avdl-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

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

For the quarterly period ended: March 31, 2023

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

For the transition period from to


Commission File Number: 001-37977

———————

AVADEL PHARMACEUTICALS PLC

(Exact name of registrant as specified in its charter)

———————


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

10 Earlsfort Terrace

Dublin 2 D02 T380

Ireland

(Address of Principal Executive Office and Zip Code)

+353-1-901-5201

(Registrant’s telephone number, including area code)

N/A

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

———————

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


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

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

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

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

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

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


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

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

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

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

TABLE OF CONTENTS


		Page #
Cautionary Note Regarding Forward Looking Statements		3

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

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

NOTE REGARDING TRADEMARKS

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

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

- 2 -

Cautionary Disclosure Regarding Forward-Looking Statements

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

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

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

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

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

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

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

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

•Our reliance on a single lead product, LUMRYZ;

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

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

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

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

•Our expectations regarding litigation related to LUMRYZ;

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

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

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

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

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

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

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

- 3 -

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
		2023		2022


Operating expenses:

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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

- 4 -

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
		2023		2022

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

See accompanying notes to unaudited condensed consolidated financial statements.

- 5 -

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


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


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

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

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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

- 6 -

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)

Three Months Ended March 31, 2023


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

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

- 7 -

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)

Three Months Ended March 31, 2022


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

- 8 -

AVADEL PHARMACEUTICALS PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022

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


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

Cash flows from investing activities:


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

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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements

- 9 -

AVADEL PHARMACEUTICALS PLC

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1: Summary of Significant Accounting Policies

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

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

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

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

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

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

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

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

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

- 10 -

At-the-Market Offering Program

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

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

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

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

NOTE 2: Fair Value Measurement

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

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

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

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

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

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

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

- 11 -

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

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


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

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



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

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

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

Debt

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

NOTE 3: Marketable Securities

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

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


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

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



Total	$	19,281	$	—	$	(1,749)	$	17,532


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

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



Total

SEC Form 10-Q filed by Avadel Pharmaceuticals plc