Avadel Pharmaceuticals plc

first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Accompanying slides for this call can be found on Avidel's investor relations website. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Austin Murtaugh with PrecisionAQ. Thank you. You may begin.

Good morning, and thank you for joining us on our conference call to discuss Avidel's first quarter 2025 earnings. As a reminder, the following presentation includes several matters that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These risks and uncertainties are described in Avidel's public filings under the Exchange Act included in the Form 10-K for the year ended December 31, 2024, which was filed March 3, 2025, and subsequent SEC filings. Except as required by law, Avidel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events, or otherwise. On the call today are Greg Dennis, Chief Executive Officer, and Tom McHugh, Chief Financial Officer. I'll now turn the call over to Greg.

Welcome, everyone, and thank you for joining us to discuss Avidel's first quarter 2025 results. On today's call, I will provide insights and commentary on the drivers of our performance during Q1 and the outlook for the remainder of this year. I'll conclude my opening remarks with additional company updates that we believe will further strengthen and accelerate our business in the future. Tom will then provide an overview of our financial performance and guidance, and we'll wrap up with a Q&A session. To start, let me underscore our continued confidence in Loom Runs, which saw accelerated patient adoption and expanded physician prescribing throughout the first quarter of 2025, further building on our early launch momentum. We are pleased with the strong progress we made during the first quarter of the year and remain confident in our ability to continue to deliver on our growth plan. Accordingly, as noted on a press release, we raised our full year guidance. We are equally pleased with yesterday's favorable decision from the Federal Circuit Court of Appeals regarding Avidel's ability to pursue indications for lumerize beyond narcolepsy. The Court of Appeals rejected key elements of the Delaware trial court's injunction that had prohibited us from applying for FDA approval for Lumerize for any indication beyond narcolepsy, from offering open-label extensions to trial participants using Lumerize, and from initiating new clinical trials or studies with Lumerize. This is a clear win for Avidel and for patients, as we are now able to proceed with the development of Lumerize for additional indications, conducting clinical studies, and seeking FDA approval for those indications, including IH. Since the beginning of 2025, we have seen improvements across our key launch metrics for Lumerize, including patient enrollments, new patient starts, persistency rates, and most importantly, the accelerated growth of net new patients on therapy. This progress reflects the investments we have made in strengthening our leadership team, refining our commercial strategy, providing additional patient support, expanding our customer-facing roles, and as such, expanding our provider and patient engagement. While we are pleased with these promising early results, we're not remotely satisfied and expect to build on this momentum through the remainder of this year and beyond. We ended the first quarter with 2,800 patients on Lumerize, reflecting 100% growth over the same period last year. Additionally, we re-accelerated the growth of net new patients during Q1, delivering an increase of 300 patients, which is a 50% increase compared to the fourth quarter of 2024. Lastly, despite the typical Q1 seasonality headwinds, we generated $52.5 million in net revenue, which represented greater than 90% growth versus Q1 of 2024. Our commercial performance underscores the strong clinical value proposition of Lumerize and its unmatched advantage as a one-set bedtime oxidizer. Given the positive momentum year to date, we are raising our revenue guidance to $255 to $265 million for the full year. Tom will provide additional details related to this later in the call. As you may recall, effective January 1st, we increased our sales force by 15%, expanding our target focus and our sales team capabilities. The execution of this and related initiatives resulted in positive patient demand growth across all patient segments during Q1 versus Q4, including growth in switch patients, starts, and an expansion of our Lumerize prescriber base. We are encouraged by the continued expansion of new riders who previously, according to currently available data, had not prescribed an Oxibate, but who are now beginning to prescribe Lumerize. We believe this is another strong data point highlighting how Lumerize is both competing in the Oxibate market and growing it. Complementing our sales force, we doubled the size of our field reimbursement team. This expansion, which also took effect January 1st, has rapidly demonstrated the ability to drive additional patient starts faster while enabling this team to spend more time in the field directly engaging with targeted prescribers and their office staff, all of which has resulted in an improvement in new patient starts across all patient segments in Q1 when compared to Q4. And lastly, we turn our attention to the expansion of our nursing support team, which also doubled in size effective January 1st. This is our team who is directly engaging with patients prior to, at the start of, and during their lumen rice treatment. In Q1, we saw an improvement in persistency, or in other words, a decrease in our discontinuation rate when compared to Q4. Importantly, that improvement occurred across all patient segments, including new to OxyBait patients. and in particular, during the first 90 days of treatment. This positive impact is a result of both the expansion of the team and the implemented training that is designed to both assist patients getting onto therapy and also provide ongoing support during their lumerize treatment. The cumulative impact of these positive trends has resulted in a reacceleration in the growth of the most important patient metric, which is net new patient ads, where we delivered 50% growth in Q1 versus Q4. Furthermore, the additions of our new commercial leaders in sales and patient services have been positive catalysts to our recent performance. We expect this will be further enhanced by the impending appointment of our next executive commercial leader. From a timing perspective, we are in the very final stages of this process and expect to announce the appointment of a highly accomplished and experienced rare disease leader who we believe will elevate our capabilities and accelerate our performance. Now, moving beyond Lumerize's launch in narcolepsy, a few additional updates that are key to Avidel's future growth and value creation. First, enrollment is progressing and on track in our Phase 3 revitalized trial evaluating Lumerize and idiopathic hypersomnia. As previously communicated, we expect to complete enrollment in the trial before the end of 2025 and are targeting top-line data in the first part of 2026, followed by an NDA filing thereafter. To give you a sense of the size of the IH opportunity, there are approximately 42,000 patients diagnosed and only one FDA-approved treatment available today, which has reached approximately 10% of that population. If approved for use in IH, we believe Lumirise has the potential to unlock a significant additional unrealized market opportunity. Prescribers regularly express their excitement about the future prospect of being able to prescribe Lumirise for indications beyond narcolepsy and specifically IH. We consistently hear that having an uninterrupted, predictable, consistent, and fully prescribed oxybate dose night after night is important to patients and physicians. Luminize currently offers that potential for narcolepsy patients who have difficulty staying awake and believe it is only an intuitive to extend that potential possibility to IH patients who struggle with waking up. With clear market potential and vocal community support, we believe Lumerize, if approved, is well-positioned to potentially transform the IH patient experience. Beyond Lumerize, we are advancing efforts around a once-nightly no or low sodium oxibate program aligned with the target product profile that is bioequivalent to Lumerize. We believe this alternative formulation could serve as an additional compelling treatment option to serve patients dealing with hypersomnia-related disorders who could also benefit from the opportunity of an uninterrupted, predictable, consistent, and fully prescribed OxyBait treatment night after night. Now, moving briefly on to our litigation, we remain confident in our comprehensive legal strategy. And while we're waiting for decisions on certain prior matters, we are actively pursuing the following actions against Jazz to protect and further build our business. First, our ongoing defense in the initial patent lawsuit, where, as noted, we won an important appeal yesterday. Next, the antitrust case against Jazz, currently scheduled for a jury trial in early November, in which we are seeking total potential recovery well in excess of a billion dollars. And finally, our recently initiated offensive patent suits, in which we are asserting the once-nightly use of their mixed salts product in IH, as described in its label, infringes five Avidel patents, and which reflects our unwavering commitment to protect our intellectual property. Wrapping up my opening remarks, we're encouraged by the progress made across all aspects of our business, and in particular, the reacceleration of our Lumerize Narcolepsy franchise and yesterday's court decision. We remain focused on sustaining this momentum as we continue working toward a long-term goal of a billion dollars in lumerized narcolepsy revenue while expanding our impact to potential patient populations in the future who may also benefit from a once-at-bedtime lumerize, leveraging our innovative technology platform. With that, let me turn the call over to Tom to walk through our financial results. Thanks, Greg.

Before I begin, Please note that full financial results are available in the press release issued this morning and the 10Q. I will also be reviewing non-GAAP financial results, which can be found on our investor relations website at investors.avidel.com. Looking at the momentum and patient demand as we closed out Q1 and continued progression through the first month of Q1, we raised our guidance to appropriately reflect our performance expectations for the remainder of 2025. And as Greg noted earlier, We raised our full year 2025 net revenue guidance to $255 to $265 million from $240 to $260 million. We also are raising our guidance for patients on therapy to 34 to 3600 patients by year end from 3300 to 3500 patients in prior guidance. While we are increasing revenue guidance, we are maintaining our previous full year cash operating expense guidance of $180 to 200 million. At this time, given the long-term and unknown implications of industry-wide changes around potential tariffs and policies impacting biotech, we want to also provide visibility into our near-term expectations for Q2 performance. In that regard, we expect to generate 60 to 63 million in net revenue during the second quarter of 2025, with cash operating expenses in the range of 45 to 50 million. And by providing this additional guidance during today's call, we hope to impart more certainty and confidence in our full year guidance as we close out the first half of the year. Overall, our increased guidance underscores our conviction in the commercial investments we made at the beginning of this year, what they were designed to achieve, while further confirming that Lumerize is on its way to achieving a billion in revenue. In turning to financial updates, in the quarter ended March 31st, 2025, we reported net revenue of $52.5 million and gross profit of $46.9 million, compared to net revenue and gross profit in the prior year quarter of $27.2 million and $25.7 million, respectively. Additionally, I'll note that gross profit in the current year includes an adjustment in cost of goods sold for a potential 3.5% royalty on Lumerize net revenue related to the Delaware court memorandum and opinion issued in September of 2024. But to be clear, while this matter is pending a final resolution, it is a non-cash expense. A ruling from the Delaware court regarding a future ongoing royalty rate is pending, and while we intend to appeal the underlying jury decision regarding the validity of the patent, from an accounting standpoint, we have included a non-cash accrual and cost of goods sold. Also worth highlighting, As we scale above and beyond the $50 million quarterly revenue level, we expect incremental revenue and patient additions to increasingly flow through to the bottom line. This marks the beginning of a period of financial leverage for Avidel. And moving forward, we expect the growth in revenue and cash flow to continue over the coming year while maintaining financial discipline with regard to operating expenses. In turning to operating expenses, while we reported a 93% increase in year-over-year net revenue, we reported a 3% decrease in total operating expenses. Total gap operating expenses for the first quarter were $49.9 million versus $51.7 million in the prior year. The current quarter includes $5 million of non-cash charges comprised of stock-based compensation of $4.2 million and depreciation and amortization of $800,000. After adjusting for these items, cash operating expenses for the quarter were $44.9 million. The leverage inherent in our operating model is increasingly evident as incremental revenue and patient additions continue translating effectively into improved cash flow and profitability. We view this as a key inflection point in a validation of the strategic investments we've made during our initial launch phase. With respect to cash, the company ended the first quarter with 66.5 million of cash, cash equivalents, and marketable securities. We also want to take the opportunity during this call to provide perspective on our path to achieving sustainable operating break-even and cash flow. During the first quarter, GAAP operating loss was $3 million. After adjusting for non-cash operating expenses, adjusted operating income was a positive $2 million, calculated as gross profit of $46.9 million minus cash operating expenses of $44.9 million. This marks the third consecutive quarter of positive adjusted operating income for the company. And while cash flow was negative in the first quarter due to working capital requirements and higher gross nets, we expect cash flow for the full year, based on current plans and assumptions, to be in the range of $30 to $40 million versus previous guidance of $20 to $40 million. And on a final note, we want to address a topic that is top of mind for many, tariffs. As some of you may have heard from our public comments over the last month, based on what we know today, Avondale currently does not expect to be materially impacted by recent trade policy developments, as we've taken steps over the past four years to onshore all aspects of our manufacturing, which in turn builds strategic and de-risking redundancies into our supply chain. Importantly, we source our API from two suppliers, both in the United States And this has resulted in the majority of our manufacturing now being based in the U.S. And in addition to sourcing all API in the U.S., our U.S.-based manufacturer is already FD approved and is fully operational. With that said, we have the ability, if needed, to source exclusively from our U.S. domestic partners. With that, I'll turn the call back to Greg for closing remarks.

Thank you, Tom. Before we open the call for Q&A, let me summarize the opportunities that we believe can unlock value for Avid Alwin 2025 and beyond. First, our commercial investments have accelerated our growth and further advanced our growing leadership position in the narcolepsy community. We achieved strong results during the first quarter and expect continued execution during the remainder of this year. We are well positioned to generate sustainable positive cash flow from the trends we are seeing which is further bolstered by our highly leverageable cost structure and our increase in 2025 revenue guidance. We're pursuing opportunities to maximize the potential of our unique once-at-bedtime formulation beyond narcolepsy through our lifecycle management initiatives and are confident in our team's expertise to turn the promise of our innovative science into reality that could possibly benefit even more eligible patients. Based on our successful past actions to diversify and de-risk our supply chain, we are well-positioned relative to the current tariff dialogue as our infrastructure is predominantly based in the U.S., and we currently anticipate little to no impact. And finally, underpinning our progress lies our robust and growing intellectual property portfolio that protects Loomise and its underlying innovation until 2042. This is a foundational strength that we will continue to protect and defend, which is representative in our recent actions in this regard. As always, we thank you for your time and your support in joining us today. And we'll now open the line for Q&A. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster. Our first question. It comes from the line of Mark Goodman of LRINC. Please go ahead, Mark. Mark, your line is open. Please make sure your line isn't muted. And if you're in a speakerphone, lift your handset. We'll go to the next question, which comes from the line of Andrew Tsai of Jefferies. Your question, please, Andrew.

Hey, good morning. Thanks for taking the questions. Congrats on the nice progress. My first question is around the revised 2025 guidance. At the midpoint, it's around 260. You did 52.5 in Q1. You're guiding to 61.5 at the midpoint for Q2. So about $115 million for first half 2025. So is it fair to assume to get to your guidance, sales should be growing at a similar pace in Q3 and Q4, or Could there be bumpiness along the way? And if you had to rank order all the reasons why you're growing, such as improved growth to net less dropouts, more patient ads, what would that growth be based on exactly? Thank you.

Hey, Andrew, it's Tom. Thanks for the question. Yeah, you're exactly right. The first half of the year, at the midpoint of the guidance, it's about $114 million the first half of the year, which obviously leads to plenty of growth in the second half of the year. you know, in terms of, you know, your question around a sequence or sort of the cadence of quarterly net revenue, our goal is always is to grow quarter over quarter. And with, you know, leaving plenty of room to grow in the second half of the year, we would expect sequential growth quarter over quarter for the remainder of the year.

Yeah. Andrew, this is Greg. Thanks. In terms of your second question about like, what are the drivers and, you know, can we pinpoint or point to the major initiatives that have driven some of the improvements? I think, You know, in short, we've seen every key metric improve versus Q4. So I can correlate the expansion of our sales team and the expansion of our and switch and some modifications to our commercial execution that have driven, you know, more demand at the top of the funnel. Our expansion of our field reimbursement team certainly has pulled through patients faster to get more patient starts. And then, you know, the early signs of our work on persistency certainly increased. has trended very well to start the year. I think in all cases, we expected to see most of that improvement to begin to kick in in Q2 and beyond as we were getting our teams up and running. So we're pleased that we've jumped off pretty fast from that perspective and have continued that momentum here in the first month of Q2. So we're excited about those prospects. And I think all aspects of it are advancing in the right direction. But recognizing we've got a lot more to accomplish and a lot more to deliver. Right.

Makes sense. And then secondly, congrats on winning the appeal case yesterday. Was the precise nature of that ruling aligned with your base case scenario or was that perhaps the best case scenario for you? And then where do we go from here? When would be the next quote unquote litigation update? Is it basically when or if Lumerise is approved in IH later in 2027?

Yeah, I think the short answer is that was our base case assumption, and we're pleased with the results that came out as it's a clear and favorable and critical decision for us and for patients. So, you know, given that the Fed Circuit overturned some key aspects, important parts of that injunction, in terms of what's next in that regard, you know, that will be, you know, dependent upon others from that perspective. For us, it just gives us the clear path to continue to execute our plans that we had been planning to execute and advancing toward an NDA submission in IH as we complete the trial from that standpoint. So we're pleased with that decision and look forward to continue moving forward. Great. Thanks again. Congrats.

Thank you. Our next question comes from the line of David Amselem of Piper Sandler. Please go ahead, David.

Thanks. So just a couple for me. With IH, your competitor announced patient metrics last night for their product. And I'm just wondering, how are you thinking about the patient footprint, potential patient footprint for Lomerize in IH? Do you think it'll look similar to what we've seen for your competitor? That's number one. And then number two, just taking a step back, Being a single product company, it certainly has its pitfalls, particularly in this macro environment. I guess my question is, the success of Lumerise is notwithstanding. What's your appetite for bringing in another asset or assets to further drive growth of the company? Thanks.

Yeah, you know, to your first question on how we view the IH opportunity, we view it as highly untapped and ripe for, you know, new treatment options that offer our own unique and differentiated clinical value proposition. And we believe from that standpoint, like we've seen with narcolepsy, we can be successful sourcing patients from all segments. Patients who are diagnosed and not being treated today with an oxibate, patients who may want to or who struggle with waking up in the middle of the night to take a treatment for a condition where deep sleep inertia makes it very challenging, or for new patients who are coming into the fold, so to speak. So we believe it's right for all those positions, all those opportunities. And LumeRise is well positioned in that regard for this patient population, as we've heard extensively time and time again from physicians and patients alike who are looking for a treatment option where you can get the consistent, predictable, full therapeutic treatment night after night. And that's what LumeRise offers. In terms of your comment or question about IA, about kind of as a single product asset, we view it as a pipeline in a program from that perspective. We believe there's multiple shots on goal to leverage the innovative technology that we've developed with Lumerize and our platform to potentially benefit more patients who are pursued through lifecycle management and other related initiatives. So when you think about capital allocation and what's most important, focusing on the launch, deploying our capital to drive the commercial execution and launch of Lumerize is number one, and executing these initiatives from a lifecycle management number is number two, for sure. It doesn't mean we wouldn't be in the appetite or have the appetite to add assets or programs to our portfolio that is strategic and aligned with what we're doing today, and that's key. But from that perspective, our priorities are as I've just laid out.

Thank you.

Thanks, David.

Thank you. Our next question comes from the line of Mark Goodman of LeRink. Please go ahead, Mark.

Hey, guys. Sorry about that before. Tom, can you give us a sense of the average selling price in the quarter and how you're thinking about that for the rest of the year? Have there been any changes, you know, with respect to in the guidance and stuff? Thanks.

Yes. Mark, thanks for the question. You know, just as a reminder, Q1 is always heavily affected by gross nets. And if you just work through the math of our net revenue and average patients on therapy, you know, average net revenue for all patients, including patients on free drug, average, you know, a little under $80,000 annualized. But again, with the reminder that Q1 is always impacted by gross nets, our expectation is that net revenue is going to improve throughout the year.

And so for the full year, you're expecting it to be what? Last year was around 96,000. What do you think of this year?

Yeah, listen, it's hard to predict the full year, Mark. Maybe I'll just reference last year as an example. You know, from Q1 to Q2, we saw an improvement in net revenue per patient of about 5%, you know, from Q1 to Q2. You know, I think that we're looking right now, based on what we see today, the same sort of improvement from Q1 to Q2 this year. But again, you know, the full year is always hard to predict, but we're expecting improvement in net revenue certainly for the full year, you know, versus what we saw in Q1.

Yeah, and I think a major driver of that over time, Mark, will be more patients on therapy longer at steady doses relative to the number of new starts, which obviously started a lower value from that perspective. Thanks.

Thank you. Our next question comes from the line of David Huang of Deutsche Bank. Please go ahead, David.

Hi, thanks so much for taking the questions and congrats on the quarter. So just a couple on, I guess, kind of what you're seeing in terms of the patient mix. So did you get, I guess, a better mix of switch versus new to oxygenate patients this quarter? I seem to remember, you know, last quarter you talked about moving it in a more favorable direction. And then can you just talk a little bit about the tactics which were used to improve persistency especially among the new to OxyBase patients and whether you think there's room to further improve persistency. Thank you.

Thanks, David. On your first question about mix, I think most importantly, we saw every patient segment improve in Q1 versus Q4 with an acceleration in switch patients from that standpoint. So we did see on a percentage basis, we saw an improvement in switch as an overall relative to our patient starts in Q1. in Q1. So we're pleased with that progress. That's in large part driven by our commercial execution and both the combination of expanding our reach and how we've layered in some additional initiatives and focus for our organization to really drive that demand across the entire universe of potential prescribers, which is where we saw a lot of growth coming in Q1 from physicians who I would say have prescribed or marginally prescribed but not consistently prescribed or hadn't prescribed at all. We saw a lot of improvement in that area as a function of us expanding our reach from that perspective. In terms of your question around persistency-related matters, I think most important what we've done is we've expanded our nurses so their caseload can really allow them to have a more in-depth kind of engagement with the patient, not only at the beginning of the process, but all the way through the process. And as a result of that, we've implemented a number of initiatives in terms of at initiation of treatment and post initiation of treatment to continue to engage the patient regularly, in particular during these first kind of 90 days. And again, By no stretch do I think we've gotten to the floor. I think there's opportunities to continue to do better and our programs and initiatives operating at even a more efficient and effective level. But we're really pleased to see that as early as Q1, we saw a trend going the other direction, which was something that we thought was possible, but we thought was more unlikely. And we thought we'd start seeing that impact later this year, but we've seen it from the get-go. And again, that has continued through the first month of Q2.

Yeah, listen, maybe I'll just add to that, you know, persistency and, you know, switch patients are important from a revenue perspective, certainly. But, you know, really all patients are important to us. And, you know, as I commented, you know, during the prepared remarks, I would characterize, we've sort of reached that critical mass of patients on therapy and where every patient that's added at this point is a drop to the bottom line for us.

Thank you. Our next question comes from the line of Miriam Baggetti of LSC. Please go ahead, Miriam.

Hello, and congrats on the quarter. Thank you for taking my question. Just on the news from yesterday, It sounded like the federal court kind of remanded to the district court reconsideration on the patent infringement issue. Could you just explain what that entails exactly and whether an injunction is still possible, just given the news there?

Yeah, without trying to play attorney from that perspective in totality, on this matter where the federal circuit vacated the notion of enjoining us from seeking approval, what the district court or what the Fed circuit basically said is they're sending it back to the district court on the basis that the analysis that the district court had in making that and joining us on seeking an approval was too speculative and tenuous to reasonably conclude that in joining Avidel from applying for FDA approval is necessary to prevent future infringement, right? What, in essence, the Fed Circuit did is they remanded it back to the district court to consider that in the future from our perspective. But for us, it's very clear and very straightforward that that vacature gives us a pathway to file and secure and seek FDA approval. And that is a very important next step in our strategy here to be able to pursue that. Because I'll remind everybody, 24 hours ago, we were enjoying from doing that. And now we're not, right? Which is really, really important from that perspective for us as we think about our strategy to advance Lumerize in IHR. even other potential indications as we do that work. This is an important win for us, and we're very pleased with the outcome.

Makes sense. Congratulations on that win. Thank you.

Thank you. Our next question comes from the line of Ash Verma of UBS. Please go ahead, Ash.

Hey, good morning. This is Dee on behalf of ASH. Congrats on the news yesterday. So I have a two and a follow-up question, if I may. So the first one for the IH, how confident are you that your competitor may not attempt to block you with another preliminary injunction when you ultimately try to seek the FDA approval? And the second one on the lumerized patient mix, Do you have any specific goal for where you want the split to be in terms of like a naive versus a switch patient? Like how are you tracking towards that goal? And I have a follow-up after that. Thanks.

Yeah. So I'll take the first part of the question, and then we can certainly, Tom can comment on mix a little bit. I think it's really important. Again, remind everyone that, well, first of all, I won't speak for what other parties may or may not do. That's not for me to predict or provide commentary on what others may do. It's our responsibility to be prepared for any situation that can occur, which I can assure you we have been. And there's been a lot of historical commentary that we would be denied from getting an approval in narcolepsy. We'd be blocked from getting orphan exclusivity. All of those things occurred. And I'll remind you that we got an approval with orphan drug exclusivity in narcolepsy twice for adults and for pediatrics. And that was confirmed by a district court from that standpoint. So the district court, along with the FDA, has a clear understanding of the clinical superiority and differentiation of lumerize and narcolepsy, and it was recognized that the public interest would be served having our superior drug available for people with narcolepsy, right? We're prepared to continue to develop lumerize and other indications like IH to the same lens from that perspective. And we believe the opportunity to bring lumerize to those patients is really, really important. What anyone else tries to do, Um, they'll do from that perspective, we'll be prepared for it. And we have, we believe, uh, a track record that shows that we can be successful.

Yeah. With regard to your question on patient mix, you know, again, we're, we're really pleased with the results we saw in Q1, including one of the metrics, which was an improvement in the percentage of our patients who started therapy and remained on therapy. Uh, there were switch patients, you know, that was off from Q4 going into Q1. But just a reminder, the Oxibate market is a large market, and we're focused on growing all patient segments, whether it be switch patients or new to Oxibate patients or return to Oxibate patients. And for us, as I commented just a few minutes ago, we have reached that critical mass of patients on therapy where patient growth, regardless of which patient segment, is going to contribute to our profitability and our cash flow.

I think it's a really important comment that I'm just going to reemphasize that our source of patients, we're not relegated to only seeking patients from new to OxyBase patients. We're not only competing in the three or 4,000, 5,000 patients who are coming in every year to get new to OxyBase as a new to OxyBase patient. Although we're getting patients in that segment, we're sourcing patients from switch and previously treated who are returning to OxyBase. And that pool is, you know, multiple times larger than that of the new-to-occupate patients. So we're confident in our prospects to continue to grow and to continue to build Zoom runs.

Thanks for that. Just to follow up, I wanted to understand more on the 2026 implications for narcolepsy market pricing, just based on the potential very full generic entry. Can you share your latest thoughts on that? And is setting up a ramp cost prohibitive for generics? And does you see a very low chance of that happening?

Thanks. Yeah, thanks. I would say our overall kind of macro view on the potential for additional generics in 2026, much like what we've seen with the current authorized generic, it has had very little, if at all, impact on pricing or opportunity and formulary positioning and uptake for any brand that oxidates for that matter, and in particular, in our case, Lumerize. So I think we have to be prepared, and I can't comment as to whether or not the wherewithal of potential generic suppliers will or won't invest in a REMS. They're going to have to. If they want to be in it, they're going to have to invest in it, and they're going to have to manage it accordingly. But we have done a lot of work in this regard. dealing with our payers and what we can expect could potentially be the the net impact of this if it does come and pricing does collapse for the you know relatively speaking for the multi-source uh generics in this case and our view is is that where they're likely to be positioned is going to be in in the case for for if you will new to activate patients So in that case, if they are positioned as, in some cases, a step at it for new to OxyVe patients have to fail a twice nightly generic, if you will, from that standpoint, we think we're very well positioned to capture the switch patient coming off of that start. In particular, under our view that the investments that we have to make and other companies have made to try to help patients stay on therapy is high and it costs a lot of money. I'm not sure that every generic company will do that, but from our perspective, we think we're well-positioned to continue to grow Lumerize in the face of more generics. In particular, like I just said, the largest segment we're getting patients from are switched and previously treated and discontinued, and we're well-positioned to continue to get those as well as any step through from a new to oxidative patient.

Great. Thank you and congrats again.

Thank you. Our next question comes from the line of Ami Fadia of Needham. Please go ahead, Ami.

Good morning. Thanks for taking my question. It's nice to see the progress that's been made in the quarter with all the changes that you made effective early in the year. Can you give us some color on and maybe any specifics you can share around the discontinuation rates, how they have evolved, and what assumptions you've made in your updated guidance for the year. And I have one or two other questions.

Yeah. Thanks, Ami. I think the best way to think about how we think about and to share with you how we think about the improvements in discontinuations or a decline in those and or the improvement in persistency is When you look at how we think about those rates inside of a quarter, in Q4, we had calculated that discontinuation rate to be about 14%. And in Q1, although we had assumed that maybe that would stay flat or tick up in Q1 because of our patient mix, in Q4, we saw that number go down. So our number is lower than 14%, and we saw that occur across all patient types. with the most pronounced impact on newtoxibates, and in particular in the first 90 days. So our expectation is that we should continue to see some improvement in that regard as we continue to move forward and our systems and our programs get even more effective from that perspective. It will never get to zero, but we will continue to drive it as well as we can get from that standpoint.

Yeah, and Ami, on your question regarding, I'll say, implications to guidance on the improvements in persistency is part of the reason we raised the guidance. You know, we have, you know, certainly increasing levels of confidence and conviction in the programs we put in place. Our goal is to continue to move forward and continue to improve. And, you know, to state the obvious, the longer we keep patients on therapy, you know, the higher revenue is going to be. So, it's an important initiative for us. And again, we're just very pleased with what we saw in Q1 and what we're seeing for continuing trends in the very, very early part of Q2.

Got it. Can you also talk about some of the sort of offensive lawsuits that you highlighted in your prepared remarks in IH? Can you elaborate on that? It sounds like that's a new lawsuit. And then with regards to the federal court decision that was sent back to the district court. Can you talk about the timelines around next steps there?

Yeah. On your first question around the other suits that we have filed, this is us just asserting our innovation and our, you know, that we've developed in the form of Lumerize and related formulations and products for hypersomnia-related disorders. And so we have taken our own actions against Jazz in this regard, in our view that their label and their IH label, specifically around once-nightly dosing for a small percentage of their patients, infringes our intellectual property. So it's very straightforward from that perspective. We have five patents that have been allowed and granted that we believe they're infringing. And so we've asserted our rights as we have the right to do from that perspective. Again, I think as it relates to the decisions that came out of the court yesterday, I think most important from that standpoint is is that we're obviously pleased with that decision, right? We're pleased, we think it's a clear, concise, straightforward, and important win for us. In terms of what happened next, there is, I would just say, administrative steps that have to occur. Parties need to meet and confer. The Delaware court has set a timeline to report back to them by, I think it's May 22nd. So there's things that are going to begin to occur between both parties from that perspective. But at the end of the day, we're very pleased with this decision to put us in a pathway to go forward. Thanks, Ami.

Got it. Maybe if I can squeeze in one quick question, is that okay?

Sure.

Okay, great. Just with regards to the low sodium once-nightly formulation, you've continued to sort of work on that. Any specific color or timeframe you can put on that, that would be helpful. Thank you.

No, I think our expectation is we'll have more to say this year in this regard based on the work we've and the efforts our team has deployed. during the first part of this year, and we think that that's an important step for us as well, and we'll look forward to providing updates in the future on it.

Thanks, Ami. Thank you.

Thank you. Once again, to ask a question, please press star 11 on your telephone. Our next question comes from the line. of Chase Knickerbocker, of Craig Hallam. Please go ahead, Chase.

Good morning. Yeah, congrats on the nice results here. I'll share mine as well. Just first from me, as we await some data on the Rx and Agonist this year, can you just remind us on how you see the market fleshing out over the next couple of years as it relates to enemies and how you see the competitive environment, how you see... you know, kind of the split of the market, how these drugs can work together, et cetera?

Yeah, I think, you know, first and foremost, you know, we, like everyone, are paying close attention to this and following it accordingly. And there's clearly a lot of investor enthusiasm about their prospects. But for us, what we're most interested in is the clinicians and our prescriber perspective. So I would, and we've done a lot of work in this regard. We've come up, come off of a fairly large recent comprehensive research project talking to both key opinion leaders and a broad base of sleep experts, sleep specialists who treat a lot of these patients. And there's certainly excitement about this mechanism of action because of the nature of their wakefulness or wake promoting prospects. I think there's less clear view in terms of what impacts they may have on the nighttime And what physicians tell us very clearly is that narcolepsy and these disorders are both daytime and nighttime conditions from that standpoint. And so the view we get that should the erections navigate all the different regulatory and clinical and regulatory related matters that they have to navigate to get to a final and full approval at some point in the future, The feedback we receive from physicians is they certainly see an important role for OxyBates in particular because of its benefit in the nighttime and the opportunity for that to have complementary benefit to daytime. But when you think about the disrupted nighttime sleep, hallucinations, sleep paralysis, these things are important to be considered, and OxyBates are the standard of care in that regard. So we're quite... bullish on the prospects of Lumerize and the Oxibate category in a post-erection world from that standpoint. And it's something we'll continue to stay close to as their development programs continue to move forward.

Hey, Chase, it's Tom. Maybe I'll just add to that. It's very exciting technology and the investor community is obviously very interested in erections, but it's a long road from going from a controlled clinical setting to an FDA approval and ultimately to commercialization. It's a long path and sometimes a difficult path. And we're probably two to three years away from seeing erections come on the market if they do get through the approval process and commercial launch process.

Thanks for the thoughts, guys. And then, Tom, maybe one more for you. Thanks for all the comments on the manufacturing side. But just to kind of put a finer point to it, can you just As we await the pharma tariffs in the next couple of weeks, can you remind us, let us know how you treat transfer pricing within your organization and whether or not there could be any potential exposure there, depending on how these tariffs are struck? Thanks.

Yeah, Chase, I don't want to venture too far into the theoreticals and hypotheticals on that question, but we are an Irish domiciled company. But I want to reiterate the point that, you know, we have domestic U.S. manufacturing throughout the supply chain that's available to us, which really, you know, mitigates, you know, substantially, if not altogether, the potential impact of tariffs. So I don't really want to get too far into the, you know, the question around transfer pricing, but I feel like we're really well situated right now. And we're prepared for, you know, whatever may come down the road with respect to tariffs.

Thanks, guys.

Thank you. I would now like to turn the conference back to Mr. Divis for closing remarks. Sir?

Thank you very much. We appreciate all of you joining us today, and we look forward to providing you additional updates throughout the balance of this year as we continue to make progress. Thank you very much. Have a great day.

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