUMRYZ to become the preferred oxybate for people with narcolepsy and HCPs.

With that, I look forward to providing more updates on future calls. And now, I will turn the call over to Tom to discuss our financials. Tom?

[Thomas McHugh, executive]

Thank you, Richard. Before we begin, I'll note that full financial results are available in the press release issued this morning and the 10-K that was filed last week. We are pleased to report that we generated $19.5 million net revenue for the quarter ended December 31, 2023, and $28 million of revenue for the 7 months ended December 31, 2023. And as of December 31, we estimate that there was approximately 1 month of demand in the channel.

Turning to operating expenses. We reported $43.7 million of total GAAP operating expenses for the fourth quarter of 2023 compared to $28.3 million in the fourth quarter of 2022. Total operating expenses in the fourth quarter of 2023 includes $4.6 million of noncash charges, comprised of stock-based compensation of $3.5 million and depreciation and amortization of $1.1 million.

After adjusting for these items, cash operating expenses were approximately $39 million for the quarter. For the full year of 2023, GAAP operating expenses were $165 million, compared to $98.6 million in 2022. Excluding stock-based compensation of $15.8 million and depreciation and amortization of $4.3 million, cash operating expenses for the full year of 2023 were approximately $145 million.

The increase in year-over-year operating expenses for both the fourth quarter and full year is primarily attributable to launch-related costs, higher compensation costs related to increased headcount and legal costs. These were offset by lower R&D costs. Prior to FDA approval on May 1, 2023, inventory expenses -- inventory purchases were expensed as R&D.

With respect to the balance sheet, as of December 31, we had $105 million of cash, cash equivalents and marketable securities compared to $153 million at September 30, 2023. The $48 million decrease in cash during the fourth quarter is primarily due to net cash used in operations of $26 million, which is net of cash received from sales of LUMRYZ and $22 million to pay off the remainder of the convertible notes.

As a result of paying off the notes, we are now effectively debt-free. During 2024, we currently expect that cash operating expenses before consideration of cash receipts from sales of LUMRYZ will be in the range of $40 million to $45 million per quarter. We believe that net cash used for operations will be materially lower after taking into account expected cash receipts from continuing sales of LUMRYZ.

As we look ahead, based on current trends, plans and assumptions, we believe we can achieve operating breakeven when there are approximately 1,300 to 1,500 commercially reimbursed patients on therapy and that we can achieve this during 2024. In addition to the number of reimbursed patients on therapy, our expectations regarding breakeven take into account a number of other assumptions, including how quickly patient demand grows, net pricing of LUMRYZ and operating expenses to support the launch of LUMRYZ.

Now I'll wrap up with some commentary regarding 2024 revenue. While we are not providing formal guidance at this point, we pay close attention to the sell-side estimates. And at this time, we are comfortable with the current consensus of approximately $155 million for the full year, including the possibility that 2024 revenue could be higher if actual results for LUMRYZ, such as the rate of increase in commercially reimbursed patients, the total number of reimbursed patients who were treated with LUMRYZ and net pricing, outperform the assumptions currently used by the sell-side.

And with that, I will turn the call back to Greg for closing remarks.

[Gregory Divis, executive]

Thank you, Tom. With the strong foundation our team has built and the tenacity in bringing LUMRYZ to the narcolepsy community, we are pleased to see the momentum we created last year has continued as we've entered 2024. Our 2024 priorities are clear, and we remain intently focused on our launch execution while bridging to cash flow breakeven and the near-term expansion opportunities for Avadel with our life cycle management strategy.

We thank you for your support. We look forward to providing future updates on our progress. And with that, we will open the call for questions. Operator?

[Operator]

[Operator Instructions] The first question comes from François Brisebois with Oppenheimer.

[François Brisebois, analyst]

Richard, I think you mentioned over 70% of the top 500 prescribers, I think represent like 50% of the scripts here, have prescribed LUMRYZ already. Do you give any granularity as to if they're repeat prescribers, if they've done it with multiple patients? Is there a percentage of that? Or is there kind of a feel of a bolus start? Any color there would be helpful.

[Richard Kim, executive]

Thanks for the question. Yes, I think overall, if we think about those top 500, they are the largest volume oxybate prescribers. We're very pleased to sort of see the penetration that we've had, and the majority of those folks have been repeat writers as well. Some of them have stopped it at different times along the journey here. But we have, like I said, broken over 70% within the vast majority of those being repeat writers at this time as well.

[François Brisebois, analyst]

Okay. Great. And then in terms of the -- I don't know if -- does reimbursement have an impact here on how quickly someone gets the product in their -- patient gets the product in hand? Is that evolving with time? Or any color there at all would be helpful.

[Richard Kim, executive]

Greg, do you want me to take that one?

[Gregory Divis, executive]

Yes. Go ahead, Richard.

[Richard Kim, executive]

Yes, sure. Thanks again, Frank. So yes, as far as reimbursement is concerned, yes, it does matter clearly for us. What we generally see is if patients are covered, and they meet the prior authorization criteria, it's not only -- we sort of had given guidelines around about a month, but it's definitely been creeping under a month if you have coverage and you meet the PA criteria. So that coverage does matter for us quite a bit here. And we're seeing more of those patients now going through under that period where they do actually have coverage and they meet the criteria. So those patients are now going through well under a month period of time.

[François Brisebois, analyst]

Okay. Great. And congrats on the quarter, guys.

[Operator]

The next question comes from Ami Fadia with Needham.

[Ami Fadia, analyst]

Congrats on all the progress that you've made. Maybe 2 questions from me. Firstly, just with regards to Anthem. What percent of the zinc GPO volume is Anthem? And maybe for United, what percent of MSR would that comprise? And maybe if you could also comment on just general progress in terms of pull-through at the individual formulary level across the 3 different GPOs, that would be helpful to understand.

And maybe my second question is what are you doing to sort of continue to drive this growth at the top of the funnel in terms of adding more patients to RYZUP? And what are sort of some of the objectives for 2024 with that regard?

[Gregory Divis, executive]

Richard, do you want to take those?

[Richard Kim, executive]

Yes, sure. Thanks, Ami, for the questions. Yes. So yes, first, we're super excited that we have those coverage decisions with both Anthem and UnitedHealthcare, to your point, pushing out to over 80% commercially covered lives. Anthem and UHC are both pretty big for their respective GPOs, Anthem probably in the neighborhood of about 30% of the lives, and UnitedHealthcare probably about similar for the MSR lives as well. So pretty significant large plans where we now have that coverage as well.

As far as the pull-through is concerned, sort of as per the previous question, we're definitely seeing now where there is a covered live and patients meet the prior authorization criteria, which is similar to most other oxybate that those lives are being pulled through those, those prescriptions are being pulled through quicker now as well.

So the coverage does matter for us, and we're seeing that pull-through starting to increase our overall conversion rate across the team here as well. Now, to your last question as far as the growth drivers for demand, we see several still. When it comes to the HCPs, as we talked about before, there are HCPs who adopt at various stages along the adoption curve. We began our speaker programs to have peer-to-peer education going on for those physicians going forward from the fourth quarter of last year.

I also just announced earlier that our larger patient initiatives will begin in the next few weeks through our brand ambassadors for LUMRYZ, where they will share their stories about what LUMRYZ has done for them, and we plan to get those out through various forms of media as well. So it's really a two-pronged approach, which is to continue our efforts against HCPs and to also elevate the voice within the patient community as well.

[Operator]

The next question comes from Andrew Tsai with Jefferies.

[Lin Tsai, analyst]

Congrats on a strong execution. So the first one is around conversion rates and discontinuation rates. 2,200 patients have cumulatively signed up. It's a great number. You've confirmed breakeven for this year. So is it still fair to assume that most or the large majority of these sign-ups are bound to convert suggesting discontinuation rates should still remain very favorable, maybe directionally well below 25%?

And secondly, you're on a great trajectory with the strong monthly adds to healthy conversion rates. Again, you're blasting 2024 sell-side consensus numbers. So obviously, the trajectory cannot last forever. So when should the street start to consider or model a change in the slope?

[Gregory Divis, executive]

Richard, do you want to maybe take the first, the conversion and discontinuation rate?

[Richard Kim, executive]

Sure. I'll take those, and thanks for the questions, Andrew. Yes. So, yes, we're very pleased with what the team has been doing through RYZUP in our field reimbursement team for conversion. We are seeing our overall conversion rate start to increase over time here as well. So -- and we're seeing both an improvement in the time, especially with patients who are covered with [indiscernible] criteria. But at the same time, we're not giving up on some of the enrollments that have been in our system for a longer period of time. Sometimes it will just require a little bit more work.

But along that to your point, our discontinuation rate is below what we've seen historically for the twice nightly oxybate. I think you had referenced 25%, which is about the benchmark of discontinuation for twice nightly at 1 month. So we are seeing our rate of discontinuation rates below the historical twice-nightly claims historically. So to your point, we see a sort of a nice buildup getting more new patients on. And clearly, we have a lot of efforts to appropriately keep patients on persistently over time as well.

Greg, I'll maybe pass the last question over back to you.

[Gregory Divis, executive]

Yes. Just a couple of comments. First, I think when -- as it relates to conversions and discontinuation rates, I think with 2 full quarters into the launch, I think we've done incredibly well in both conversion to initiating on therapy and how we've effectively managed the discontinuation rates through all of our programs and services. So Richard is right, we're really pleased where we sit. And certainly, we believe are beating the benchmark relative to the existing therapies in the marketplace.

As it relates to your comment about when should we guide the street to change expectations around the slope of the curve, right from that standpoint, listen, we're not going to guide specifically around that, Andrew. I appreciate the question. But I'll just remind everyone that like there is a large number of patients who have -- who are in our oxybate market opportunity, that's upwards of 50,000 potential patients when you take in the currently existing treated patients across all forms of twice nightly oxybate, previously discontinued and new starts.

We certainly expect to see us to continue to drive demand from those -- all sources of those patients at this point in time. So there's a large pie out there. And our view is that we haven't hit the flattening of our slope at this point.

[Operator]

The next question comes from David Amsellem with Piper Sandler.

[David Amsellem, analyst]

So on the pediatric opportunity, can you talk about, realistically, how many patients you could capture or percentage of the market do you think you can capture with the once-nightly modality? So that's number one.

And then in IH, how are you thinking about that opportunity in terms of your ability to either expand the market? Or do you think you get a lot of capture from patients who are on the low-sodium twice-nightly oxybate product, just how you're thinking about those commercial dynamics in IH?

[Gregory Divis, executive]

Yes. Thanks, David. On pediatrics, depending upon your data source, and there's different, if you will, claims data sources. We would -- it would tell us that the actual oxybate utilization pediatric patients relative to the total pie is anywhere from 3% to 5%. So it's a relatively small patient population in the context of the full pie. And part of that is because, although onset of symptoms occurs between the ages -- normally between the ages of 7 and 17, the diagnosis -- actually, the proper diagnosis doesn't occur to somewhere between 8 to 15 years later, which is something that certainly everyone hopes improves over time.

So from us, it really has been -- it's much less about the total patient population that are pediatrics who are being treated and much more about really meeting the needs of that patient population and their families, right? We've heard extensively from them about how disruptive waking up in the middle of the night is for parents, for the children and for their families. And so for us, it's a really straightforward opportunity for us to advance to this patient segment and seek approval for it.

Again, so -- we do think there's an opportunity to potentially expand that treated patient pool at this stage, but it's much more about just serving a community within the total narcolepsy patient community who really is looking for the opportunity to not wake up.

With regards to IH, again, with over 30,000 uniquely diagnosed patients and an upwards of another greater than 10,000 to 12,000 patients who we would describe as diagnosed with IH and narcolepsy, and then you look at -- there's only 1 FDA-approved drug and you look at the penetration in that diagnosed patient population at under 10%, we think there is a significant opportunity in IH to help more patients that are being treated.

And again, when we hear from key opinion leaders and physicians at large, the first 2 things we hear from them after we talk about LUMRYZ and narcolepsy is when are you going to get pediatrics and when are you going to get IH -- when are you going to study in IH. And for IH, it really is about the fact that these patients suffer from really deep sleep inertia to the extent where they're sleeping 14, 15, 16 plus hours a day, and it's hard for them to wake up, right? It's hard for them to wake up, and the opportunity to not be forced to do that in the middle of the night, just offers a value proposition that is -- that I would say the community is very interested in with LUMRYZ.

So we're excited to initiate that study and update everyone on as we progress it and try to help those patients as well. And we think it's another meaningful upside for the long-term value of LUMRYZ for sure.

[Operator]

The next question comes from Ash Verma with UBS.

[Ashwani Verma, analyst]

Congrats from my side as well. So I had 2 questions. In terms of the switch patients, can you provide some color on how much of the use is coming from XYREM versus XYWAV? A lot of us were surprised to see that XYWAV narcolepsy patients are starting to flatten out in the most recent quarter.

And then secondly, if you can briefly mention if you're seeing any off-label use on the IH side.

[Gregory Divis, executive]

Richard, do you want to?

[Richard Kim, executive]

Yes, no problem. Thanks for the questions, Ash. So yes, as far as the switch patients are concerned, we do see more coming from the mixed salts for XYWAV than we do from the twice nightly sodium oxybate segments overall as well. Just a couple of perspectives here. When we did market research early on in the mixed salts launch, we saw that a lot of patients there tended to be early adopters of newer therapies, and maybe we're seeing some of this here as well.

There are some more -- there are more patients in the marketplace on the mixed salt version right now as well, but fundamentally, what we also hear is the amount of what salts that are associated with the GHP, where they had no impact on the narcolepsy outcome. So it's really not much surprise to us that we're seeing more patients switching from the twice -- from the mixed salt version than the twice nightly sodium oxybate versions as well.

And to answer your question about off-label usage, clearly, first and foremost, we don't promote any off-label usage, but we have seen requests for off-label usage for both pediatrics and for IH patients as well.

[Operator]

The next question comes from Myriam Belghiti with LifeSci Capital.

[Myriam Belghiti, analyst]

Just a quick question for me. Can you comment on patient types signing up to the RYZUP program? And if you see any differentiation, then those are ultimately received therapy. Is it a similar process for naive patients, discontinued patients and switch patients going through the RYZUP program?

[Gregory Divis, executive]

Richard, do you want to take that?

[Richard Kim, executive]

Yes, sure. Thanks, Myriam. So yes, the process is quite similar because like -- the way I described the RYZUP enrollment, it's almost like a prescription. And the only reason it isn't is because we have 3 different specialty pharmacies within our network. So the process is generally initiated by the provider. And the amount of information that's required depending on what type of patient you are is generally the same if you're a switch with the exception of a box, which indicates if you had former usage of an oxybate. So yes, we've seen it to be generally consistent across the board there as well, and we are clearly very pleased to sort of see strong demand coming in through RYZUP as well.

[Myriam Belghiti, analyst]

Okay. Got it. And then you spoke about KOL-led speaker program today. Can you provide a bit more detail on what that entails?

[Richard Kim, executive]

Yes. We -- one of the things that's very important, if you think about it beyond the terrific work that our medical team has done with publications and presentations at scientific/medical congresses, it's pretty much been our voice carrying the word for LUMRYZ. So we now have a speaker bureau. We have trained experts in narcolepsy across the country who are now doing speaker programs on our behalf.

We're generally speaking to other sleep providers and some of their colleagues within their offices. And it's been really great to sort of see, we did quite a few of these programs as we exited Q4 of last year. We have executed many -- more of those programs in Q1 of this year, and we're also doing things such as like national programs and broadcast programs as well. So it's really a great opportunity to get a fair and balanced sort of perspective out on LUMRYZ in the narcolepsy marketplace.

And the reception and the turn up has been really positive, as we sort of see that many sort of sleep specialists that have come up with these programs. So getting that peer-to-peer education out for HCPs, we think, is quite critical, and these speaker programs are a very important tactic for us to execute that.

[Myriam Belghiti, analyst]

Got it. Congrats again on the great year.

[Operator]

Our next question is from Chase Knickerbocker with Craig-Hallum.

[Chase Knickerbocker, analyst]

Share my congrats as well. So I just want to maybe better characterize those patients that sit in the RYZUP program for longer. In some instances, it looks like much longer than the 1-month average you kind of mentioned. So just kind of generally, what are the characteristics of these patients that sit on the program? And did they not just meet the -- did they just not meet the PA criteria? And then should we still think of kind of conversion rate there reaching very high numbers? Or are some of these patients just going to sit on the program?

[Gregory Divis, executive]

Richard, do you want to take that?

[Richard Kim, executive]

Yes, sure. Thanks, Chase. Yes. So no, it's a great observation as far as some of these patients who have been in the process for longer. To your point, the general characterization is they may not have met the prior authorization criteria, or in some cases, they weren't a covered life. What we've sort of seen with the process is then it's a medical necessity or it's going through an appeal and a denial process.

Now one of the things we're very proud of what we felt with our RYZUP team as well is the tenacity of the team there to not give up on these cases. So while on one hand, we're very focused on sort of faster turnaround time, especially for patients who meet all the criteria, to your point, we're also not giving up on these longer-standing, so -- and generally, what we have seen is a pretty good success rate oftentimes after many rounds of appeals and denials going through where we still can get a large portion of these patients initiated onto reimburse therapy as well.

So -- and to that point where we see sometimes enrollments that started back 6 months ago who can ultimately get on to therapy as well. So it's still relatively early to sort of us -- for us to figure out what those success rates should look like. But we are still seeing on a monthly basis sort of what we would call more aged RYZUP cases who are successfully able to get into therapy as sometimes several months later.

[Operator]

Next question comes from Marc Goodman with Leerink.

[Guofang Li, analyst]

This is Rudy on the line for Marc. Congrats on the strong results. So I have a question regarding the market dynamics. Do you see the total of your market continue to expand in the coming years? And also, curious about yourselves on the opportunity of the [indiscernible] products? And do you see any potential impact in the oxybate in NT1 versus NT2 and IH?

[Gregory Divis, executive]

Thanks, Rudy. Richard, do you want to take that as well?

[Richard Kim, executive]

Yes, no. Thanks, Rudy. So as far as market dynamics is concerned, yes -- prior to launch, we had done 6 different quant market research studies that really showed with the introduction of LUMRYZ that the oxybate market could expand with the new patient starts somewhere in the neighborhood of 30% to 50%.

It's hard for us to sort of say right now because some of the other data from other companies is no longer as visible as it used to be. So we're -- what we're definitely seeing right now is a few things. One is we're getting more people who had never prescribed an oxybate previously into the mix who prescribe. And we're seeing, obviously, strong penetration within the existing oxybate prescribers. So we definitely believe we're sort of seeing some of the dynamics of patients going beyond using LUMRYZ, where they maybe were more limited with twice nightly oxybate.

And as far as, I think, your question around orexins are concerned, for us, we're very excited to see any new treatment modalities that could potentially come to the marketplace. Obviously, those companies still have to go through the clinical and regulatory process as well. The first one that we sort of see is focusing more on NT1. I guess a couple of things that we sort of see when it comes to orexins, they look to be really fabulous wake-promoting agents, maybe a little less certain around their impact on sleep. And clearly, there's a lot of questions around the overall benefit-risk profile between efficacy and tolerability as well.

But the one thing we do know, overall, is this tends to be a polypharmacy marketplace. It has been in the past and likely will be in the future as well. So we believe that LUMRYZ is well positioned, not only in NT2, but clearly because of the benefit that it has in NT1 as well. So I think we're still early on there as well. But one thing that we always consider, oxybates are used today in about less than 10% of patients who are diagnosed and under care for narcolepsy. So we still see there's lots of room for oxybates to grow, as Greg had mentioned previously. And we believe we're well positioned today, and also, as new therapies come on in the future as well.

[Operator]

Next question comes from Matt Kaplan with Ladenburg Thalmann.

[Matthew Kaplan, analyst]

I guess maybe can you provide some more color in terms of what you're hearing with respect to how important the low sodium formulation is in the marketplace right now and your strategy there as you move forward in your formulation?

[Gregory Divis, executive]

Richard, do you want to talk about that?

[Richard Kim, executive]

Yes. I'll take the first part there, Matt. Thanks. So yes, candidly, from our field, we hear a lot less objections about sort of sodium content overall. I'd say a couple of things. First, there's -- we now have sort of our team out there as well. Secondarily, one of the key publications that our team uses is a publication that came out in 2020, where sleep experts from Stanford and UCLA looked at the sort of the history of twice nightly sodium oxybate, and their conclusion was that there was really no difference in cardiovascular outcomes on patients on twice nightly sodium oxybate products at that time.

So I think, clearly, what's happened is science is sort of being focused on here, and there's good, published data that's able to be used. And it's also -- there's another company out there talking about the benefits with a once bedtime therapy can do overall. So we really haven't sort of heard as much of that in the field, as there are clearly ourselves and HCPs focusing on that. But I think now as patients -- or HCPs are getting experience with LUMRYZ and seeing the benefit of what it can offer to their patients, I think that's held a lot of weight with those offices as well.

And I know, Greg, if you want to talk about our lower sodium as well.

[Gregory Divis, executive]

Yes. I think in that regard, Matt, I think our view is that there are patients who have sodium sensitivities or other comorbidities that may require them to accommodate for that in their oxybate treatment choice. And we want to make sure all those patients have an opportunity to be on a once at bedtime therapy option. So that's why we continue to proceed with it. And from that perspective, we think everyone should have that option.

[Matthew Kaplan, analyst]

Okay. That's helpful. And then second question, in terms of the IH opportunity, you stated that you plan to launch your study second half of this year. Can you give us more detail in terms of the potential timeline there and -- of that program?

[Gregory Divis, executive]

Yes. I think it's a little bit premature to guide specifically on when we think enrollment will be completed or whatnot. We clearly will initiate in the second half of this year and have every incentive to do that as early as we possibly can. There's just a lot of work that has to go in, in terms of starting up a trial, and we're well into that now, whether that's CRO selection or site selection and feasibility assessments at the site level, clinical supply, placebo manufacturing, all those sorts of things. So all of that is happening now. So we're well on track from that perspective. And so we'll cover more. We'll provide more context as we get into it for sure. But the team has done an excellent job to kind of ramp that up relatively quickly since the back end of last year. And we'll have more to talk about it in the near future for sure.

[Operator]

The next question comes from Oren Livnat with H.C. Wainwright.

[Oren Livnat, analyst]

Congrats on the fast ramp here. I have a couple. Just first, I think I'm tensing the queue here, and nobody has asked about the elephant in the room, so I will. Can you talk about your statement upfront about your confidence in that whatever the jury decides, presumably any day now, that your confidence in the potential of LUMRYZ? Why are you confident about the outcomes? And what do you think the scenarios could be going forward?

And also, do you have any update on timing around the APA lawsuit that are publicly available or whatever you -- color you might have on that front? And then I have a follow-up.

[Gregory Divis, executive]

So the answer to your first question, Oren, is really easy, which is we're just not going to comment on it at this stage. That will become clear in the fairly near future. From that standpoint, pending the jury's final decision. So I would just ask you to be patient with us in that regard.

The status of the APA case, I think that hearing has been moved to April 9, so that will take place on April 9 in the court in the District of Columbia.

[Oren Livnat, analyst]

Okay. And if I try to square your commentary and your ramp with Jazz's guidance, it seems like market growth must be an important variable there. They say you're not growing the market that much yet. I think you've highlighted certainly that obviously most of your ads are from switchers, which is as expected. But going forward through 2023 and -- or 2024 and beyond, how confident are you that you can grow the market more and accelerate that growth as your product has been out there longer with regards to bringing back prior discontinuers, and whether those patients identified to you or your customers and new naive patients may have?

[Gregory Divis, executive]

Yes. Richard, do you want to start on that?

[Richard Kim, executive]

Yes. No, sure, Oren. Like I said -- we said before, what we sort of see already right now to your point is the previously discontinued segment is real, and we're seeing good representation of that within our RYZUP numbers and patients being shipped product already. We're getting new prescribers who have never written for an oxybate previous to LUMRYZ being in the marketplace before as well.

And here's the one thing that's also a little bit challenging right now, we've candidly worked hard to sort of keep our data to ourselves, so when other companies are looking at our data from claims, they may not also be seeing the whole picture at this stage as well. So -- and what we see internally is some strong early signs that people are going beyond where twice nightly oxybates were being used previously -- previous to LUMRYZ being in the marketplace.

[Oren Livnat, analyst]

That's helpful. And just 1 last follow-up. Can you comment at all on, I guess, net pricing or gross to net, I guess, in fourth quarter or annualized in general now and going forward?

[Gregory Divis, executive]

Tom?

[Thomas McHugh, executive]

Yes. Oren, so we previously have guided to $120,000 net revenue per patient per year. And as I've described in the past, we'll get there when we reach a critical mass, which I would define as more patients continuing on therapy than new patients coming on to therapy. With that said, I think we're rapidly approaching that point and looking forward to providing more updates on that in the future.

[Operator]

I show no further questions at this time. So this will conclude our Q&A session. I would now like to turn the call back to Greg Divis for closing remarks.

[Gregory Divis, executive]

Thank you, and thanks, everyone, for your time, for joining us today on our call, and we wish you all a great day, and we certainly look forward to providing you more updates here in the very near future. Thanks.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.