10-Q 1 avdl-20220930.htm 10-Q avdl-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
———————
FORM 10-Q
———————
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2022

OR
    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
 
———————
AVADEL PHARMACEUTICALS PLC
(Exact name of registrant as specified in its charter)
———————
 
Ireland98-1341933
(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) 
———————
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading 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 filerþSmaller reporting companyþ
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 November 7, 2022, 61,778,732 ordinary shares, nominal value $0.01 each, of the Company were outstanding.





TABLE OF CONTENTS
 
NOTE REGARDING TRADEMARKS

We own various trademark registrations and applications, and unregistered trademarks, including AVADELTM, LUMRYZTM, and MICROPUMPTM. 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:

Our reliance on a single lead product candidate, LUMRYZ, also known as FT218;
Our ability to obtain final regulatory approval and full authorization from the U.S. Food and Drug Administration (“FDA”) to commercialize LUMRYZ, including any delays in a final approval and/or authorization to launch;
The ability of LUMRYZ, if granted final approval by the FDA, to be successfully commercialized and gain market acceptance;
Our ability to enter into strategic partnerships for the commercialization, manufacturing and distribution of 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;
Our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other indebtedness or through strategic financing or commercialization partnerships;
Our expectations about the potential market size and market participation for LUMRYZ, if granted final approval by the FDA;
Our expectations regarding litigation related to LUMRYZ, including the potential delisting of U.S. Patent No. 8731963 from the Orange Book;
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 to a potential final FDA approval of our New Drug Application (“NDA”) for LUMRYZ;
Our ability to continue to service our exchangeable senior notes due February 2023 (the “February 2023 Notes”) and our exchangeable senior notes due October 2023 (the “October 2023 Notes”, together with the February 2023 Notes, the “2023 Notes”), including making the ongoing interest payments on the 2023 Notes, settling exchanges of the 2023 Notes in cash or completing any required repurchases of the 2023 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 will likely 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 16, 2022 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 September 30,Nine Months Ended September 30,
 2022202120222021
Operating expenses:    
Research and development expenses$2,933 $4,380 $14,465 $14,994 
Selling, general and administrative expenses14,096 21,283 57,535 47,469 
Restructuring (income) expense (69) 3,523 (53)
Total operating expense 16,960 25,663 75,523 62,410 
Operating loss(16,960)(25,663)(75,523)(62,410)
Investment and other income, net448 489 503 1,531 
Interest expense(3,564)(1,929)(9,087)(5,788)
Gain from release of certain liabilities  33 166 
Loss before income taxes(20,076)(27,103)(84,074)(66,501)
Income tax provision (benefit)70 (5,101)25,940 (11,473)
Net loss$(20,146)$(22,002)$(110,014)$(55,028)
Net loss per share – basic$(0.33)$(0.38)$(1.85)$(0.94)
Net loss per share – diluted(0.33)(0.38)(1.85)(0.94)
Weighted average number of shares outstanding - basic60,201 58,585 59,359 58,506 
Weighted average number of shares outstanding - diluted60,201 58,585 59,359 58,506 
 
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 September 30,Nine Months Ended September 30,
 2022202120222021
Net loss$(20,146)$(22,002)$(110,014)$(55,028)
Other comprehensive loss, net of tax:    
Foreign currency translation loss(647)(237)(1,489)(839)
Net other comprehensive loss, net of income tax benefit of $, $59, $ and $220, respectively
(934)(157)(2,480)(854)
Total other comprehensive loss, net of tax(1,581)(394)(3,969)(1,693)
Total comprehensive loss$(21,727)$(22,396)$(113,983)$(56,721)
 
See accompanying notes to unaudited condensed consolidated financial statements.
- 5 -


AVADEL PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

September 30, 2022December 31, 2021
(Unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$60,715 $50,708 
Marketable securities45,760 106,513 
Research and development tax credit receivable2,077 2,443 
Prepaid expenses and other current assets4,670 32,826 
Total current assets113,222 192,490 
Property and equipment, net896 285 
Operating lease right-of-use assets1,947 2,652 
Goodwill16,836 16,836 
Research and development tax credit receivable1,137 1,225 
Other non-current assets11,720 33,777 
Total assets$145,758 $247,265 
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY   
Current liabilities:  
Current portion of long-term debt$26,299 $ 
Current portion of operating lease liability1,011 900 
Accounts payable2,479 7,679 
Accrued expenses7,965 7,151 
Other current liabilities3,757 5,270 
Total current liabilities41,511 21,000 
Long-term debt109,934 142,397 
Long-term operating lease liability1,026 1,707 
Other non-current liabilities5,727 3,917 
Total liabilities158,198 169,021 
Shareholders’ (deficit) equity:  
Preferred shares, nominal value of $0.01 per share; 50,000 shares authorized; 488 issued and outstanding at September 30, 2022 and 488 issued and outstanding at December 31, 2021
5 5 
Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 60,885 issued and outstanding at September 30, 2022 and 58,620 issued and outstanding at December 31, 2021
608 586 
Additional paid-in capital572,626 549,349 
Accumulated deficit(557,770)(447,756)
Accumulated other comprehensive loss(27,909)(23,940)
Total shareholders’ (deficit) equity(12,440)78,244 
Total liabilities and shareholders’ (deficit) equity$145,758 $247,265 
 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)

 Ordinary sharesPreferred sharesAdditionalAccumulatedAccumulated
other
comprehensive
Total
shareholders’
 SharesAmountSharesAmountpaid-in capitaldeficitloss(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 options275 3 — — 1,903 — — 1,906 
Vesting of restricted shares119 1 — — (1)— —  
Employee share purchase plan share issuance18 — — — 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 
Net loss— — — — — (63,444)— (63,444)
Other comprehensive loss— — — — — — (1,286)(1,286)
Vesting of restricted shares6 — — — — — — — 
Change in fair value of October 2023 Notes conversion feature— — — — 5,508 — — 5,508 
Share-based compensation expense— — — — 658 — — 658 
Balance, June 30, 2022
59,038 $590 488 $5 $560,025 $(537,624)$(26,328)$(3,332)
Net loss— — — — — (20,146)— (20,146)
Other comprehensive loss— — — — — — (1,581)(1,581)
Exercise of stock options14 — — — 64 — — 64 
Vesting of restricted shares8 — — — — — —  
Issuance of common stock under at-the-market offering program, net of issuance costs1,768 17 — — 10,515 — — 10,532 
Amortization of deferred issuance costs— — — — (19)— — (19)
Employee share purchase plan share issuance57 1 — — 118 — — 119 
Share-based compensation expense— — — — 1,923 — — 1,923 
Balance, September 30, 2022
60,885 $608 488 $5 $572,626 $(557,770)$(27,909)$(12,440)






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AVADEL PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

 Ordinary sharesPreferred sharesAdditional paid-inAccumulatedAccumulated
other
comprehensive
Total
shareholders’
 SharesAmountSharesAmountcapitaldeficitlossequity
Balance, December 31, 202058,396 $583 488 $5 $566,916 $(384,187)$(21,051)$162,266 
Impact of the adoption of ASU 2020-06— — — — (26,699)13,760 — (12,939)
Net loss— — — — — (13,445)— (13,445)
Other comprehensive loss— — — — — — (1,255)(1,255)
Exercise of stock options23 — — — 106 — — 106 
Vesting of restricted shares61 1 — — (1)— —  
Employee share purchase plan share issuance8 — — — 43 — — 43 
Share-based compensation expense— — — — 1,728 — — 1,728 
Balance, March 31, 202158,488 $584 488 $5 $542,093 $(383,872)$(22,306)$136,504 
Net loss — — — — — (19,581)— (19,581)
Other comprehensive loss— — — — — — (44)(44)
Share-based compensation expense— — — — 2,001 — — 2,001 
Balance, June 30, 202158,488 $584 488 $5 $544,094 $(403,453)$(22,350)$118,880 
Net loss— — — — — (22,002)— (22,002)
Other comprehensive loss— — — — — — (394)(394)
Exercise of stock options25 1 — — 62 — — 63 
Vesting of restricted shares94 1 — — (1)— —  
Employee share purchase plan share issuance9 — — — 51 — — 51 
Share-based compensation expense— — — — 2,359 — — 2,359 
Balance, September 30, 202158,616 $586 488 $5 $546,565 $(425,455)$(22,744)$98,957 

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AVADEL PHARMACEUTICALS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) 
(Unaudited)
Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net loss$(110,014)$(55,028)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization907 614 
Amortization of debt discount and debt issuance costs4,147 937 
Change in deferred taxes25,916 (11,322)
Share-based compensation expense5,086 6,088 
Gain from release of certain liabilities(33)(166)
Other adjustments1,539 1,056 
Net changes in assets and liabilities  
Prepaid expenses and other current assets27,948 (54)
Research and development tax credit receivable27 3,079 
Accounts payable & other current liabilities(11,629)(201)
Accrued expenses4,277 2,421 
Other assets and liabilities(3,109)(2,228)
Net cash used in operating activities(54,938)(54,804)
Cash flows from investing activities:  
Purchases of property and equipment(716)(26)
Proceeds from the disposition of the hospital products 16,500 
Proceeds from sales of marketable securities59,873 83,726 
Purchases of marketable securities(2,334)(58,591)
Net cash provided by investing activities56,823 41,609 
Cash flows from financing activities:  
Payments for debt issuance costs(4,803) 
Proceeds from issuance of shares off the at-the-market offering program 10,532  
Proceeds from stock option exercises and employee share purchase plan2,192 263 
Net cash provided by financing activities7,921 263 
Effect of foreign currency exchange rate changes on cash and cash equivalents201 (621)
Net change in cash and cash equivalents10,007 (13,553)
Cash and cash equivalents at January 1,50,708 71,722 
Cash and cash equivalents at September 30,
$60,715 $58,169 
Supplemental disclosures of cash flow information:
     Interest paid$9,660 $6,469 
     Income taxes (refund) paid$(32,323)$68 

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 candidate, LUMRYZ, also known as FT218, is an investigational once-at-bedtime, extended-release formulation of sodium oxybate for the treatment of cataplexy or excessive daytime sleepiness (“EDS”) in adults with narcolepsy. On July 18, 2022, the U.S. Food and Drug Administration (“FDA”) granted tentative approval to LUMRYZ for this indication. Tentative approval indicates that LUMRYZ has met all required quality, safety, and efficacy standards necessary for approval in the U.S. The Company is primarily focused on obtaining final FDA approval of LUMRYZ.

A decision on final FDA approval of LUMRYZ is pending disposition of U.S. Patent No. 8731963 (the “REMS Patent”), which is listed in the FDA’s Orange Book. The decision on final FDA approval could occur on or about the expiration of the REMS Patent on June 17, 2023 or sooner if the patent is earlier removed from the FDA’s Orange Book or a court earlier determines that patent is not infringed, invalid or otherwise unenforceable. The FDA’s tentative approval can be subject to change based on new information that may come to the FDA’s attention between such time as the tentative approval and potential final approval. The Company cannot legally market LUMRYZ in the U.S. until final approval is granted by the FDA.

Outside of the Company’s lead product candidate, 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 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 $60,715 of cash and cash equivalents and $45,760 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 launch of LUMRYZ, which is dependent, in part, on final approval of LUMRYZ by the FDA. As of September 30, 2022, the Company has $26,375 aggregate principal amount of its 4.50% exchangeable senior notes due February 2023 (the “February 2023 Notes”) and $117,375 aggregate principal amount of its 4.50% exchangeable senior notes due October 2023 (the “October 2023 Notes”) (together, the “2023 Notes”). The Company does not currently have sufficient available liquidity to repay the outstanding balance of the October 2023 Notes. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these unaudited condensed consolidated financial statements are issued.

In response to these conditions and events, the Company is evaluating various financing strategies to obtain sufficient additional liquidity to meet its operating, debt service and capital requirements for the next twelve months following the date of this Quarterly Report. The potential sources of financing that the Company is evaluating include one or any combination of royalty financing, secured or unsecured debt, convertible debt and equity. In addition, the Company’s financing strategy could also include refinancing or negotiating new terms for the 2023 Notes. The Company also currently has authorized and available the use of its at-the-market offering program (“ATM Program”), described in more detail below, which could provide the Company up to approximately $135,000 (as of September 30, 2022), net of commissions, if fully utilized. While the Company has the ability to utilize the ATM Program, it intends to pursue the other financing strategies described above. Based on the Company’s ability to raise funds through the ATM Program, the Company has determined that it is probable that such proceeds would provide sufficient additional capital to meet the Company’s operating, debt service and capital requirements for the next twelve months following the date of this Quarterly Report. As a result, the Company has concluded that management’s plans are probable of being achieved to alleviate the substantial doubt about the Company’s ability to continue as a going concern.

The sources of financing described above that could be available to the Company and the timing and probability of obtaining sufficient capital depends, in part, on obtaining final FDA approval of LUMRYZ, resolving any legal and regulatory matters that could preclude the Company from launching LUMRYZ and future capital market conditions. If the Company’s current assumptions regarding timing of potential final approval, the timing of the launch of LUMRYZ or if there are any other changes or differences in our current assumptions that negatively impact our financing strategy, the Company may have to further
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reduce expenditures or significantly delay, scale back or discontinue the development or commercialization of LUMRYZ in order to extend its cash resources.

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 ATM Program under which the Company may offer and sell its American Depositary Shares (“ADSs”, and 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.

As of September 30, 2022, the Company had issued and sold 1,768 ADSs, resulting in net proceeds to the Company of approximately $10,532, pursuant to the 2020 Prospectus. The Company may offer and sell up to an additional $39,142 of ADSs under the ATM Program that remain available for sale pursuant to the 2020 Prospectus and also up to $100,000 of ADSs available for sale under the ATM Program pursuant to the 2022 Prospectus.

Basis of Presentation. The unaudited condensed consolidated balance sheet as of September 30, 2022, which is derived from the prior year 2021 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 2021 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 16, 2022.

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.

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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.

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 September 30, 2022As of December 31, 2021
Fair Value Measurements:Level 1Level 2Level 3Level 1Level 2Level 3
Marketable securities (see Note 3)
Mutual and money market funds$31,481 $ $ $78,098 $ $ 
Corporate bonds 9,178   16,479  
Government securities - U.S. 3,458   9,471  
Other fixed-income securities 1,643   2,465  
Total assets$31,481 $14,279 $ $78,098 $28,415 $ 

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 September 30, 2022 and December 31, 2021, respectively, there were no transfers in and out of Level 3. During the three and nine months ended September 30, 2022 and 2021, 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 $26,375 aggregate principal amount of its February 2023 Notes and 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 values of the February 2023 Notes and the October 2023 Notes at September 30, 2022 are $25,584 and $101,970, respectively. 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 September 30, 2022, the Company considered any decreases in fair value on its marketable securities to be driven by factors other than credit risk, including market risk.

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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 September 30, 2022 and December 31, 2021, respectively:

September 30, 2022
Marketable Securities:Adjusted CostUnrealized GainsUnrealized LossesFair Value
Mutual and money market funds$32,922 $220 $(1,661)$31,481 
Corporate bonds9,885  (707)9,178 
Government securities - U.S.3,827  (369)3,458 
Other fixed-income securities1,691  (48)1,643 
Total$48,325 $220 $(2,785)$45,760 
December 31, 2021
Marketable Securities:Adjusted CostUnrealized GainsUnrealized LossesFair Value
Mutual and money market funds$78,331 $813 $(1,046)$78,098 
Corporate bonds16,478 94 (93)16,479 
Government securities - U.S.9,530 39 (98)9,471 
Other fixed-income securities2,473 2 (10)2,465 
Total$106,812 $948 $(1,247)$106,513 

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, net in the accompanying unaudited condensed consolidated statements of loss.

The Company recognized gross realized gains of $64 and $22 for the three months ended September 30, 2022 and 2021, respectively. These realized gains were offset by gross realized losses of $61 and $66 for the three months ended September 30, 2022 and 2021, respectively. We recognized gross realized gains of $372 and $74 for the nine months ended September 30, 2022 and 2021, respectively. These realized gains were offset by gross realized losses of $1,092 and $173 for the nine months ended September 30, 2022 and 2021, respectively.

The following table summarizes the estimated fair value of the Company’s investments in marketable debt securities, accounted for as available-for-sale debt securities and classified by the contractual maturity date of the securities as of September 30, 2022:

Maturities
Marketable Debt Securities:Less than 1 Year1-5 Years5-10 YearsGreater than 10 YearsTotal
Corporate bonds$1,602 $7,576 $ $ $9,178 
Government securities - U.S. 1,992 600 866 3,458 
Other fixed-income securities 1,451 192  1,643 
Total$1,602 $11,019 $792 $866 $14,279 

The Company has classified its investment in available-for-sale marketable debt 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.

The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale debt securities at September 30, 2022. The unrealized losses in the table below 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.

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Less than 12 monthsGreater than 12 monthsTotal
Marketable Debt Securities:Fair valueUnrealized LossesFair valueUnrealized LossesFair valueUnrealized Losses
Corporate bonds$6,264 $440 $2,914 $267 $9,178 $707 
Government securities - U.S.1,042 63 2,416 306 3,458 369 
Other fixed-income securities1,065 17 578 31 1,643 48 
Total$8,371 $520 $5,908 $604 $14,279 $1,124 

NOTE 4: Long-Term Debt

Long-term debt is summarized as follows:
September 30, 2022December 31, 2021
Principal amount of 4.50% exchangeable senior notes due February 2023
$26,375 $143,750 
Principal amount of 4.50% exchangeable senior notes due October 2023
117,375  
Less: unamortized debt discount and issuance costs, net (7,517)(1,353)
Net carrying amount of debt136,233 142,397 
Less: current maturities, net of $76 unamortized debt discount and issuance costs
26,299  
     Long-term debt$109,934 $142,397 

For the three months ended September 30, 2022 and 2021, the total interest expense was $3,564 and $1,929, respectively, with coupon interest expense of $1,646 and $1,617 for each period, respectively, and the amortization of debt issuance costs and debt discount, totaling $1,918 and $312 for each period, respectively.

For the nine months ended September 30, 2022 and 2021, the total interest expense was $9,087 and $5,788, respectively, with coupon interest expense of $4,852 and $4,851 for each period, respectively, and the amortization of debt issuance costs and debt discount of $4,147 and $937 for each period, respectively. Current period interest expense also includes $88 of additional interest expense owed to be in compliance with certain terms of the February 2023 Notes indenture and is not applicable to future periods.

On February 16, 2018, Avadel Finance Cayman Limited, a Cayman Islands exempted company and an indirect wholly-owned subsidiary of the Company (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 are the Company’s senior unsecured obligations and rank 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.

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 “Exchange Transaction”). The remaining $26,375 aggregate principal amount of the February 2023 Notes were not exchanged and maintain a maturity date of February 1, 2023.

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 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 are amortized over the remaining term of the October 2023 Notes as a component of interest expense.

The 2023 Notes will be exchangeable at the option of the holders at an initial exchange rate of 92.6956 ADSs per $1 principal amount of 2023 Notes (so long as the principal amount of such holder’s 2023 Notes not exchanged is at least $200), which is equivalent to an initial exchange price of approximately $10.79 per ADS. Upon the exchange of any 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.

February 2023 Notes
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Holders of the February 2023 Notes may convert their February 2023 Notes, at their option, prior to the close of business on the business day immediately preceding the maturity date.

October 2023 Notes

Holders of the October 2023 Notes may convert their October 2023 Notes, at their option, only under the following circumstances prior to the close of business on the business day immediately preceding May 1, 2023, under the circumstances and during the periods set forth below and regardless of the conditions described below, on or after May 1, 2023 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 May 1, 2023, a holder of the October 2023 Notes may surrender all or any portion of its October 2023 Notes for exchange at any time during the five business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1 principal amount of October 2023 Notes, as determined following a request by a holder of the October 2023 Notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the ADSs and the exchange rate on each such trading day.

If a transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs prior to the close of business on the business day immediately preceding May 1, 2023, regardless of whether a holder of the October 2023 Notes has the right to require the Company to repurchase the October 2023 Notes, or if Avadel is a party to a merger event that occurs prior to the close of business on the business day immediately preceding May 1, 2023, all or any portion of a holder’s October 2023 Notes may be surrendered for exchange at any time from or after the date that is 95 scheduled trading days prior to the anticipated effective date of the transaction (or, if later, the earlier of (x) the business day after the Company gives notice of such transaction and (y) the actual effective date of such transaction) until 35 trading days after the actual effective date of such transaction or, if such transaction also constitutes a fundamental change, until the related fundamental change repurchase date.

Prior to the close of business on the business day immediately preceding May 1, 2023, a holder of the October 2023 Notes may surrender all or any portion of its October 2023 Notes for exchange at any time during any calendar quarter commencing after the calendar quarter ending on March 31, 2022 (and only during such calendar quarter), if the last reported sale price of the ADSs for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day.

If the Company calls the October 2023 Notes for redemption pursuant to Article 16 to the Indenture prior to the close of business on the business day immediately preceding May 1, 2023, then a holder of the October 2023 Notes may surrender all or any portion of its October 2023 Notes for exchange at any time prior to the close of business on the second business day prior to the redemption date, even if the October 2023 Notes are not otherwise exchangeable at such time. After that time, the right to exchange shall expire, unless the Company defaults in the payment of the redemption price, in which case a holder of the October 2023 Notes may exchange its October 2023 Notes until the redemption price has been paid or duly provided for.

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.

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 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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NOTE 5: Income Taxes

The income tax provision was $70 for the three months ended September 30, 2022 resulting in an effective tax rate of (0.3)%. The income tax benefit was $5,101 for the three months ended September 30, 2021 resulting in an effective tax rate of 18.8%. The change in the effective income tax rate for the three months ended September 30, 2022, as compared to the prior period in 2021, is primarily due to the valuation allowances that were recorded against the net operating losses during the current period.

The income tax provision was $25,940 for the nine months ended September 30, 2022 resulting in an effective tax rate of (30.9)%. The income tax benefit was $11,473 for the nine months ended September 30, 2021 resulting in an effective tax rate of 17.3%. The change in the effective income tax rate for the nine months ended September 30, 2022, as compared to the prior period in 2021, is primarily due to the valuation allowances that were recorded against the deferred tax assets during the current period.

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.

During the nine months ended September 30, 2022, the Company collected all of the outstanding receivables due to the Company related to net operating loss carrybacks under the Coronavirus Aid, Relief, and Economic Security Act for losses incurred during 2019, which were carried back to 2015.

NOTE 6: Other Assets and Liabilities 

Various other assets and liabilities are summarized as follows:

Prepaid Expenses and Other Current Assets:September 30, 2022December 31, 2021
Prepaid and other expenses$3,745 $3,179 
Other567 271 
Guarantee from Armistice277 279 
Income tax receivable81 29,097 
Total  
$4,670 $32,826 

Other Non-Current Assets:September 30, 2022December 31, 2021
Right of use assets at contract manufacturing organizations$10,979 $8,549 
Guarantee from Armistice 564 771 
Other177 329 
Deferred tax assets 24,128 
Total  
$11,720 $33,777 

Accrued Expenses September 30, 2022December 31, 2021
Accrued professional fees $4,419 $2,678 
Accrued restructuring 1,515 41 
Accrued compensation1,293 3,167 
Accrued outsource contract costs738 1,048 
Customer allowances 217 
Total  
$7,965 $7,151 

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Other Current Liabilities:September 30, 2022December 31, 2021
Income tax payable$3,265 $ 
Guarantee to Deerfield 278 280 
Accrued interest199 4,920 
Other15 70 
Total  
$3,757 $5,270 

Other Non-Current Liabilities:September 30, 2022December 31, 2021
Tax liabilities$