Pharmaceutical Jazz (NASDAQ: JAZZ) Xyrem has experienced tremendous growth for the treatment of narcolepsy since its launch. Sales of the product have totaled over $ 1 billion and are growing rapidly. The momentum, however, is based solely on the commercial exclusivity of the drug, which may end sooner than shareholders realize.

Recently, Avadel Pharmaceuticals (NASDAQ: AVDL) has developed a branded formulation of the active pharmaceutical ingredient (API) of Xyrem to fight narcolepsy, with a little twist. Do clinical data, released Monday, indicate support for FT218 as a potential replacement for Xyrem? Let’s find out together.

What is narcolepsy and how does Xyrem treat it?

Narcolepsy is a chronic sleep disorder that causes overwhelming urges to fall asleep during the day. Patients with the disease may also experience a sudden, frequent, and uncontrolled loss of muscle control during the day, called cataplexy. The disease affects more than 200,000 people in the United States

Xyrem is the first drug approved by the United States Food and Drug Administration to treat disease. The API of the drug is sodium oxybate, which is an orally ingested anesthetic that induces deep sleep in patients. Since its approval, Xyrem now accounts for more than two-thirds of Jazz’s $ 2 billion in revenue and is growing nearly 20% annually. For years, Xyrem has until now been the standard treatment for narcoleptic patients with cataplexy.

What is the particularity of the FT218?

FT218 is a sodium oxybate formulation delivered via Avadel’s Micropump Technology and is designed to potentially achieve satisfactory eight hour sleep on a single dose before bedtime in narcoleptic patients.

While the difference from Xyrem may seem small, it’s actually quite significant in context. Currently, patients on Xyrem must take one dose before bed and wake up in the middle of the night to take another in order to achieve a full sleep cycle. This can significantly affect the quality of life for people with narcolepsy, especially for parents who have to get up to give their children a dose of Xyrem, say, at two in the morning.

For years, Jazz tried to make their own formulation of Xyrem once a night to no avail. Fortunately, Avadel came to the rescue as recent Phase 3 results show that FT218 met all of the primary endpoints in its investigation. Patients who took the drug at a dose of 9 g saw their average weekly cataplexy attacks decrease by 12 and their maintenance of wakefulness increased by 11 minutes. In addition, 72% of patients reported improvement in obtaining a satisfactory full night’s sleep.

These results were highly statistically significant compared to placebo. In addition, the response observed in patients is comparable to that of Jazz’s Xyrem, with only one dose required.

What are the risks ?

Skeptics may point out, however, that it is impossible to argue whether FT218 can replace Xyrem, as the clinical trial of the first did not directly assess the number of patients achieving eight hours of complete sleep as a primary endpoint. . This is a fair point. For the sake of argument, patients who receive FT218 can sleep an average of 6.5 hours and then have to wake up for a second dose.

Is this a breakup of agreement?

Fortunately, there are rarely black or white scenarios when it comes to investing. Although FT218 was unable to provide a satisfactory full night’s sleep after a dose, it still demonstrated exceptional efficacy in the treatment of narcolepsy and may compete with Xyrem in terms of price. If the FT218 were approved and captured a 10% market share, that would translate into over $ 170 million in annual revenue. This is certainly not bad for a company north of $ 500 million in terms of market capitalization.

At the same time, Avadel is also marketing an injection (approved last December) to treat children requiring total parenteral nutrition, which is a specialized form of food administered intravenously. This indication is estimated to have a total addressable market of at least $ 50 million per year. The company also has a portfolio of legacy generics generating $ 59 million per year (albeit declining).

So what should investors do?

Overall, I expect the company to file a new drug application with the FDA for FT218 by the end of the year and receive approval by 2021. Biotechnology enthusiasts May wish to add Avadel to their portfolios in the meantime as the strength of its catalyst, market potential, interest from institutional investors and strong financial data are expected to drive stocks even higher following the release of this week’s data. .