Lauren Stival - Senior Director of IR and Corporate Communications Michael Kanan - CFO & Senior VP Michael Anderson - CEO & Director Gregory Divis - Chief Commercial Officer & Executive VP David Monteith - VP of Research & Development

John Boris - SunTrust Robinson Humphrey Scott Henry - Roth Capital Partners Matthew Kaplan - Ladenburg Thalmann Jason Butler - JMP Securities François Brisebois - Laidlaw & Company

Welcome to the Avadel Pharmaceuticals Second Quarter 2017 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Senior Director of Investor Relations, Ms. Lauren Stival. Ma'am, you may begin.

Good morning. I want to welcome you all to Avadel Pharmaceuticals Second Quarter 2017 Earnings Conference Call. Before we begin, I will start with some cautionary statements. The following presentation regarding Avadel Pharmaceuticals Plc. includes a number of 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 include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements, uncertainties regarding market acceptance of products and the impact of competitive products and pricing. These and other risks are described more fully in Avadel's public filings under the Exchange Act, including Form 10-K for the year ended December 31, 2016, which was filed March 28, 2017. Except as required by law, Avadel undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise. We'll be using a slide presentation for today's call, which can be accessed by going to the investor section of our web site and selecting the events and presentations page. After the prepared remarks, we'll be opening the call to question-and-answer period. On the call today, we have Michael Anderson, Chief Executive Officer; Mike Kanan, Chief Financial Officer; Greg Divis, our Chief Commercial Officer and David Monti, our Vice President of Research and development. Greg and David will participate in question-and-answer session at the end of the prepared remarks. At this time, it is my pleasure to turn the conference call over to Mike Anderson, our Chief Executive Officer. Mike?

Good morning, ladies and gentlemen. As always, we appreciate your joining us. On today's call, we will discuss our ongoing business operations, our future development plans, as well as our financial results of the second quarter and outlook for the remainder of 2017. However, we'd like to begin by taking a few minutes to take kick off our call, providing you with an update on the progress of our REST-ON phase III clinical study of FT218. Working hand-in-hand with our CRO, Avadel's clinical and senior R&D teams, have been very actively involved in our trial, participating in and driving everything from site initiations to investigator and patient engagement programs. Late last weekend, we hosted a meeting to discuss best practices and enrollment strategies for our U.S. and Canadian clinical site coordinators, many of whom are managing the ongoing enrollment and day-to-day trial activities. As of today, over 80% of our originally selected clinical sites are fully active, including 70% of our clinical sites in the U.S. and Canada and all of our European sites. As of last week, all 6 Canadian sites are active and we expect the majority of our remaining U.S. sites to be actively screening and enrolling patients by early September. We've been hopeful to have these sites initiated earlier. However, delays surrounding the release of schedule 1 site licenses by DEA, which has recently changed its internal processes for this activity, have negatively impacted the activation of certain U.S. clinical sites. Unfortunately, there's little we can do to expedite this process, except to continually follow-up with sites still waiting for their licenses to be released the. Although, overall, the study is progressing very well and with a good overall safety profile so far, as a result of these U.S. site activation delays along with exacting inclusion and exclusion criteria required for the study, our CRO now believes completing enrollment by year end may now be unlikely. We are continuing to push enrollment as rapidly as possible and have been very proactive in helping to drive enrollment. Recognizing from the start, the challenges associated with finding study participants in such a rare disease population, we have instituted a number of initiatives in order to optimize patient engagement with the study and to speed up the enrollment process, including an aggressive social media program, implementation of a patient advisory group, advertising and academic journals and we are currently internally supplementing the work being done by our CRO. Over the last couple of months, as the remaining sites have been activated, we have seen a significant uptick in patients being screened and enrolled. And although we cannot guarantee an end-of-the-year enrollment completion, we have not and are not changing our expectation of filing the NDA in the second half of 2018. Sodium oxybate is an extremely important project for Avadel, and even though our patient enrollment may not be fully completed by year-end, we have made remarkable progress in both the clinical study and in a number of other areas related to the completion of development and eventual NDA filing of the product. We have completed our registration manufacturing campaign at commercial scale and have initiated a registration stability program. Now, moving on to our revenue-generating business efforts. We, again, exceeded financial expectations on both the top and bottom line in the second quarter by generating $46.3 million in revenues and an adjusted EPS of $0.19 per share. On the injectables front, we continued to see increased competition from generics, with a fourth neostigmine product approved during the quarter and some pretty aggressive pricing pressure in the ephedrine market. With that being said, I'm quite pleased with where we were able to end up the quarter and will continue to maintain share and price to the best of our ability. However, we do expect revenues from Bloxiverz and ephedrine to decline a bit more over the next quarter or so. In the neostigmine market, a competitive product, sugammadex, has tucked in somewhere in the neighborhood of 40% to 45% of the overall neuromuscular blockade reversal market. However, as recently as last week, Bloxiverz still held about 38% of the overall neostigmine volume. For our ephedrine product, Akovaz, we saw some aggressive pricing during the quarter and GPO market and we have done our best to insulate ourselves through our sales to a different segment of the market. I think this market will level out a bit going forward and will continue to be a strong opportunity for us now that the third player has really become vested. Our phenylephrine product, Vazculep, has been steady state for quite some time generating about $10 million per quarter. We do, however, continue to model additional competition to be conservative and this has been taken into account in our updated guidance, which Mike will discuss shortly. As many of you are aware from our most recent calls, we have a fourth unapproved product currently under development. Initially, we believed we'd be able to file by the end of this year. However, during the development process, we actually have discovered a way to make what we think is a meaningful improvement over the current unapproved product. And we think this has the potential to give us a leg up on safety, although it will cost us a little more time in terms of target filing date. It's now more likely to be at the end of the first half filing, but we feel pretty good about the improvements we're making and some benefit we may be able to gain around them. In the past, we have mentioned a fifth potential unapproved product. We continue to have discussions with the FDA on what the appropriate clinical pathway might look like. Although we won't see revenue from the fourth product until at least 2019, while revenue from the fifth, should we move forward, until 2020, the benefit to our bottom line will be twofold. As they're not subject to any gross profit share and income generated will be in Ireland, which should help improve our tax mix. Everything from a product development and commercialization standpoint we do will be optimized from a tax perspective. On the internal development side, we still have a number of projects under feasibility using both Micropump and LiquiTime. And we should be on track to potentially discuss in more detail at least one of these in the not-too-distant future. These technologies I think tend to get a little overlooked since so much of the focus is on our hospital products and sodium oxybate. But really this technology is the key piece behind sodium oxybate and we believe it can be a value add to other products as well. This brings me to another piece of our growth strategy moving forward, which is business development. I think it's important to add that since his arrival at the beginning of the year, Greg Divis has really kick started our business development effort along with our pediatric marketing effort. Very important to our creation of a successful specialty pharma company is our ability to find meaningful, strategic opportunities for potential acquisition. Our objective in this area is to find products that are accretive, that can provide leverage to our existing business and that can provide Avadel revenue and product protection going forward. Strong IP protection is very important to our efforts. We are not interested in renting products for the short term. We're pushing very hard on this front and I would say it's our hope to close a deal in the short term. We're very aware that we need to continue growing outside of our hospital portfolio and diversify our revenue streams. Although we know our pediatric products have yet to provide meaningful revenue, they are on the upswing and we continued to build this piece of the organization. We have made headway in a number of areas, especially in managed care access for carvedilol. On a year-over-year basis, we have been able to grow scrips for carvedilol 34%, while the liquid and a steaming market grew only 1%. Additionally, be recently launched our Flexichamber, a portable spacer device for use with MDIs and did sell in the second quarter, for which initial feedback from physicians has been very positive. We believe the key to success with this product is via the pharmacist and having Flexichamber as a preferred pharmacy brand. We are working hard to make this happen and have already made some headway. I think this side of the business is 1 we can grow. We have a very positive outlook on how our BD efforts can contribute to this overall effort. Before turning the call over to Mike Kanan, I want to make 1 last comment regarding the action that we announced earlier this year relative to our research and development site in Lyon, France. We previously described our intention of reducing the personnel at the site by about 50%. We want to report that the French authorities have approved this collective dismissal and the process as well underway. It should essentially be completed by the end of September. This reduction should make the company stronger, should help to align the human resource needs with the company's objectives going forward, and should allow us to better focus on the project that need to be completed on a timely basis. I'll now turn the call over to Mike Kanan, to discuss our financial results in more detail. Mike?

Thanks, Mike, and thank you all for joining us today. As you have seen in this morning's release, we had another good quarter financially. Our top line exceeded expectations and our bottom line or adjusted EPS came in at a strong $0.19. I'm particularly pleased with the progress we have made at lowering our adjusted tax rate from its previous levels. But our tax rate can and will continue to be volatile until we have a sustainable revenue base in Ireland or more expenses in U.S. to offset some U.S. taxable income. We're cash flow positive and for the 6 months ended June 30, we generated just about $34 million in operating cash flow. And we used some of that operating cash flow to acquire about $14 million worth of our shares during the quarter as part of our share buyback program. Now, let's talk more specifically in how we performed in the second quarter. Revenue in Q2 was $47.4 million, down $5.1 million from Q1's record level of $52.5 million on weaker Akovaz revenues, primarily due to price. Our 2 other sterile injectable products; Bloxiverz and Vazculep, were essentially flat compared to Q1 of 2017, as shares of Bloxiverz remained near the 40% level and the markets for Vazculep remained stable. When compared to the second quarter a year ago, revenue was up organically 22% as Akovaz had yet to be launched. Please note that our non-GAAP results exclude a downward adjustment to revenue of $1.1 million, resulting from our reassessment of the time it will take for the company to complete certain contractual requirements mandated by a certain license. Accordingly, we made a cumulative catch-up adjustment to lower our GAAP license revenue by $1.1 million. To provide better comparability to our revenue numbers, we have excluded this one-time noncash adjustment from our non-GAAP results. Gross margin was 90% in Q2, down slightly from Q1's gross margin. This decline was due to lower customer pricing. Research and development expenses during the first quarter totaled $6.8 million compared to $7.2 million in Q1. The decline in R&D spending is a result of lower incurred expenses at our CRO to better align spending with the progress of the sodium oxybate trial. SG&A was $12.4 million in the second quarter compared to $11.8 million in Q1 and $11.2 million in Q2 of last year. The increase in SG&A compared to Q1 and last year was largely due to higher costs associated with certain business development activities, higher audit related costs and certain prelaunch marketing research studies for our sodium oxybate program. I expect SG&A to range between $11 million to $12 million per quarter for the balance of 2017. Our contingent consideration expense was $8.5 million in Q2. This non-GAAP expense is the cash payments and accruals we make for our contingent consideration liabilities. As many of you know, as part of the Eclat purchase, we paid 20% of our gross profit on the first 3 unapproved-to-approved products, Bloxiverz, Vazculep and Akovaz, indefinitely to a certain related party. This amount will obviously vary from quarter-to quarter depending on the sales and gross margin levels of those 3 products. Continuing down our P&L, other expenses, changes in the fair value of related party consideration was $1.2 million in Q2. This non-GAAP expense also relates to cash payments and accruals for royalties on net sales of Bloxiverz, Vazculep and Akovaz. This amount will also vary quarter-to quarter depending on sales levels of those three products. As I said earlier, on a non-GAAP basis, diluted EPS was $0.19 per share for Q2. Our non-GAAP effective tax rate for the quarter was 43%, lower than our guided range of 60 to 70. This lower-than-expected tax rate is driven from a better mix of Akovaz revenues and lower R&D expenses in Europe. As you recall, a large portion of our Akovaz revenue is recorded in Ireland, where the product was principally developed. The rest of our revenue is in the U.S. where it is taxed at a corporate rate of 35%. Most of our expenses, however, are incurred in France and Ireland, but we have no history of income and therefore, cannot record for accounting purposes any tax benefits. In addition, our contingent liability payments are also not tax deductible as they are part of the acquisition cost of Eclat. These factors create an effective tax rate, which exceeds both the U.S. statutory tax rate and a 12.5% Irish statutory tax rate. Since most of our Akovaz profits are in Ireland, we expect our adjusted tax rate to decline in 2017 when compared to 2016; however, we won't see more normalized tax rate until we launch additional products from Ireland. Let's move onto the next slide which covers our GAAP results. I would refer you to the appendix in today's slide presentation for a reconciliation of our non-GAAP results to our GAAP results. As we've said in the past, the primary difference between our non-GAAP and GAAP results relates to how we treat the acquisition-related earnout contingent liability and restructuring costs. For our non-GAAP numbers we substitute the cash payments and accruals for those amounts and we record for GAAP, we record the fair value of such amounts. We believe this is a better way to measure performance of the business. In the second quarter, on a GAAP basis, we recognized a gain of $13.2 million, which represents a lower fair value of acquisition-related liabilities for our first 3 UMD products, primarily because of changes in the pricing environment for Akovaz and a slightly weaker long term sales and gross profit outlook for Bloxiverz. Keep in mind, these gains are reflected on a GAAP basis only and are not reflected of the cash requirement associated with these liabilities. In addition, we owe contingent royalties on total revenues of 3 UMD sterile injectable products to certain related parties. We adjusted the fair value of these liabilities as well and recorded a noncash gain on a GAAP basis of $1.7 million in the second quarter for the same reasons I just noted. This true up is included in other expense changes in fair value related party payable. Additionally, in our GAAP results for Q2 were $1.1 million in restructuring costs. As Mike mentioned earlier, in the first quarter of this year, we did announce our intention to reduce workforce in Lyon by approximately 50%. We expect the reduction to be substantially complete by the end of the third quarter of 2017 and to incur employee severance benefits and other costs of up to $4 million, which will likely be recognized through the balance of this year. Once fully implemented, the company anticipates annual pretax cost savings of roughly $3.5 million to $4 million. Restructuring costs incurred for the 3 months ended June 30, 2017, reflects an adjustment to the initial estimate we made earlier this year, resulting from the final outcome of negotiations with our French Labor Works Counsel. Our GAAP net income for the second quarter was $28.9 million or $0.68 per diluted share compared to net income of about $26 million or $0.61 per diluted share in the first quarter and a GAAP net loss of $20 million or $0.47 per diluted share in the same period last year. The increase in net income in Q1 -- Q2 is largely due to lower operating expenses and higher gains associated with our contingent consideration liabilities. Moving onto the next slide, which is sales by product, sales of Bloxiverz were $13.7 million in Q2, essentially flat with the $13.9 million we recorded in Q1 of 2017. Our share of the neostigmine market was relatively flat, hovering just about 40% for most of 2Q. Compared to the prior year, revenue did decline $11.9 million, due to lost business as a result of new neostigmine competitors who entered the market in the first quarter of 2016 and a new molecule approved by the FDA in late 2015. Sugammadex is an alternative molecule to neostigmine and now accounts for about 45% of the neuromuscular block reversal agent market. We are pleased that the total neuromuscular block reversal agent market has seen a modest increase, and that our share of neostigmine remains approximately 40% as we entered Q2. Sales of Vazculep were $10.2 million, essentially flat with Q1 and the same period last year. Pricing and volumes remained stable in the Q2. Akovaz sales was $20.9 million in Q2 compared to $25.6 million in Q1. The decline in a Akovaz revenue compared to Q1 was a result of aggressive competitor pricing. Akovaz's market share in the total market, which includes the GPO and repackager market, is greater than 40%. We are pleased with the progress we have made with customers outside of the traditional GPO markets and will continue to pursue this channel. In Q2, our pediatric sales total roughly $2 million, up 33% from Q1 and 13% over Q2 last year. Leading the way continues to be Karbinal ER, our most important and primarily promoted product, where prescriptions were up over 34% compared to last year, while the total market was relatively flat year-over-year. Moving on to our cash flow summary, our operating cash flow for the 6 months was a strong $34 million, and thus we ended the quarter with $174 million in cash and marketable Securities, up from $154.2 million at December 31. As I said, we used $13 million for share repurchases during the quarter. We will constantly evaluate based on our needs for cash whether or not to continue share repurchase program. Our priorities remain to invest in organic and inorganic growth. Should we have excess cash after those investment decisions are made, consideration will be given to returning some to shareholders through this program. Nevertheless, our liquidity is strong and we continue to be cash flow positive and expect to be so through 2017. In closing, let me provide some additional commentary around changes to our 2017 guidance. As you are aware, at our last earnings call, we announced a 2017 revenue guidance between $170 million to $175 million and adjusted diluted EPS between the $0.30 and $0.45, which included an adjusted effective tax rate of 60% to 70%. We are revising and tightening our revenue guidance to $165 million to $175 million. This revision is due to the previously mentioned aggressive ephedrine pricing by competitor. Regarding R&D, we now expect to be in the range of $30 million to $40 million. This factors in the 6 months of actual spending and aligns our CRO spending with the progress of our sodium oxybate study. As Mike mentioned earlier, we're still in process of initiating sites in the U.S. and we expect R&D spend to increase in the second half of the year as these sites get up and fully running. And finally, we still expect diluted adjusted EPS to be in the range of $0.30 to the $0.45 for the full year. With that, I will turn the call back over to Mike before taking questions. Mike?

In conclusion, I think we kicked off a year on a strong foot with some very solid financial success, and forward progress with our REST-ON trial. We're profitable, we're generating cash and I believe we have a number of exciting potential opportunities ahead of us. I look forward to providing more updates in the back half of this year as we continue to execute our business development strategy and work towards other key milestones. We do appreciate your joining us today. And with that, operator, we will open the call for questions.

[Operator Instructions]. And our first question comes from John Boris with SunTrust.

First question, Mike, just has to do with the REST-ON trial. Can you just remind us the total amount of R&D that you'll be spending on that trial? And I appreciate the update on the number or percent of centers that are opened but can you possibly give some actual patient enrollment numbers at your European, Canadian and U.S. sites on REST-ON?

Sure, John, thanks for the question. First and foremost I don't think -- first of all, we're not going to be able to on this call to update the number of patients enrolled. The enrollment process can -- is a combination of enlisting patients into the study, screening them, randomizing them and the like. So we're probably going to defer to answer that question. As it relates to the amount of money that we have guided people to as our component of the R&D spend, we haven't been specific on the sodium oxybate trial. What we have said and what Mike just reported in the earnings, I mean, in our guidance for R&D spend the remainder of the year, I think you would feel -- you should understand would be mostly reflective of the sodium oxybate study and its ongoing clinical patient enrollment. So for a total spend at the end of the year, somewhere in the neighborhood of $40 million, you should assume that overwhelming majority of that will be spent on sodium oxybate.

So can you give Mike, any guidance in terms of since your CROs indicated you don't expect to meet the enrollment deadline by the end of the year, when would you believe you'll be able to fully enroll the trial?

Well, we have not changed as you know, John, our expectation of filing this NDA in the second half of 2018. In order for us to do that, we would expect data some time around midyear and that gives us some flexibility on patient enrollment if in fact, we don't completed over the course of this year. It will be done certainly by the end of -- no later than the end of the first half in order to have the data. So hopefully that answers and is responsive to your questions some method, which is something we'll continue to work on. We have ramped up a lot of our effort. We have, for example, increased the number of sites that we originally intended. We have, I think, it's 6 or 7 additional sites that we're looking at opening up now that we've identified since the study began. That should help us with that enrollment. And as each week, we're adding patients and sites to the study. So we're doing everything we can to keep it on track. And no matter what, we've not contemplated nor do we at this time not filing that NDA in 2018.

And our next question comes from Scott Henry with Roth Capital.

The first question on the Bloxiverz front, sugammadex obviously you're making more significant inroads than anyone would have expected. Just do you think it's starting to stabilize at this point? Or is that a 45% share and climbing type number?

I think, Scott, over the last several weeks, though they've continued to grow their sugammadex share, no question about that. As part of our guidance and our adjusted guidance for the course of the year, one of the things that we have modeled is in addition to new competition is the continued growth of sugammadex. We have a belief that we're getting pretty close to the top end of that. It's unlikely to me that sugammadex would grow to significantly overtake the entire neostigmine market. But I would not say that we have seen the end of its growth at this point in time. I do think there's been some flattening of its growth over the last 6 to 8 weeks or so.

Okay. Great. And the follow-up question, which I'll try to make it 2-part question. Obviously, when you take a gain in your fair value, that implies some sort of impairment to that asset, because you'll be paying out less on the back end. Could you talk to specifically what changed in your assumptions -- you may have already hit on this on your prepared remarks, but I just want to flesh that out. And then perhaps for your 3 products, if you can just walk through the number of competitors out there currently, just we all cover a lot of companies. I just want to make sure I'm looking at those categories accurately in what's reflected in your assumptions? Sorry for the back ended question.

Scott, it's Mike Kanan, I'll take first part and I'll let Mike answer the second one. When we look at our fair values of those contingent consideration liabilities, there are a number of assumptions that we make around our 10-year forecast to compute these assumptions. The couple of large assumptions include market share and it includes pricing, it includes the cost of goods sold associated with these products. And you're right. When we take gains, that's a reflection of weaker or lower long term outlook for the markets that those products are in. And as I said in my comments, we took the gain in this quarter, principally because we've seen some pricing -- aggressive pricing from our competition and the long term pricing environment for ephedrine has been lowered a bit, and over a 10-year period, that creates a compounding effect in the value of those liabilities. That's primarily the reason why we had this gain in the second quarter of this year. Also the Bloxiverz market neostigmine, as Mike mentioned, sugammadex is likely leveling off here, but we did take a slight reduction in the Bloxiverz long term forecast as well to compensate for the competition we see out of the sugammadex product. So those reasons are primarily what causes these kinds of shifts in the value of the liabilities.

So part two of the question, Scott, was how many competitors for each product. We have 3 products in the marketplace. The one that's been there the longest is Bloxiverz or neostigmine. We have 3 competitors in that marketplace. They include copy who's been there almost since the start, Westwar and more recently, Par. When Par entered the market sometime around the February or March time frame, we saw some degradation in the price. We also saw some share loss, although I would say that at that point most of the share loss came from others and as we or as several of us have discussed, we still owned the lion's share of the neostigmine marketplace. At the end of Q2, it was about 40%. The most recent IMS numbers reported as around 38% and it changes each week. And in the neostigmine marketplace, we have not seen, as of late, additional erosion of either share or pricing. That seems to have taken place already. Although in the generic market can be very stable and then start back up again. So 3 for neostigmine. In the case of phenylephrine, we have 1 competitor and that's picma [ph] Westward. They have -- we both have 1 mL presentation. And we also have the 5 and 10 available and that's been pretty steady state as we have talked about. And the third product is ephedrine. There are now 2 competitors to the ephedrine market. When we received our approval, Akorn was out there with an unapproved vial or unapproved ampule. They have since received an approval for that ampule. So they never left the marketplace. And then Endo or Par, who we had known had been working on ephedrine actually received their approval sometime early in the year which was about 4, 5 months before we had modeled it showing up. So as a result of that, we saw a lot more price erosion than we would have expected to see in a 3 player market and but we have been able to hold on to our share, our combined share of the marketplace is probably somewhere in the neighborhood of 40% at this point in time, which as you know, is composed of not only GPO market but also repackager business. So we've done very well. Akovaz is important because a lot of it is based in Ireland, where the tax benefit is more attractive. And frankly, our guidance for the remainder of the year, the EPS stayed the same. The guidance if we saw no more price erosion, no competition then it could prove to be conservative.

And our next question comes from Matt Kaplan with Ladenburg Thalmann.

So just first off just want to dive in a little bit more into the REST-ON Phase III study, FT218. You're pointing towards, I guess, in your prepared remarks, a DEA license process and that taking longer than expected. Have you put in place changes to facilitate that? And what was the, I guess, the hurdle you had overcome? And then secondly, are there other issues you're running into in terms of enrollment, competitive trials or something like that?

Since we've got a benefit of having David Monteith here, I'll let him answer that question for you.

Okay. So in terms of the DEA issue, it's actually something that varies around the U.S. From state to state, we've found there's been differences in how these license and activities are handled at least in terms of how long they take. There is a little we can actually do to intervene between processes that take place between DEA and FDA and agreeing to the issuing of the licenses for the trial. We've worked very closely with our CRO. We worked very closely with the sites to try and maintain a presence and where we felt it was appropriate and sort of chase up the approval of the licenses, and so the sites could be started. But really there's a limited amount that we could do in terms of when it comes to directly interacting with the DEA on these issues. So overall, I think the process we've got it under control. We are getting towards the tail end of the initiation of all of the sites that we had originally selected. As Mike said, there are a few additional sites that we're looking to add to the trial but, of course, they have to be sites that we want to get up and running in a very short period of time to make them worthwhile additions to the study. In terms of overall recruitment, I wouldn't say so much any specific challenges that have arisen over the course of last few months that are impacting. We knew going in that this was going to be a challenging study for us to recruit against. It's a rare population. It's a placebo-controlled study. It's quite a long study overall for the patients to participate in as well. So and also the fact that as is known, we are looking for sodium oxybate naive patients and that takes a number of potential patients off the table for us. But we recognized all of that and we put a lot of systems in place, we put a lot of initiatives in place in order to keep the enrollment moving and try and ramp up as quickly as possible. And we feel that we're making good progress. I think overall, we see we're trending a little bit below the recruitment curve that we had anticipated running towards the end of the year. We're doing many things in addition to what we had done preemptively in the study to try and boost that recruitment rate. And so that's really where we are. I think we've got lot of encouragement in terms of the progress of the study, but we're just a little bit behind the recruitment curve that we had anticipated at this point.

So it seems like really the rate limiting step is getting past these DEA licenses and then I guess, are there any sites that sites that are underperforming compared to what you had expected? Or is it kind of across the board once they're up and running I guess is the question?

I think you'd find in any study that you're going to get a range of performance against what was expected and where we see maybe a site isn't quite performing as they had anticipated and we had anticipated. We have a very strong engagement with our investigators. We have a very strong engagement investigators with the study coordinators. And we do follow-up on a very, very regular basis with all the sites, whether they are performing well or they're performing not as well as we would have expected.

And then just shifting gears a little bit in terms of Mike mentioned kind of your internal development programs with LiquiTime and Micropump. Can you give us some more detail in terms of how many programs you have in the works and when we should see some either data from them or changes in status in terms of moving those forward?

So, Matt, to answer your question, we have a number of projects that are ongoing from what we've described or call feasibility. You can call them proof-of-concept perspective in our Lyon facility. We've had, over the last year, it's kind of a constant flow. We've identified what we think are meaningful product opportunities. We've had over the course of that time, some washouts of those products which would be expected. But we do have now slate of products and we're very hopeful that even potentially by the end of the year, we can talk about a product or 2 that might be -- that might take the next step. And for us, the next step would be to complete the development and BD studies and get it going in the marketplace. We look at 2 components to putting products into what I call proof-of-concept now. One is the commercial value. We're solving to try to create solutions for products that are -- for the most part already have known efficacy and safety and are valuable therapeutic agents but products that are somehow restricted by either a PK or PD profile or some sort of bizarre dosing or whatever it may be. At the end of the day, the bar for those opportunities has been raised. The old I'll create an excel form and get it paid for really doesn't apply anymore. So you have to be more discerning. And so that process for us is a lot more elaborate than it used to be. The second component is, is once you've identified the product, can you -- will our technology permit us to create the product, to create a solution that we're looking for the target profile, do it on a consistent basis and before we began all that process, do we have a pretty good feel that we're going to be able to be successful. And that's to make sure that the maximize our investment R&D and our spending. And so all of those kind of things. So over the course of last year, we've had products that we've put into the program, that we either had a technical issue with. We had other products where the market changed and it's going to be a little bit like that for the time being. But we have some interesting looking things today and will have to see how they materialize down the road.

And of our next question comes from Jason Butler from JMP Securities.

Just quick one on the Akovaz pricing dynamics. Can you talk about whether you're seeing any stability more recently in pricing? And I know this question always comes up for your posts, anything which gives you confidence that pricing will remain somewhat stable for the rest of the year?

Jason, this is Greg Divis. I think we've seen the market start to settle over the last I would say 4 to 6 weeks. Share has stabilized from that standpoint and access pricing standpoint as stabilized as well.

And our next question comes from François Brisebois from Laidlaw. François Brisebois: Just quickly here. You guys have hit on a lot of stuff, but in terms of tax rate 43%, I know this is moving a lot, should we still be expecting a 60% to 70% rate by the end of the year?

Frank, yes we do still expect our tax rate to be roughly in the area of 60% to 70% for the balance of this year. So we didn't really change our outlook on the tax rate. François Brisebois: Got you. Just in terms of the readjustment for revenue guidance and 165, 175 from what it was 170 to 185, how much is this I know, you guys talked about the ephedrine pricing pressure and the neostigmine competition, is it mostly due to the pricing pressure or it seems to be stabilized as we just mentioned? Or is this mostly in terms Bloxiverz and just the competition kicking in?

Frank, I think what you've seen is a combination of both. We continue to model declining pricing, that may or may not happen. We've seen pricing be somewhat stable lately. So that could be very conservative in that regard, if it doesn't. And other thing is we've modeled additional competition. And we have no knowledge of anybody coming out. But as a matter of practice, we typically begin the year and all through the course of the year model potential for competition. As you know, we have no IP on these things. It's one of the drawbacks of these markets. But if you look back over the history of neostigmine and phenylephrine and ephedrine for us, these are products some people wrote off after 1 year and yet they are still producing meaningful cash flow for us, which is what they were always designed to do. But it reflects both new competition and continued declining pricing, which would in effect also cost us some share. If those things don't happen then it's conservative. François Brisebois: Got you. And just 1 follow-up, if I can. In terms of the measures that you guys are taking and basically your confidence with the enrollment being a little slower than you thought, what is it that out of the measures you guys quickly mentioned a couple and the social, the advertisement and stuff, is it just more sites and basically how you -- why are you guys so confident that you can still get this NDA filed by the year end of next year?

This is David Monteith, I'll take that. As I said, we're trending below the randomization recruitment cuts that we had but not massively sold. So we see that we have a challenge to meet the end of the year or very early next year recruitment. I think there are a number of additional programs that we put in place. I think in terms of the site engagement and being very close with the sites and keeping this trial at the top of site's list of trials, for example, is 1 area where we're working pretty hard, both investigator, study coordinator as well as our CRE engagement with the CRO, it's something that we spend a lot time on to try push the priority of our study and keep up. I think we've developed also very good relationships with patient groups, both in Europe and in the U.S. So things like our own patient advisory group, we have 1 both in the U.S. and the Europe as well, which gets us good great insight into how patient thinks, about how they think about participation in trial. It does give us some additional social media awareness of the study. We have the specific social media campaign that we're running to link patients to the study sites. There are a number of areas and simple things like travel reimbursement for patients. Because again, with this being a very rare population, and overall, we have between 50 and 60 sites. It geographically doesn't cover huge amount of areas. So we're looking at creative ways of bringing patients in to participate in the study. The additional sites we've already talked about as well. So there are a number of things that we have ongoing that we feel very good about and that's why we're saying that while we're trending a little bit below, I think with all of the activities that we have ongoing in terms of trying to bring in new patients into the study, that we don't think will be very far away, and that's why we still believe will be in a position to file the product in the second half of next year.

And our final question comes from a follow-up from John Boris from SunTrust.

Mike, just possible to get an update on LiquiTime program that you have in place on Mucinex with Perrigo? And then just thoughts on reimbursement on the Flexichamber that you mentioned, just any thoughts on what percent of managed care has agreed to actually pay for the device?

Yes. So as it relates to the Perrigo proposition, as you know, we have a deal for those who may not be as familiar where we have licensed the rights to LiquiTime for the U.S. to Perrigo for OTC use. There were 2 products originally named, guaifenesin and ibuprofen, and then 5 additional products. We received $6 million up front licensing, non-refundable licensing fee. Right out of the gate, the ibuprofen fell out because we've come to believe and Perrigo came to believe that FDA was not interested in approving an extended-release OTC ibuprofen liquid and for safety reasons. And so we've been focusing on guaifenesin and we've also focused on those other products. And where we sit today is it's still active. There've been a lot of changes, as you know, at Perrigo, including the people who were involved from their side in this program. And so it's taken -- there have been periods of time where it was kind of radio silent. We are back having active discussions and Perrigo has at least communicated to us they are still very interested in this program. So we are very hopeful that we can move it forward at this point. So that's the first thing. As it relates to the second part of your question, John, I think managed care's interest in paying for products that simply offer little more than convenience is no longer at the forefront of their interest. And they are requiring I think more to include patient -- or to include products on the formularies and the like. And unless you can really differentiate or show a quality of life issue that's important like one of the things that we hope to do with sodium oxybate or unless you can show increased therapeutic efficacy or unless you can show over the longer haul and be able to document a reduced cost of therapy then I think the ability to get your product paid for is going to continue to be a struggle. And there's a good man as you know, a lot of focus on price and so forth. But I think that, that's a bar that's been raised over time. Greg might want to add to that, but I think in aggregate, it requires us to be more careful in our product selection.

John, specifically as it relates to Flexichamber, commercial coverage is basically unrestricted, from that standpoint, especially in light of the fact that the WAC price on it is by and large in or around the Tier 3 coverage and when you add in any coupons or co-pays assistance that we offer, it really gives the out-of-pocket for the patient in a really manageable place for sure. Medicaid is little different. Some states cover it at the CME from that perspective. We had some recent Medicaid wins. But Medicaid is certainly a place where they tend to favor the least expensive option from that perspective.

John, I did not hear the Flexichamber part.

And I would like to hand the call back over to management.

So again, once again, we appreciate your having joined us today. We feel like we've got our company going in the right direction. And we look forward to updating you, again, in the future on continued developments and progress at Avadel. Thanks and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.