UNITED STATES
SECURITIES AND EXCHANGE COMMISSION            
Washington, D.C. 20549
 
———————
FORM 10-Q
———————
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 20192020

OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-28508
 
———————
AVADEL PHARMACEUTICALS PLC
(Exact name of registrant as specified in its charter)
———————
 
Ireland000-2850898-1341933
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification No.)
 
Block 10-1, Blanchardstown Corporate Park
Ballycoolin10 Earlsfort Terrace
Dublin 15,2, Ireland
D02 T380
(Address of Principal Executive Office and Zip Code)
 
+353-1-485-1200011-1-485-1200
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report) 
———————
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
American Depositary Shares* AVDL The Nasdaq Global Market
Ordinary Shares, nominal value $0.01 per share**N/A
*American Depositary Shares may be evidenced by American Depositary Receipts. Each American Depositary Share represents one (1) Ordinary Share.
** Not for trading, but only in connection with the listing of American Depositary Shares on The Nasdaq Global Market.



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerþ
Non-accelerated¨Smaller reporting company¨☐
(Do not check if a smaller reporting company)Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ
 
At November 8, 2019, 37,450,3005, 2020, 58,272,734 ordinary shares, nominal value $0.01 each, of the Company were outstanding.








TABLE OF CONTENTS
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Item 1A.
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Item 6.
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We own various trademark registrations and applications, and unregistered trademarks, including Avadel and MicroPump.  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 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.avadelpharmaceuticals.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 or our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.

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Cautionary NoteDisclosure 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. These include1934, as amended, or the Exchange Act. Any statements as toabout our future expectations, beliefs, plans, strategies, objectives, assumptions or future events conditions, financialor performance prospects, or other events. In some cases, forward-lookingare not historical facts and may be forward-looking. These statements can be identified byare often, but are not always, made through the use of words or phrases such as “may,” “will,” “may,“could,” “believe,“should,” “expect,“expects,” “anticipate,“intends,” “estimate,“plans,” “project”“anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “continue,” and similar expressions, andor the negatives thereof.

Our forward-lookingnegative of these terms, or similar expressions. Accordingly, these statements are based oninvolve estimates, and assumptions, that are made within the bounds of our knowledge of our business and operations and that we consider reasonable. However, our business and operations are subject to significant risks and as a result there can be no assurance that actual results of our research, development and commercialization activities and the results of our business and operations will not differ materially from the results contemplated in such forward-looking statements.  Factors thatuncertainties which could cause actual results to differ materially from expectationsthose expressed in ourthem.

This Quarterly Report on Form 10-Q contains forward-looking statements include: 

(a) risks relatingthat are based on our management’s belief and assumptions and on information currently available to our recent net lossesmanagement. These statements relate to future events or our future financial performance, and restructuring plan, includinginvolve known and unknown risks, relatinguncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to the following: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:
due to a decrease in our available liquid assets, our business strategy has been refocused and is now substantially dependent upon
•Our reliance on a single product FT218;candidate, FT218, and our ability to obtain regulatory approval of and successfully commercialize FT218, including any delays in submission or approval related to COVID-19;
our recent restructuring plan may not be as effective as we anticipate and may have unintended negative impacts;
•Any further restructuring actions if needed,that may require third-partybe required and our ability to obtain any required consents (including any consents underrequired pursuant to the indentureIndenture governing our convertible debt) and such consents may not be granted; and
the Chapter 11 bankruptcy filing by our subsidiary Avadel Specialty Pharmaceuticals LLC may have unexpected adverse results.

(b) risks relating to the following:
our three products Bloxiverz®, Vazculep® and Akovaz®, which are not patent protected, and have a small number of customers, currently produce substantially all of our revenues, and could face further competition resulting in a further loss of market share and/or forcing us to further reduce our prices for those products;
our current “unapproved marketed drug” (UMD) product candidate, AV001, could fail to achieve FDA approval; or we could fail to develop future potential UMD product candidates, or competitors could develop such products and market such products with FDA approval before us;
we could experience failure or further delay in completing the Phase III clinical trial for FT218, and if the FDA ultimately approves such product, the approval may not include any period of market exclusivity;
we may not have sufficient cashexchange notes due 2023, or the 2023 Notes);
•Our ability to raise sufficient cashcontinue to service our $143.75 million Exchangeable Seniorthe 2023 Notes, dueincluding making the ongoing interest payments on the 2023 including cash necessary to repay such Notes, at maturity, to settlesettling exchanges of suchthe 2023 Notes in cash or completing any required repurchases of the 2023 Notes;
•The ability of our product candidates, if approved, to repurchase such Notes as required following a “fundamental change” event described ingain market acceptance;
•Our ability to enter into strategic partnerships for the indenture governing such Notes;development, commercialization, manufacturing and distribution of our product candidates;
we depend•Our dependence on one or a limited number of third parties to manufacture certainsuppliers for the manufacturing of our products and to provide certain raw materials used in our products;
our competitors may develop and market technologies or products that are more effective or safer than ours, or obtain regulatory approval and market such technologies or products before we do;
we face challenges in protecting intellectual property underlying our products and drug delivery technologies;any failure of such suppliers to deliver sufficient quantities of these raw materials, which could have a material adverse effect on our business;
•Our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other indebtedness or through strategic financing or commercialization partnerships;
•Our expectations about the potential market sizes and market participation potential for our approved or proposed products;
we depend•The potential impact of COVID-19 on key personnel to execute our business plan.and future operating results;

•Our ability to retain members of our management team and our employees; and
(c)•Competition existing today or that will likely arise in the otherfuture.

These forward-looking statements are neither promises nor guarantees of future performance due to a variety of risks and uncertainties describedand other factors more fully discussed in the “Risk Factors” section ofin Part I, Item 1A of ourthe Annual Report on Form 10-K for the year ended December 31, 2018 which we filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2019.

Forward-looking16, 2020 and the risk factors and cautionary statements described in other documents that we file from time to time 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 they areon which the statements were made and are not guarantees of future performance. Accordingly, you should not place undue reliance on forward-looking statements. We do not undertake anyExcept as required by law, we assume no obligation to publicly update or revise thethese forward-looking statements containedpublicly, 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 this Quarterly Report.the future.




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PART I – FINANCIAL INFORMATION 
ITEM 1.  FINANCIAL STATEMENTS 
AVADEL PHARMACEUTICALS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS(LOSS) INCOME
(In thousands, except per share data)
(Unaudited)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Revenues:  
  
    
Product sales $14,229
 $19,826
 $48,220
 $82,103
License revenue —
 —
 —
 246
Total revenues 14,229
 19,826
 48,220
 82,349
Operating expenses:  
  
  
  
Cost of products 2,823
 3,120
 9,711
 13,224
Research and development expenses 7,539
 11,402
 25,160
 33,243
Selling, general and administrative expenses 5,316
 24,829
 22,520
 77,159
Intangible asset amortization 205

1,620
 610
 4,996
Changes in fair value of related party contingent consideration 627
 (7,115) 2,384
 (17,036)
Restructuring costs 1,866
 65
 4,600
 268
Total operating expenses 18,376
 33,921
 64,985
 111,854
Operating loss (4,147) (14,095) (16,765) (29,505)
Investment and other income, net 781
 208
 2,548
 845
Interest expense (3,125) (3,000) (9,293) (7,577)
Loss on deconsolidation of subsidiary —
 —
 (2,840) —
Other (expense) income - changes in fair value of related party payable (139) 425
 (496) 1,432
Loss before income taxes (6,630) (16,462) (26,846) (34,805)
Income tax provision (benefit) 2,234
 (691) 3,641
 (3,360)
Net loss $(8,864) $(15,771) $(30,487) $(31,445)
         
Net loss per share - basic $(0.24) $(0.43) $(0.82) $(0.84)
Net loss per share - diluted (0.24) (0.43) (0.82) (0.84)
         
Weighted average number of shares outstanding - basic 37,436
 36,904
 37,382
 37,410
Weighted average number of shares outstanding - diluted 37,436
 36,904
 37,382
 37,410
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Product sales$0 $14,229 $22,334 $48,220 
Operating expenses:    
Cost of products0 2,823 5,742 9,711 
Research and development expenses5,569 7,539 15,156 25,160 
Selling, general and administrative expenses8,423 5,316 23,431 22,520 
Intangible asset amortization0 205 406 610 
Changes in fair value of contingent consideration(69)627 3,327 2,384 
Gain on sale of Hospital Products0 0 (45,760)0 
Restructuring (income) costs(226)1,866 (43)4,600 
Total operating expense13,697 18,376 2,259 64,985 
Operating (loss) income(13,697)(4,147)20,075 (16,765)
Investment and other income (expense), net213 781 (906)2,548 
Interest expense(3,259)(3,125)(9,686)(9,293)
Loss on deconsolidation of subsidiary0 0 0 (2,840)
Other expense - changes in fair value of contingent consideration payable0 (139)(435)(496)
(Loss) income before income taxes(16,743)(6,630)9,048 (26,846)
Income tax (benefit) provision(5,040)2,234 (9,258)3,641 
Net (loss) income$(11,703)$(8,864)$18,306 $(30,487)
Net (loss) income per share - basic$(0.20)$(0.24)$0.36 $(0.82)
Net (loss) income per share - diluted(0.20)(0.24)0.35 (0.82)
Weighted average number of shares outstanding - basic58,213 37,436 51,206 37,382 
Weighted average number of shares outstanding - diluted58,213 37,436 52,849 37,382 
 
See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(LOSS) INCOME
(In thousands)
(Unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,
 Three Months Ended September 30, Nine Months Ended September 30, 2020201920202019
 2019 2018 2019 2018
        
Net loss $(8,864) $(15,771) $(30,487) $(31,445)
Net (loss) incomeNet (loss) income$(11,703)$(8,864)$18,306 $(30,487)
Other comprehensive (loss) income, net of tax:  
  
  
  
Other comprehensive (loss) income, net of tax:    
Foreign currency translation gain (loss) (210) (60) (309) (293)Foreign currency translation gain (loss)534 (210)539 (309)
Net other comprehensive income (loss), net of ($5), ($18), ($46) and ($88) tax, respectively 86
 68
 753
 (92)
Net other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectivelyNet other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectively66 86 349 753 
Total other comprehensive income (loss), net of tax (124) 8
 444
 (385)Total other comprehensive income (loss), net of tax600 (124)888 444 
Total comprehensive loss $(8,988) $(15,763) $(30,043) $(31,830)
Total comprehensive (loss) incomeTotal comprehensive (loss) income$(11,103)$(8,988)$19,194 $(30,043)
 
See accompanying notes to unaudited condensed consolidated financial statements.

- 5 -


AVADEL PHARMACEUTICALS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
 (unaudited)  (unaudited)
ASSETS  
  
ASSETS  
Current assets:  
  
Current assets:  
Cash and cash equivalents $12,867
 $9,325
Cash and cash equivalents$83,109 $9,774 
Marketable securities 59,587
 90,590
Marketable securities148,467 54,384 
Accounts receivable 8,725
 11,330
Accounts receivable0 8,281 
Inventories 2,260
 4,770
Inventories0 3,570 
Research and development tax credit receivableResearch and development tax credit receivable3,058 2,107 
Prepaid expenses and other current assets 5,163
 8,836
Prepaid expenses and other current assets47,054 4,264 
Total current assets 88,602
 124,851
Total current assets281,688 82,380 
Property and equipment, net 770
 1,911
Property and equipment, net373 544 
Operating lease right-of-use assets 4,385
 —
Operating lease right-of-use assets2,866 3,612 
Goodwill 18,491
 18,491
Goodwill16,836 18,491 
Intangible assets, net 1,019
 1,629
Intangible assets, net0 813 
Research and development tax credit receivable 7,694
 7,272
Research and development tax credit receivable3,608 6,322 
Other non-current assets 34,927
 36,146
Other non-current assets22,264 39,274 
Total assets $155,888
 $190,300
Total assets$327,635 $151,436 
    
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY  
  
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)  
Current liabilities:  
  
Current liabilities:  
Current portion of long-term debt $35
 $106
Current portion of long-term related party payable 7,588
 9,439
Current portion of long-term contingent consideration payableCurrent portion of long-term contingent consideration payable$0 $5,554 
Current portion of operating lease liability 1,596
 —
Current portion of operating lease liability520 645 
Accounts payable 3,538
 3,503
Accounts payable2,660 6,100 
Accrued expenses 17,017
 21,695
Accrued expenses16,398 19,810 
Other current liabilities 1,989
 3,640
 Other current liabilities3,431 3,875 
Total current liabilities 31,763
 38,383
Total current liabilities23,009 35,984 
Long-term debt, less current portion 120,132
 115,734
Long-term related party payable, less current portion 14,118
 19,401
Long-term debtLong-term debt126,520 121,686 
Long-term contingent consideration payable, less current portionLong-term contingent consideration payable, less current portion0 11,773 
Long-term operating lease liability 2,866
 —
Long-term operating lease liability1,968 2,319 
Other non-current liabilities 13,972
 14,002
Other non-current liabilities4,938 8,873 
Total liabilities 182,851
 187,520
Total liabilities156,435 180,635 
    
Shareholders’ (deficit) equity:  
  
Preferred shares, nominal value of $0.01 per share; 50,000 shares authorized; none issued or outstanding at September 30, 2019 and December 31, 2018, respectively —
 —
Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 42,857 issued and 37,450 outstanding at September 30, 2019 and 42,720 issued and 37,313 outstanding at December 31, 2018 428
 427
Treasury shares, at cost, 5,407 shares held at September 30, 2019 and December 31, 2018, respectively (49,998) (49,998)
Shareholders’ equity (deficit):Shareholders’ equity (deficit):  
Preferred shares, nominal value of $0.01 per share; 50,000 shares authorized; 488 issued and outstanding at September 30, 2020 and NaN issued and outstanding at December 31, 2019, respectivelyPreferred shares, nominal value of $0.01 per share; 50,000 shares authorized; 488 issued and outstanding at September 30, 2020 and NaN issued and outstanding at December 31, 2019, respectively5 0 
Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 58,243 issued and outstanding at September 30, 2020 and 42,927 issued and 37,520 outstanding at December 31, 2019Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 58,243 issued and outstanding at September 30, 2020 and 42,927 issued and 37,520 outstanding at December 31, 2019582 429 
Treasury shares, at cost, 0 and 5,407 shares held at September 30, 2020 and December 31, 2019, respectivelyTreasury shares, at cost, 0 and 5,407 shares held at September 30, 2020 and December 31, 2019, respectively0 (49,998)
Additional paid-in capital 434,055
 433,756
Additional paid-in capital565,440 434,391 
Accumulated deficit (388,476) (357,989)Accumulated deficit(372,909)(391,215)
Accumulated other comprehensive loss (22,972) (23,416)Accumulated other comprehensive loss(21,918)(22,806)
Total shareholders’ (deficit) equity (26,963) 2,780
Total liabilities and shareholders’ (deficit) equity $155,888
 $190,300
Total shareholders’ equity (deficit)Total shareholders’ equity (deficit)171,200 (29,199)
Total liabilities and shareholders’ equity (deficit)Total liabilities and shareholders’ equity (deficit)$327,635 $151,436 
 See accompanying notes to unaudited condensed consolidated financial statements.

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

Nine Months Ended September 30, 2020
 Ordinary sharesPreferred sharesAdditionalAccumulatedAccumulated
other
comprehensive		Treasury sharesTotal
shareholders’
 SharesAmountSharesAmountpaid-in capitaldeficitlossSharesAmount equity (deficit)
Balance, December 31, 201942,927 $429 0 $0 $434,391 $(391,215)$(22,806)5,407 $(49,998)$(29,199)
Net loss— — — — — (865)— — — (865)
Other comprehensive loss— — — — — — (821)— — (821)
Exercise of stock options146 2 — — 1,387 — — — — 1,389 
February 2020 private placement8,680 87 488 5 60,641 — — —��— 60,733 
Vesting of restricted shares19 — — — — — — — — 0 
Employee share purchase plan share issuance40 — — — 88 — — — — 88 
Stock-based compensation expense— — — — 742 — — — — 742 
Balance, March 31, 202051,812 $518 488 $5 $497,249 $(392,080)$(23,627)5,407 $(49,998)$32,067 
Net income— — — — — 30,874 — — — 30,874 
Other comprehensive income— — — — — — 1,109 — — 1,109 
Exercise of stock options95 1 — — 392 — — — — 393 
February 2020 private placement— — — — (94)— — — — (94)
May 2020 public offering11,630 116 — — 116,858 — — — — 116,974 
Employee share purchase plan share issuance— — — — 33 — — — — 33 
Stock-based compensation expense— — — — 769 — — — — 769 
Balance, June 30, 202063,537 $635 488 $5 $615,207 $(361,206)$(22,518)5,407 $(49,998)$182,125 
Net loss— — — — — (11,703)— — — (11,703)
Other comprehensive income— — — — — — 600 — — 600 
Exercise of stock options22 — — — 47 — — — — 47 
February 2020 private placement— — — — (69)— — — — (69)
May 2020 public offering— — — — (50)— — — — (50)
Vesting of restricted shares82 1 — — (1)— — — — 0 
Employee share purchase plan share issuance9 — — — 56 — — — — 56 
Stock-based compensation expense— — — — 194 — — — — 194 
Retirement of treasury shares(5,407)(54)— — (49,944)— — (5,407)49,998 — 
Balance, September 30, 202058,243 $582 488 $5 $565,440 $(372,909)$(21,918)0 $0 $171,200 


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


Nine Months Ended September 30, 2019


 Ordinary sharesAdditionalAccumulatedAccumulated
other
comprehensive		Treasury sharesTotal
shareholders’
 SharesAmountpaid-in capitaldeficit(loss) incomeSharesAmount(deficit) equity
Balance, December 31, 201842,720 $427 $433,756 $(357,989)$(23,416)5,407 $(49,998)$2,780 
Net loss— — — (13,018)— — — (13,018)
Other comprehensive income— — — — 213 — — 213 
Vesting of restricted shares1 — — — — — — 0 
Employee share purchase plan share issuance42 — 92 — — — — 92 
Stock-based compensation expense— — 351 — — — — 351 
Balance, March 31, 201942,763 $427 $434,199 $(371,007)$(23,203)5,407 $(49,998)$(9,582)
Net loss— — — (8,605)— — — (8,605)
Other comprehensive income— — — — 355 — — 355 
Stock-based compensation expense— — 55 — — — — 55 
Balance, June 30, 201942,763 $427 $434,254 $(379,612)$(22,848)5,407 $(49,998)$(17,777)
Net loss— — — (8,864)— — — (8,864)
Other comprehensive loss— — — — (124)— — (124)
Stock-based compensation expense— — (229)— — — — (229)
Vesting of restricted shares82 1 (1)— — — — — 
Employee share purchase plan share issuance12 — 31 — — — — 31 
Balance, September 30, 201942,857 $428 $434,055 $(388,476)$(22,972)5,407 $(49,998)$(26,963)





- 8 -
  Ordinary shares Additional Accumulated 
Accumulated
other
comprehensive
 Treasury shares 
Total
shareholders’
  Shares Amount paid-in capital deficit (loss) income Shares Amount (deficit) equity
Balance, December 31, 2018 42,720
 $427
 $433,756
 $(357,989) $(23,416) 5,407
 $(49,998) $2,780
Net loss —
 —
 —
 (13,018) —
 —
 —
 (13,018)
Other comprehensive income —
 —
 —
 —
 213
 —
 —
 213
Vesting of restricted shares 1
 —
 —
 —
 —
 —
 —
 —
Employee share purchase plan share issuance 42
 —
 92
 —
 —
 —
 —
 92
Stock-based compensation expense —
 —
 351
 —
 —
 —
 —
 351
Balance, March 31, 2019 42,763
 $427
 $434,199
 $(371,007) $(23,203) 5,407
 $(49,998) $(9,582)
Net loss —
 —
 —
 (8,605) —
 —
 —
 (8,605)
Other comprehensive income —
 —
 —
 —
 355
 —
 —
 355
Stock-based compensation expense —
 —
 55
 —
 —
 —
 —
 55
Balance, June 30, 2019 42,763
 $427
 $434,254
 $(379,612) $(22,848) 5,407
 $(49,998) $(17,777)
Net loss —
 —
 —
 (8,864) —
 —
 —
 (8,864)
Other comprehensive income —
 —
 —
 —
 (124) —
 —
 (124)
Stock-based compensation expense —
 —
 (229) —
 —
 —
 —
 (229)
Vesting of restricted shares 82
 1
 (1) —
 —
 —
 —
 —
Employee share purchase plan share issuance 12
 —
 31
 —
 —
 —
 —
 31
Balance, September 30, 2019 42,857
 $428
 $434,055
 $(388,476) $(22,972) 5,407
 $(49,998) $(26,963)













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

Nine Months Ended September 30, 2018


  Ordinary shares Additional Accumulated 
Accumulated
other
comprehensive
 Treasury shares 
Total
shareholders’
  Shares Amount paid-in capital deficit (loss) income Shares Amount equity
Balance, December 31, 2017 41,463
 $414
 $393,478
 $(262,685) $(23,266) 2,117
 $(22,361) $85,580
Net loss —
 —
 —
 (12,236) —
 —
 —
 (12,236)
Other comprehensive loss —
 —
 —
 —
 (404) —
 —
 (404)
Exercise of warrants 603
 6
 2,905
 —
 —
 —
 —
 2,911
Expiration of warrants —
 —
 2,167
 —
 —
 —
 —
 2,167
Stock-based compensation expense —
 —
 2,134
 —
 —
 —
 —
 2,134
Equity component of 2023 Notes —
 —
 26,699
 —
 —
 —
 —
 26,699
Share repurchases —
 —
 —
 —
 —
 2,307
 (20,212) (20,212)
Balance, March 31, 2018 42,066
 $420
 $427,383
 $(274,921) $(23,670) 4,424
 $(42,573) $86,639
Net loss —
 —
 —
 (3,438) —
 —
 —
 (3,438)
Other comprehensive income —
 —
 —
 —
 11
 —
 —
 11
Exercise of stock options 82
 1
 534
 —
 —
 —
 —
 535
Stock-based compensation expense —
 —
 2,224
 —
 —
 —
 —
 2,224
Share repurchases —
 —
 —
 —
 —
 983
 (7,425) (7,425)
Balance, June 30, 2018 42,148
 $421
 $430,141
 $(278,359) $(23,659) 5,407
 $(49,998) $78,546
Net loss —
 —
 —
 (15,771) —
 —
 —
 (15,771)
Other comprehensive income —
 —
 —
 —
 8
 —
 —
 8
Stock-based compensation expense —
 —
 2,832
 —
 —
 —
 —
 2,832
Vesting of restricted shares 247
 3
 (3) —
 —
 —
 —
 —
Employee share purchase plan share issuance 24
 —
 127
 —
 —
 —
 —
 127
Balance, September 30, 2018 42,419
 $424
 $433,097
 $(294,130) $(23,651) 5,407
 $(49,998) $65,742







AVADEL PHARMACEUTICALS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended September 30,Nine Months Ended September 30,
 2019 2018 20202019
    
Cash flows from operating activities:  
  
Cash flows from operating activities:  
Net loss $(30,487) $(31,445)
Adjustments to reconcile net loss to net cash provided by operating activities:  
  
Net income (loss)Net income (loss)$18,306 $(30,487)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization 1,690
 5,625
Depreciation and amortization1,297 1,690 
Loss on disposal of property and equipment 478
 —
Loss on disposal of property and equipment0 478 
Amortization of premiums on marketable securities (275) 2,889
Remeasurement of related party acquisition-related contingent consideration 2,384
 (17,036)
Remeasurement of related party financing-related contingent consideration 496
 (1,432)
Remeasurement of acquisition-related contingent considerationRemeasurement of acquisition-related contingent consideration3,327 2,384 
Remeasurement of financing-related contingent considerationRemeasurement of financing-related contingent consideration435 496 
Amortization of debt discount and debt issuance costs 4,424
 3,402
Amortization of debt discount and debt issuance costs4,835 4,424 
Change in deferred tax and income tax deferred charge 1,333
 (4,675)Change in deferred tax and income tax deferred charge(4,582)1,333 
Stock-based compensation expense 177
 7,190
Stock-based compensation expense1,705 177 
Gain on the disposition of the hospital productsGain on the disposition of the hospital products(45,760)0 
Loss on deconsolidation of subsidiary 1,750
 —
Loss on deconsolidation of subsidiary0 1,750 
Other adjustments (392) 117
Other adjustments306 (667)
Net changes in assets and liabilities  
  
Net changes in assets and liabilities  
Accounts receivable 2,026
 5,059
Accounts receivable8,281 2,026 
Inventories 2,465
 (548)Inventories(1,352)2,465 
Prepaid expenses and other current assets (1,859) 2,194
Prepaid expenses and other current assets1,759 (1,859)
Research and development tax credit receivable (749) (1,350)Research and development tax credit receivable2,036 (749)
Accounts payable & other current liabilities 259
 4,312
Accounts payable & other current liabilities(4,051)259 
Accrued expenses (2,379) (11,660)Accrued expenses(6,625)(2,379)
Earn-out payments for related party contingent consideration in excess of acquisition-date fair value (8,640) (16,254)
Royalty payments for related party payable in excess of original fair value (1,374) (2,362)
Earn-out payments for contingent consideration in excess of acquisition-date fair valueEarn-out payments for contingent consideration in excess of acquisition-date fair value(5,323)(8,640)
Royalty payments for contingent consideration payable in excess of original fair valueRoyalty payments for contingent consideration payable in excess of original fair value(866)(1,374)
Other assets and liabilities (1,399) (2,216)Other assets and liabilities(3,337)(1,399)
Net cash used in operating activities (30,072) (58,190)Net cash used in operating activities(29,609)(30,072)
    
Cash flows from investing activities:  
  
Cash flows from investing activities:  
Purchases of property and equipment (29) (167)Purchases of property and equipment(33)(29)
Proceeds from the disposal of property and equipment 154
 —
Proceeds from the disposal of property and equipment0 154 
Purchase of intangible asset —
 (20,000)
Proceeds from the disposition of the hospital productsProceeds from the disposition of the hospital products17,250 0 
Proceeds from sales of marketable securities 57,242
 308,015
Proceeds from sales of marketable securities30,075 57,242 
Purchases of marketable securities (23,814) (341,036)Purchases of marketable securities(124,254)(23,814)
Net cash provided by (used in) investing activities 33,553
 (53,188)
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(76,962)33,553 
    
Cash flows from financing activities:  
  
Cash flows from financing activities:  
Earn-out payments for related party contingent consideration —
 (645)
Proceeds from debt issuance —
 143,750
Payments for debt issuance costs —
 (6,190)
Share repurchases —
 (27,637)
Proceeds from issuance of ordinary shares and warrants 123
 3,488
Proceeds from the February 2020 private placementProceeds from the February 2020 private placement60,570 0 
Proceeds from the May 2020 public offeringProceeds from the May 2020 public offering116,924 0 
Proceeds from stock option exercises and ESPPProceeds from stock option exercises and ESPP2,006 123 
Other financing activities, net (109) (31)Other financing activities, net0 (109)
Net cash provided by financing activities 14
 112,735
Net cash provided by financing activities179,500 14 
    
Effect of foreign currency exchange rate changes on cash and cash equivalents 47
 (84)Effect of foreign currency exchange rate changes on cash and cash equivalents406 47 
    
Net change in cash and cash equivalents 3,542
 1,273
Net change in cash and cash equivalents73,335 3,542 
Cash and cash equivalents at January 1, 9,325
 16,564
Cash and cash equivalents at January 1,9,774 9,325 
Cash and cash equivalents at September 30, $12,867
 $17,837
Cash and cash equivalents at September 30,$83,109 $12,867 
    
Supplemental disclosures of cash flow information:    Supplemental disclosures of cash flow information:
Interest paid $6,469
 $3,359
 Interest paid$6,469 $6,469 
Income taxes paid $140
 $413
Income taxes (refund) paid, net Income taxes (refund) paid, net$(1,788)$140 
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 branded specialty pharmaceuticalan emerging biopharmaceutical company. Our primary focuslead product candidate, FT218, is an investigational once-nightly formulation of sodium oxybate for the treatment of excessive daytime sleepiness (“EDS”) and cataplexy in narcolepsy patients. FT218 uses our Micropump controlled release drug-delivery technology.

We are primarily focused on the development and potential United States (“U.S.”) Food and Drug Administration (“FDA”) approval for FT218 which isof FT218. Outside of our lead product candidate, we continue to evaluate opportunities to expand our product portfolio.

We were incorporated in Ireland on December 1, 2015 as a Phase 3 clinical trial for the treatment of narcolepsy patients suffering from excessive daytime sleepiness (EDS)private limited company, and cataplexy.  In addition, we market three sterile injectable drugs used in the hospital setting which were developed under our “unapproved marketed drug” (UMD) program.  The Company is headquarteredre-registered as an Irish public limited company on November 21, 2016. Our headquarters are in Dublin, Ireland withand we have operations in St. Louis, Missouri, and Lyon, France. For more information, please visit www.avadel.com.U.S.


AvadelFT218 (Micropump sodium oxybate)

FT218 is developing FT218, an investigationala once-nightly formulation of sodium oxybate based on its propriety Micropump® drug deliverythat uses our Micropump controlled release drug-delivery technology for the treatment of EDS and cataplexy in patients suffering from narcolepsy. FT218Sodium oxybate is currently being evaluatedthe sodium salt of gamma hydroxybutyrate, an endogenous compound and metabolite of the neurotransmitter gamma-aminobutyric acid. Sodium oxybate is approved in Europe and the U.S. as a twice-nightly formulation indicated for the treatment of EDS and cataplexy in patients with narcolepsy. In December 2019, we completed patient enrollment of our Phase 3 REST-ON clinical trial called REST-ON. In addition,of FT218 to assess the Company submittedsafety and efficacy of a new drug applicationonce-nightly formulation of FT218 for the treatment of EDS and cataplexy in patients suffering from narcolepsy and on April 27, 2020, we announced topline results from our Phase 3 REST-ON clinical trial of FT218. On July 13, 2020, we announced the dosing of the first patient of our open-label extension/switch study of FT218 as a potential treatment for EDS and cataplexy in patients with narcolepsy.

Previously Approved FDA Products

On June 30, 2020 (“NDA”Closing Date”) in March 2019 on a fourth, we announced the sale of our portfolio of sterile injectable drug which we refer to as AV001, for usedrugs used in the hospital setting. AV001, ifsetting (the “Hospital Products”), including our three commercial products, Akovaz, Bloxiverz and Vazculep, as well as Nouress, which is approved could contribute revenues to Avadel starting in 2020. In May 2019,by the FDA acceptedto Exela Sterile Medicines LLC (“Exela Buyer”) (the “Transaction”) pursuant to an asset purchase agreement between Avadel U.S. Holdings Inc., Avadel Legacy Pharmaceuticals, LLC, Exela Holdings, Inc. and the NDAExela Buyer (“Purchase Agreement”). Pursuant to the Purchase Agreement, Exela Buyer paid us $14,500 on the Closing Date and will pay an additional $27,500 in ten equal monthly installments which began in September 2020 for AV001, withtotal aggregate consideration of $42,000. The following 4 FDA approved products were included in the sale of the hospital products:

•Bloxiverz (neostigmine methylsulfate injection) - Bloxiverz was approved by the FDA in May 2013 and was launched in July 2013. Bloxiverz is a Prescription Drug User Fee Act (PDUFA) target action datedrug used intravenously in the operating room to reverse the effects of December 15, 2019.non-depolarizing neuromuscular blocking agents after surgery. Bloxiverz was the first FDA-approved version of neostigmine methylsulfate. Today, neostigmine is one of the two most frequently used products for the reversal of the effects of other agents used for neuromuscular blocks.


Our current marketed products include:•Vazculep (phenylephrine hydrochloride injection) - Vazculep was approved by the FDA in June 2014 and was launched in October 2014. Vazculep is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.

Akovaz®•Akovaz (ephedrine sulfate injection, USP),injection) - Akovaz, was approved by the FDA in April 2016 and was launched in August 2016. Akovaz was the first FDA approved formulation of ephedrine sulfate, an alpha- and beta-adrenergicbeta- adrenergic agonist and a norepinephrine-releasing agent that is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.


Bloxiverz® (neostigmine methylsulfate injection), a cholinesterase inhibitor, is indicated for the reversal of the effects of non-depolarizing neuromuscular blocking agents (NMBAs) after surgery.

Vazculep® (phenylephrine•Nouress (cysteine hydrochloride injection), an alpha-1 adrenergic receptor agonist indicated - Nouress was approved by the FDA in December 2019. Nouress is a sterile injectable product for the treatment of clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia.

Each of our Akovaz, Bloxiverz and Vazculep products is used primarilyuse in the hospital setting, and was developed under our UMD program.

The Company was incorporated on December 1, 2015 as an Irish private limited company, and re-registered as an Irish public limited company, or plc, on November 21, 2016. Our principal place of business is located at Block 10-1, Blanchardstown Corporate Park, Ballycoolin, Dublin 15, Ireland. Avadel’s phone number is 011-353-1-485-1200. Our website is www.avadel.com, where we make available free of charge our reports (and any amendments thereto) on Forms 10-K, 10-Q and 8-K as soon as reasonably practicable after theytwo issued U.S. patents currently cover that product. Several additional patent applications for Nouress are electronically filedpending with or furnished to the U.S. SecuritiesPatent and Exchange CommissionTrademark Office (“SEC”USPTO”). These filings are also available to the public at www.sec.gov.

- 10 -

The Company is the successor to Flamel Technologies S.A., a French société anonyme (“Flamel”), as the result of the France-to-Ireland redomestication merger of Flamel with and into the Company completed on December 31, 2016 (the “Merger”). In the Merger, we changed our company name to Avadel Pharmaceuticals plc and our jurisdiction of organization to Ireland; we assumed all the assets and liabilities of Flamel; and we issued one Avadel ordinary share (either directly or in the form of an American Depositary Share (ADS)) in exchange for each formerly outstanding share of Flamel, all of which were canceled. Thus, an Avadel ordinary share held (either directly or represented by an ADS) immediately after the Merger continued to represent the same proportional interest in our equity owned by the holder of a share of Flamel immediately prior to the Merger. References in this Annual Report on Form 10-K to “Avadel,” the “Company,” “we,” “our,” “us,” and similar terms shall be deemed to be references to Flamel prior to the completion of the Merger, unless the context otherwise requires. Additional details about the Merger are set forth in Item 1 under the caption “The Reincorporation Merger” of the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019.

The Company currently has five direct wholly-owned subsidiaries: (a) Avadel US Holdings, Inc., (b) Flamel Ireland Limited, which conducts business under the name Avadel Ireland, (c) Avadel Investment Company Limited, (d) Avadel Finance Ireland Designated Activity Company and (e) Avadel France Holding SAS. Avadel US Holdings, Inc., a Delaware corporation, is the holding entity of (i) Avadel Specialty Pharmaceuticals, LLC (currently the subject of a voluntary Chapter 11 bankruptcy proceeding as noted in Note 3: Subsidiary Bankruptcy and Deconsolidation), (ii) Avadel Legacy Pharmaceuticals, LLC, (iii) Avadel


Management Corporation, (iv) FSC Holding Company and (v) Avadel Operations Company, Inc. Avadel Finance Ireland Designated Activity Company is the holding entity of Avadel Finance Cayman Limited. Flamel Ireland Limited (operating under the trade name Avadel Ireland) is an Irish corporation which, since December 16, 2014, has been the owner of substantially all of Avadel’s intellectual property. Avadel France Holding SAS, a French société par actions simplifiée, is the holding entity of Avadel Research SAS through which Avadel conducts substantially all of its R&D activities.

Basis of Presentation. The unaudited condensed consolidated balance sheet as of September 30, 2019,2020, which is derived from the prior year 20182019 audited consolidated financial statements, and the interim unaudited condensed consolidated financial statements presented herein, have been prepared in accordance with accounting principles generally accepted in the United StatesU.S. (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 reportAnnual 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 20182019 Annual Report on Form 10-K filed with the SEC on March 15, 2019.16, 2020.
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 material 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. 
On February 6, 2019, the Company’sour indirect wholly-owned subsidiary, Avadel Specialty Pharmaceuticals, LLC (“Specialty Pharma”), filed a voluntary petition for reorganization under Chapter 11 of the United States (“U.S.”) Code (the “Bankruptcy Code”). in the U.S. District Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), Case No. 19-10248. Specialty Pharma is operating and managing its business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and order of the Bankruptcy Court. As a result of Specialty Pharma’s voluntary bankruptcy filing on February 6, 2019, we no longer controlled the operations of Specialty Pharma; therefore, we deconsolidated Specialty Pharma effective with the bankruptcy filing and the Company recorded its investment in Specialty Pharma under the cost method. See Note 3: Subsidiary Bankruptcy and Deconsolidation. Our results of operations for the period January 1, 2019 through February 6, 2019 include the results of Specialty Pharma prior to its February 6, 2019 voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Our results of operations for
Reclassifications

Certain reclassifications are made to prior year amounts whenever necessary to conform with the period January 1, 2018 through Februarycurrent year presentation.  In Note 9: Goodwill and Intangible Assets, we presented the December 31, 2019 amortizable intangible assets - Acquired developed technology - Vazculep amount as total accumulated depreciation in this Form 10-Q as compared to showing year-to-date amortization in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on March 16, 2018 include2020.

Revenue. Prior to June 30, 2020, we generated revenue primarily from the results of FSC Therapeutics and FSC Laboratories, Inc., (collectively “FSC”), prior to its February 16, 2018 disposition date. See Note 14: Divestiture of the Pediatric Assets, for additional information. All intercompany accounts and transactions have been eliminated.
Revenue. Revenue includes salessale of pharmaceutical products licensing fees, and, if any, milestone payments for research and development (“R&D”) achievements. 
Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” applies to all contracts with customers, except for contracts that are withinwhich we refer to as the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue whenHospital Products. On June 30, 2020, we sold the performance obligations to the customer have been satisfied through the transfer of controlHospital Products. See Note 4: Disposition of the goods or services. To determine the appropriate revenue recognition for arrangements that the Company believes are within the scope of ASC 606, we perform the following five steps: (i) Identify the contract(s) with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; and (v) Recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to contracts only when the Company and its customer’s rights and obligations under the contract can be determined, the contract has commercial substance, and it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. For contracts that are determined to be within the scope of ASC 606, the Company identifies the promised goods or services in the contract to determine if they are separate performance obligations or if they should be bundled with other goods and services into a single performance obligation. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.Hospital Products.


Product Sales and Services 


The Company sellsPrior to June 30, 2020, we sold products primarily through wholesalers and considersconsidered these wholesalers to be itsour customers. Under ASC 606, revenueRevenue from product sales iswas recognized when the customer obtainsobtained control of the Company’sour product and our performance obligations were met, which occursoccurred typically upon receipt byof delivery to the customer. As is customary in the pharmaceutical industry, the Company’sour gross product sales arewere subject to a variety of price adjustments in arriving at reported net product sales. These adjustments includeincluded estimates offor product returns,


chargebacks, payment discounts, rebates, and other sales allowances and are estimated when the product is delivered based on analysis of historical data for the product or comparable products, as well as future expectations for such products and other judgments and analysis.products.


License Revenue 

The Company from time to time may enter into out-licensing agreements which are within the scope of ASC 606 under which it licenses to third parties certain rights to its products or intellectual property. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; development, regulatory, and commercial milestone payments; and sales-based royalty payments. Each of these payments results in license revenue.

For a complete discussion of the accounting for net product revenue, and license revenues, see Note 45: Revenue Recognition.


Accounts Receivable. Prior to the sale of the Hospital Products on June 30, 2020, accounts receivable are stated at amounts invoiced and certain other gross to net variable consideration deductions. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, payment history, current and forecast economic conditions and other relevant factors. A majority of our accounts receivable are due from four significant customers. As of September 30, 2020, we have collected all of the accounts receivable outstanding as of June 30, 2020.

- 11 -

NOTE 2: Newly Issued Accounting Standards
Recent Accounting Guidance Not Yet Adopted


In August 2018,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. The FASB’s amendments primarily impact ASC 740, Income Taxes, and may impact both interim and annual reporting periods. ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirement for Fair Value Measurement” which amends certain disclosure requirements over Level 1, Level 2 and Level 3 fair value measurements. The amendments in ASU 2018-13 are2019-12 will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2018-13.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill2020, and Other: Simplifying the Test for Goodwill Impairment.” This update eliminates step 2 from the goodwill impairment test, and requires the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for the Company in the first quarter of 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will assess the timing of adoption and impact of this guidance to future impairment considerations.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments(“ASU 2016-13”).” This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 will be effective for the Company for fiscal years beginning on or after January 1, 2020, including interim periods within those annual reporting periodsfiscal years and early adoption is permitted. We are currently evaluating the impact of our adoption ofadopting ASU 2016-13 on our condensed consolidated financial statements.2019-12.


NOTE 3: Subsidiary Bankruptcy and Deconsolidation


Bankruptcy Filing and Deconsolidation


As a result of Specialty Pharma’s bankruptcy filing on February 6, 2019, Avadel has ceded authority for managing the business to the Bankruptcy Court, and Avadel management cannot carry on Specialty Pharma’s activities in the ordinary course of business without Bankruptcy Court approval. Avadel manages the day-to-day operations of Specialty Pharma but does not have discretion to make significant capital or operating budgetary changes or decisions and purchase or sell significant assets, as Specialty Pharma’s material decisions are subject to review by the Bankruptcy Court. For these reasons, we have concluded that Avadel has lost control of Specialty Pharma, and no longer has significant influence over Specialty Pharma during the pendency of the bankruptcy. Therefore, we deconsolidated Specialty Pharma effective with the filing of the Chapter 11 bankruptcy in February 2019.


In order to deconsolidate Specialty Pharma, the carrying values of the assets and certain liabilities of Specialty Pharma were removed from our unaudited condensed consolidated balance sheet as of February 5, 2019, and we recorded our investment in Specialty Pharma at its estimated fair value of $0. As the estimated fair value of our investment in Specialty Pharma was lower than its net book value immediately prior to the deconsolidation, we recorded a non-cash charge of approximately $2,840 for the nine months ended September 30, 2019 associated with the deconsolidation of Specialty Pharma. Subsequent to the deconsolidation of Specialty Pharma, we are accounting for our investment in Specialty Pharma using the cost method of accounting because Avadel does not exercise significant influence over the operations of Specialty Pharma due to the Chapter 11 filing.


On April 26, 2019, Specialty Pharma sold its intangible assets and remaining inventory to an unaffiliated third party in exchange for aggregate cash proceeds of approximately $250, pursuant to an order approving such sale which was issued by the Bankruptcy


Court on April 15, 2019. As a result of such sale, Specialty Pharma has completed its divestment of the assets of the Noctiva business.


On July 2, 2019, Specialty Pharma was made aware of a $50,695 claim made by the Internal Revenue Service (IRS) as part of the bankruptcy claims process against Specialty Pharma. On October 2, 2019 the IRS amended the original claim filed in July, reducing the claim to $9,302. Specialty Pharma files its U.S. federal tax return as a member of the Company’s consolidated U.S. tax group. As such, the IRS claim was filed against Specialty Pharma in the bankruptcy proceedings due to IRS tax law requirements for joint and several liability of all members in a consolidated U.S. tax group. BothOn November 19, 2019, Specialty Pharma and the Company disagreeIRS resolved their dispute, subject to the Bankruptcy Court’s approval of Specialty Pharma's Chapter 11 plan, and without prejudice to the claims, rights and defenses of the IRS and other Avadel entities outside of the bankruptcy case.  The resolution provided for allowance of the IRS claim as a priority claim but for the IRS to receive a distribution of 50% of the proceeds, but in no event less than $125 from Specialty Pharma following confirmation of its disclosure statement and Chapter 11 plan of liquidation.

On July 24, 2020, Specialty Pharma sought bankruptcy court approval of a settlement agreement by and between it, Avadel US Holdings, Inc. and Serenity Pharmaceuticals, LLC (“Serenity”) (the “Serenity Settlement Agreement”).  Before the commencement of Specialty Pharma's bankruptcy case, Serenity asserted claims against Specialty Pharma and Avadel US Holdings collectively in an amount no less than $50,000, and after the commencement of the bankruptcy case, Serenity asserted a $3,096 claim against Specialty Pharma and voted to reject its Chapter 11 plan of liquidation.  The Serenity Settlement Agreement provides for a global resolution of these disputes by way of an $800 payment from Avadel US Holdings to Serenity, a mutual exchange of general releases, and the withdrawal of Serenity's claim and vote in Specialty Pharma's bankruptcy case.  The Serenity Settlement Agreement was approved by order of the Bankruptcy Court on August 12, 2020.
- 12 -

At a hearing conducted on October 6, 2020, the Bankruptcy Court granted final approval of Specialty Pharma’s disclosure statement and confirmed its Chapter 11 plan of liquidation. Pursuant to the plan, the appointment of a Plan Administrator was also approved. The Plan Administrator will be responsible for making distributions to creditors, managing the final windup and dissolution of Specialty Pharma, and taking other steps in accordance with the meritsplan of the amended IRS claim and intend to defend their positions vigorously.liquidation. The plan of liquidation became effective on October 20, 2020.


DIPDebtor in Possession (“DIP”) Financing – Related Party Relationship


In connection with the bankruptcy filing, Specialty Pharma entered into a Debtor in Possession Credit and Security Agreement with Avadel US Holdings (“DIP Credit Agreement”) dated as of February 8, 2019, in an aggregate amount of up to $2,700, of which the funds are to be used by Specialty Pharma solely to fund operations through February 6, 2020. As of September 30, 2019,2020, the Company had funded $407 under the DIP Credit Agreement. As the Company has assessed that it is unlikely that Specialty Pharma will pay back the loan to Avadel, the $407 has beenwas recorded as part of the loss on deconsolidation of subsidiary within the unaudited condensed consolidated statements of loss. At(loss) income for the nine months ended September 30, 20192019.

NOTE 4: Disposition of the Hospital Products

On the Closing Date, we announced the sale of our Hospital Products, to the Exela Buyer pursuant to the Purchase Agreement.

Pursuant to the Purchase Agreement, the Exela Buyer paid $14,500 on the Closing Date and will pay an additional $27,500 in ten equal monthly installments beginning 90 days following the Closing Date for total aggregate consideration of $42,000. During the three months ended September 30, 2020, we collected the first installment payment of $2,750. In connection with the sale of the Hospital Products, the parties also agreed to cause the dismissal of the pending civil litigation related to Nouress in the District Court for the District of Delaware.
We were party to a Membership Interest Purchase Agreement, dated March 13, 2012, by and among us, Avadel Legacy, Breaking Stick Holdings, LLC, Deerfield Private Design International II, L.P. (“Deerfield International”), Deerfield Private Design Fund II, L.P. (“Deerfield Fund”) and Horizon Santé FLML, Sarl (“Horizon”) (the “Deerfield MIPA”) and a Royalty Agreement, dated February 4, 2013, by and among us, Avadel Legacy, the Deerfield Fund and Horizon (the “Deerfield Royalty Agreement”). In connection with the closing of the sale of the Hospital Products, the Deerfield MIPA (with respect to certain sections thereof) and the Royalty Agreement were assigned to the Exela Buyer. Pursuant to the Purchase Agreement, the Exela Buyer assumed and will pay, perform, satisfy and discharge the liabilities and obligations of Avadel Legacy under the Deerfield Royalty Agreement for obligations that arise after the Closing date.
We were also party to a Royalty Agreement, dated December 3, 2013, by and between us, Avadel Legacy and Broadfin Healthcare Master Fund, Ltd. (the “Broadfin Royalty Agreement”). In connection with the closing of the sale of the Hospital Products, the Broadfin Royalty Agreement was assigned to the Exela Buyer and the Exela Buyer assumed and shall pay, perform, satisfy and discharge the liabilities and obligations of Avadel Legacy under the Broadfin Royalty Agreement for obligations that arise after the Closing Date.

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We recorded a net gain on the sale of the Hospital Products of $45,760 during the nine months ended September 30, 2020 which has been recorded on the unaudited condensed consolidated statement of income (loss). The $45,760 gain represents the aggregate consideration of $42,000, transaction fees of $2,928, plus the assets and liabilities either transferred to the Exela Buyer or eliminated by us due to the sale of the Hospital Products, which are listed below.

September 30, 2020
Prepaid expenses and other current assets$(134)
Inventories(4,922)
Goodwill(1,654)
Intangible assets, net(407)
Other non-current assets(1,095)
Total long-term contingent consideration payable14,900 
Net liabilities disposed of6,688 
Aggregate consideration42,000 
Less transaction fees(2,928)
Net gain on the sale of the Hospital Products$45,760 

We evaluated various qualitative and quantitative factors related to the disposition of the Hospital Products and determined that it did not meet the criteria for presentation as a discontinued operation.

The unaudited pro forma condensed combined financial statements included below are being provided for information purposes only and are not necessarily indicative of the results of operations or financial position that would have resulted if the Transaction had actually occurred on the date indicated. The pro forma adjustments are based on available information and assumptions that the Company believes are attributable to the sale.

Unaudited Pro Forma Condensed Combined Balance Sheets
As of December 31, 2019
 As ReportedPro Forma AdjustmentsNotesPro Forma
ASSETS
Cash and cash equivalents$9,774 $12,935 (a)$22,709 
Inventories3,570 (3,570)(b)0 
Prepaid expenses and other current assets4,264 27,500 (c)31,764 
Goodwill18,491 (1,654)(d)16,837 
Intangible assets, net813 (813)(e)0 
Other non-current assets39,274 (9,702)(f)29,572 
Total assets$151,436 $24,696 $176,132 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current portion of long-term contingent consideration payable$5,554 $(5,054)(g)$500 
Accrued expenses19,810 2,800 (h)22,610 
Long-term contingent consideration payable, less current portion11,773 (11,773)(g)0 
Total liabilities180,635 (14,027)166,608 
Shareholders’ equity (deficit):
Accumulated deficit(391,215)38,723 (i)(352,492)
Total shareholders’ (deficit) equity(29,199)38,723 9,524 
Total liabilities and shareholders’ equity (deficit)$151,436 $24,696 $176,132 

- 14 -

Adjustments to the pro forma unaudited condensed combined balance sheet

(a)This adjustment represents the receipt of $14,500 cash consideration from the Exela Buyer at the closing of the Transaction less $1,565 placed into escrow for the estimated earn outs and royalties payable to Breaking Stick Holdings L.L.C., Horizon Santé FLML, Sarl,Deerfield Private Design Fund II, L.P., all affiliates of Deerfield Capital L.P. ("Deerfield") and Broadfin Healthcare Master Fund ("Broadfin") for the current quarter ended.

(b)This adjustment reflects the elimination of Inventories that were purchased as part of the Transaction.

(c)This adjustment reflects the Transaction consideration in the form of ten monthly installment payments of $2,750 (totaling $27,500) beginning 90 days from the Closing date.

(d)This adjustment reflects the elimination of $1,654 of Goodwill based on the relative fair value of the remaining commitmentHospital Products as a portion of the overall value of the Company.

(e)This adjustment reflects the elimination of the unamortized balance of the Intangible asset on acquired developed technology for Vazculep.

(f)This adjustment reflects the elimination of $1,228 of other long-term assets and $8,474 of deferred tax assets at December 31, 2019.The eliminated deferred tax assets are tax attributes of the Hospital Products.

(g)This adjustment reflects the elimination of short and long term related party payables, less the expected amounts due to Deerfield and Broadfin after taking into consideration the escrow discussed in Note (a).As part of the Transaction, the buyer agreed to assume the quarterly earn-out and royalty payments for periods after the close of the Transaction.The Company will no longer be responsible for these payments.

(h)This adjustment reflects the estimated transaction fees payable related to the Transaction.

(i)This adjustment reflects the estimated gain of $38,723 arising from the Transaction for the year ended December 31, 2019.This estimated gain has not been reflected in the pro forma unaudited condensed combined statements of loss as it is considered to be nonrecurring in nature. No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the DIP Credit Agreement is not material.terms of the Purchase Agreement.



Unaudited Pro Forma Condensed Combined Statement of Income (Loss)
Nine Months Ended September 30, 2020
 As ReportedPro Forma AdjustmentsNotesPro Forma
Product sales$22,334 $(22,175)(j)$159 
Total operating expense2,259 (8,489)(k)(6,230)
Operating income20,075 (13,686)6,389 
Income (loss) before income taxes$9,048 $(13,251)(l)$(4,203)


Unaudited Pro Forma Condensed Combined Statement of Loss
Nine Months Ended September 30, 2019
 As ReportedPro Forma AdjustmentsNotesPro Forma
Product sales$48,220 $(48,007)(j)$213 
Total operating expense64,985 (14,398)(m)50,587 
Operating loss(16,765)(33,609)(50,374)
Loss before income taxes$(26,846)$(33,113)(n)$(59,959)

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Adjustments to the pro forma unaudited condensed combined statements of income (loss)

(j)This adjustment reflects Product sales attributable to the Hospital Products.

(k)This adjustment reflects the following estimated expenses attributable to the Hospital Products:

•Cost of products of $3,540.
•Research and Development expenses of $407.
•Selling, general and administrative expenses of $809.
•Intangible asset amortization on acquired development technology for Vazculep of $406.
•Changes in fair value of related party contingent consideration of $3,327.The Company will no longer be responsible for these payments.

(l)This amount reflects the adjustments noted in (j) and (k) above, as well as estimated Changes in fair value of related party payableof $435 attributable to the Hospital Products.The Company will no longer be responsible for these payments.

(m)This adjustment reflects the following estimated expenses attributable to the Hospital Products:

•Cost of products of $8,972.
•Research and Development expenses of $1,604.
•Selling, general and administrative expenses of $828.
•Intangible asset amortization on acquired development technology for Vazculep of $610.
•Changes in fair value of related party contingent consideration of $2,384.The Company will no longer be responsible for these payments.

(n)This amount reflects the adjustments noted in (j) and (m) above, as well as the reversal of estimated Changes in fair value of related party payable of $496 attributable to the Hospital Products.The Company will no longer be responsible for these payments.

NOTE 4:5: Revenue Recognition


The Company generatesPrior to June 30, 2020, we generated revenue primarily from the sale of pharmaceutical products to customers. From time to timeOn June 30, 2020, we sold the Company also generates revenue from licensing arrangements wherebyHospital Products. See Note 4: Disposition of the Company provides access to certain of its intellectual property.Hospital Products.


Product Sales and Services


Effective January 1, 2018, the Company implemented ASC 606, “Revenue From Contracts With Customers”. The Company sellsPrior to June 30, 2020, we sold products primarily through wholesalers and considersconsidered these wholesalers to be itsour customers. Under ASC 606, revenueRevenue from product sales iswas recognized when the customer obtainsobtained control of the Company’sour product and the Company’sour performance obligations arewere met, which occursoccurred typically upon receipt of delivery to the customer. As is customary in the pharmaceutical industry, the Company’sour gross product sales arewere subject to a variety of price adjustments in arriving at reported net product sales. These adjustments includeincluded estimates for product returns, chargebacks, payment discounts, rebates, and other sales allowances and are estimated when the product is delivered based on analysis of historical data for the product or comparable products, as well as future expectations for such products.


Reserves to Reduce Gross Revenues to Net Revenues


Revenues from product sales arewere recorded at the net selling price, which includesincluded estimated reserves to reduce gross product sales to net product sales resulting from product returns, chargebacks, payment discounts, rebates, and other sales allowances that are offered within contracts between the Company and its customers and end users. These reserves arewere based on the amounts earned or to be claimed on the related sales and arewere classified as reductions of accounts receivable if the amount is payable to the customer, except in the case of the estimated reserve for future expired product returns, which are classified as a liability. The reserves are classified as a liability if the amount is payable to a party other than a customer. Where appropriate, these estimated reserves take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates to reduce gross selling price to net selling price to which it expects to be entitled based on the terms of its contracts. The actual selling price ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

- 16 -


Product Returns


Consistent with industry practice, the Company maintains a returns policy that generally offers customers a right of return for product that has been purchased from the Company. The Company estimates the amount of product returns and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities based on analysis of historical data for the product or comparable products, as well as future expectations for such products and other judgments and analysis.




Chargebacks, Discounts and Rebates


Chargebacks, discounts and rebates represent the estimated obligations resulting from contractual commitments to sell products to its customers or end users at prices lower than the list prices charged to our wholesale customers. Customers charge the Company for the difference between the gross selling price they pay for the product and the ultimate contractual price agreed to between the Company and these end users. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargebacks, discounts and rebates are estimated at the time of sale to the customer.

Revenue from licensing arrangements

The terms of the Company’s licensing agreements may contain multiple performance obligations, including certain R&D activities. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments. Each of these payments results in license revenues.

License of Intellectual Property

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.


Disaggregation of revenue


The Company’s primary source of revenue iswas from the sale of pharmaceutical products, which are equally affected by the same economic factors as it relates to the nature, amount, timing, and uncertainty of revenue and cash flows. For further detail about the Company’s revenues by product, see Note 18: Company Operations19: Revenue by Product.


Contract Balances


The Company does not recognize revenue in advance of invoicing its customers and therefore has no related contract assets.


A receivable is recognized in the period the Company sells its products and when the Company’s right to consideration is unconditional.


There were no0 material deferred contract costs at September 30, 2019.2020.


Transaction Price Allocated to the Remaining Performance Obligation


For product sales, the Company generally satisfiessatisfied its performance obligations within the same period the product iswas delivered. Product sales recognized in 2019the second quarter of 2020 from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.

For certain licenses of intellectual property, specifically those with performance obligations satisfied over time, the Company allocates a portion of the transaction price to that performance obligation and recognizes revenue using an appropriate measure of progress towards development of the product.


The Company has elected certain of the practical expedients from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. Accordingly, the Company applies the practical expedient in ASC 606 to its stand-alone contracts and does not disclose information about variable consideration from remaining performance obligations for which the Company recognizes revenue.
NOTE 5:6: 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, we use 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, we 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.
- 17 -

•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.
•Level 3 - Unobservable inputs that reflect estimates and assumptions.
The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying unaudited condensed consolidated balance sheets:
 As of September 30, 2019 As of December 31, 2018As of September 30, 2020As of December 31, 2019
Fair Value Measurements: Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Fair Value Measurements:Level 1Level 2Level 3Level 1Level 2Level 3
            
Marketable securities (see Note 6)
            
Marketable securities (see Note 7)
Marketable securities (see Note 7)
Equity securities $4,176
 $—
 $—
 $9,145
 $—
 $—
Equity securities$0 $— $— $4,404 $— $— 
Money market and mutual funds 44,091
 —
 —
 52,996
 —
 —
Money market and mutual funds104,186 — — 38,799 — — 
Corporate bonds —
 4,258
 —
 —
 6,339
 —
Corporate bonds— 20,415 — — 4,098 — 
Government securities - U.S. —
 5,344
 —
 —
 12,701
 —
Government securities - U.S.— 20,216 — — 5,446 — 
Other fixed-income securities —
 1,718
 —
 —
 9,409
 —
Other fixed-income securities50 3,600 — — 1,637 — 
Total assets $48,267
 $11,320
 $—
 $62,141
 $28,449
 $—
Total assets$104,236 $44,231 $— $43,203 $11,181 $— 
            
Related party payable (see Note 10)
 $—
 $—
 $21,706
 $—
 $—
 $28,840
Contingent consideration payable (see Note 10)
Contingent consideration payable (see Note 10)
$— $— $0 $— $— $17,327 
Total liabilities $—
 $—
 $21,706
 $—
 $—
 $28,840
Total liabilities$— $— $0 $— $— $17,327 
A review of fair value hierarchy classifications is conducted on a quarterly basis.  Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. During the periods ended September 30, 20192020 and December 31, 2018,2019, respectively, there were no transfers in and out of Level 1, 2, or 3. During the three and nine month periods ended September 30, 20192020 and 2018,2019, respectively, we did not recognize any other-than-temporary impairment loss.
Some of the Company’s financial instruments, such as cash and cash equivalents, accounts receivable and accounts payable, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.


Debt


We estimate the fair value of our $143,750 aggregate principal amount of 4.50% exchangeable senior notes due 2023 (the “2023 Notes”), a Level 2 input, 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. The estimated fair value of the 2023 Notes at September 30, 20192020 is $76,425$116,636 compared to a book value of $120,132.$126,520.


Additionally, the Company’s other debt is reflected in the balance sheet at carrying value. The fair value of these loans is impracticable to estimate as these represent non-interest bearing grants from the French government and are repayable only if the


research project is technically or commercially successful.

See Note 11: Long-Term Debt for additional information regarding our debt obligations.


NOTE 6:7:Marketable Securities 
The Company has investments in equity and available-for-sale debt securities which are recorded at fair market value. The change in the fair value of equity investments is recognized in our unaudited condensed consolidated statements of loss(loss) income and the change in the fair value of available-for-sale debt investments is recorded as other comprehensive income (loss)loss in shareholders’ equity (deficit) equity,, net of income tax effects. As of September 30, 2020, we considered any decreases in fair value on our marketable securities to be driven by factors other than credit risk, including market risk.

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The following tables show the Company’s available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of September 30, 20192020 and December 31, 2018,2019, respectively:
September 30, 2020
Marketable Securities:Adjusted CostUnrealized GainsUnrealized LossesFair Value
Money market and mutual funds$103,204 $1,041 $(59)$104,186 
Corporate bonds20,212 227 (24)20,415 
Government securities - U.S.20,015 202 (1)20,216 
Other fixed-income securities3,625 29 (4)3,650 
Total$147,056 $1,499 $(88)$148,467 
  September 30, 2019
Marketable Securities: Adjusted Cost Unrealized Gains Unrealized Losses Fair Value
         
Equity securities $4,200
 $—
 $(24) $4,176
Money market and mutual funds 43,306
 785
 —
 44,091
Corporate bonds 4,190
 69
 (1) 4,258
Government securities - U.S. 5,217
 129
 (2) 5,344
Other fixed-income securities 1,693
 26
 (1) 1,718
Total $58,606
 $1,009
 $(28) $59,587
 December 31, 2018December 31, 2019
Marketable Securities: Adjusted Cost Unrealized Gains Unrealized Losses Fair ValueMarketable Securities:Adjusted CostUnrealized GainsUnrealized LossesFair Value
        
Equity securities $10,101
 $—
 $(956) $9,145
Equity securities$4,234 $170 $0 $4,404 
Money market and mutual funds 52,733
 316
 (53) 52,996
Money market and mutual funds38,028 771 0 38,799 
Corporate bonds 6,411
 7
 (79) 6,339
Corporate bonds4,021 77 0 4,098 
Government securities - U.S. 12,714
 66
 (79) 12,701
Government securities - U.S.5,341 110 (5)5,446 
Other fixed-income securities 9,400
 22
 (13) 9,409
Other fixed-income securities1,614 23 0 1,637 
Total $91,359

$411

$(1,180)
$90,590
Total$53,238 $1,151 $(5)$54,384 
We determine realized gains or losses on the sale of marketable securities on a specific identification method. We reflect these gains and losses as a component of investment and other income in the accompanying unaudited condensed consolidated statements of loss.(loss) income.
We recognized gross realized gains of $71$136 and $143$71 for the three months ended September 30, 2019,2020, and 2018,2019, respectively. These realized gains were offset by realized losses of $64$8 and $22$64 for the three months ended September 30, 2020, and 2019, and 2018, respectively.
We recognized gross realized gains of $339$426 and $378$339 for the nine months ended September 30, 2019,2020, and 2018,2019, respectively. These realized gains were offset by realized losses of $211$886 and $350$211 for the nine months ended September 30, 20192020 and 2018,2019, respectively. We reflect these gains and losses as a component of investment and other income in the accompanying unaudited condensed consolidated statements of income (loss). income.



The following table summarizes the estimated fair value of our investments in marketable debt securities, accounted for as available-for-sale debt securities and classified by the contractual maturity date of the securities as of September 30, 2019:2020:
 MaturitiesMaturities
Marketable Debt Securities: Less than 1 Year 1-5 Years 5-10 Years Greater than 10 Years TotalMarketable Debt Securities:Less than 1 Year1-5 Years5-10 YearsGreater than 10 YearsTotal
          
Corporate bonds $556
 $3,360
 $342
 $—
 $4,258
Corporate bonds$4,355 $14,274 $1,786 $0 $20,415 
Government securities - U.S. —
 4,600
 —
 744
 5,344
Government securities - U.S.0 17,749 739 1,728 20,216 
Other fixed-income securities 49
 1,669
 —
 —
 1,718
Other fixed-income securities50 3,600 0 0 3,650 
Total $605
 $9,629
 $342
 $744
 $11,320
Total$4,405 $35,623 $2,525 $1,728 $44,281 
The Company has classified our investment in available-for-sale marketable debt securities as current assets in the unaudited condensed consolidated balance sheets as the securities need to be available for use, if required, to fund current operations. There are no restrictions on the sale of any securities in our investment portfolio.


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The following table shows the gross unrealized losses and fair value of our available-for-sale debt securities at September 30, 2020. The unrealized losses in the table below are driven by factors other than credit risk and have been in a unrealized loss position for less than one year. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Marketable Debt Securities:Fair ValueUnrealized Losses
Corporate bonds$8,371 $24 
Government securities - U.S.267 1 
Other fixed-income securities2,151 4 
Total$10,789 $29 

NOTE 7:8:Inventories 
The principal categories of inventories, net of reserves of $1,212$0 and $4,757$914 at September 30, 20192020 and December 31, 2018,2019, respectively, are comprised of the following:
Inventory:September 30, 2020December 31, 2019
Finished goods$0 $3,020 
Raw materials0 550 
Total  
$0 $3,570 
Inventory: September 30, 2019 December 31, 2018
     
Finished goods $1,883
 $4,270
Raw materials 377
 500
Total  
 $2,260
 $4,770


Total net reserves decreased by $3,545 during the nine months endedThe decrease in inventory at September 30, 2019 largely driven by2020 is a result of the deconsolidationJune 30, 2020 disposition of Specialty Pharma.the Hospital Products. See Note 4: Disposition of the Hospital Products.


NOTE 8:9:Goodwill and Intangible Assets 
The Company’s amortizable and unamortizable intangible assets at September 30, 20192020 and December 31, 20182019 are as follows: 
  September 30, 2019 December 31, 2018
Goodwill and Intangible Assets: 
Gross
Value
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross
Value
 
Accumulated
Amortization
 Impairment 
Net Carrying
Amount
               
Amortizable intangible assets:  
  
  
  
  
    
Acquired developed technology - Noctiva $—
 $—
 $—
 $73,111
 $(7,024) $(66,087) $—
Acquired developed technology - Vazculep 12,061
 (11,042) 1,019
 12,061
 (10,432) —
 1,629
Total amortizable intangible assets $12,061
 $(11,042) $1,019
 $85,172
 $(17,456) $(66,087) $1,629
               
Unamortizable intangible assets:  
  
  
  
  
    
Goodwill $18,491
 $—
 $18,491
 $18,491
 $—
 $—
 $18,491
Total unamortizable intangible assets $18,491

$—

$18,491

$18,491

$—

$—
 $18,491
 September 30, 2020December 31, 2019
Goodwill and Intangible Assets:Gross
Value		Accumulated
Amortization		Net Carrying
Amount		Gross
Value		Accumulated
Amortization		Net Carrying
Amount
Amortizable intangible assets - Acquired developed technology - Vazculep (1)
$0 $0 $0 $12,061 $(11,248)$813 
Unamortizable intangible assets - Goodwill (2)
$16,836 $0 $16,836 $18,491 $0 $18,491 
(1) This intangible asset was assumed by the Exela Buyer as part of the disposition of the Hospital Products on June 30, 2020. See Note 4: Disposition of the Hospital Products.

(2) In connection with the disposition of the Hospital Products (see Note 4: Disposition of the Hospital Products), the Company allocated goodwill of $1,655 on a relative fair value basis to the Hospital Products and included this amount in the net gain on the disposition of the Hospital Products on the unaudited condensed consolidated statements of (loss) income during the nine months ended September 30, 2020.

The Company recorded amortization expense related to amortizable intangible assets of $205$0 and $1,620$205 for the three months ended September 30, 20192020 and 2018,2019, respectively, and $610$406 and $4,996$610 for the nine months ended September 30, 20192020 and 2018,2019, respectively.



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During the fourth quarter 2018, certain conditions came to light, largely the lack of a meaningful increase in Noctiva prescriptions despite the substantial investment of resources, which indicated that the carrying

NOTE 10:Contingent Consideration Payable 
Contingent consideration payable and related activity are reported at fair value and consist of the asset, may not be fully recoverable. As such, the Company performed an impairment test based on a comparison of the pretax discounted cash flows expected to be generated by the asset, which is a Level 3 fair value estimate, to the recorded value of the assetfollowing at September 30, 2020 and concluded that the associated cash flows did not support any of the carrying value of the intangible asset and the Company recorded a full impairment charge of $66,087 at December 31, 2018 related to the acquired developed technology associated with Noctiva. The February 6, 2019 Chapter 11 bankruptcy filing of Specialty Pharma, the subsidiary which markets, sells and distributes Noctiva, confirmed management’s conclusion on the impairment.2019:
Amortizable intangible assets are amortized over their estimated useful lives, which generally range from three to fifteen years. Estimated amortization of intangible assets for the next five years is as follows: 
  Activity during the nine months ended
September 30, 2020		 
   Changes in Fair Value of Contingent Consideration Payable 
Contingent Consideration Payable:Balance,
December 31, 2019		PaymentsOperating ExpenseOther
Expense		Disposition of the Hospital ProductsBalance, September 30, 2020
Acquisition-related contingent consideration:     
Earn-out payments - Éclat Pharmaceuticals (a) (d)$15,472 $(5,323)$3,327 $0 (13,476)$0 
Financing-related:    
Royalty agreement - Deerfield (b) (d)1,251 (587)0 272 (936)0 
Royalty agreement - Broadfin (c) (d)604 (279)0 163 (488)0 
Total contingent consideration payable17,327 $(6,189)$3,327 $435 $(14,900)0 
Less: current portion(5,554)   0 
Long-term contingent consideration payable$11,773    $0 

Estimated Annual Amortization Expense: Amount
   
2019 $815
2020 814
2021 —
2022 —
2023 —

NOTE 9: Leases

In February 2016, the FASB issued ASU 2016-02, “Leases” which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases.” This update requires lessees to recognize on their balance sheet a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. As of January 1, 2019, adoption of the new guidance resulted in the initial recognition of operating lease right-of-use assets of $5,046 and operating lease liabilities of $5,131. At September 30, 2019, the balances of the operating lease right-of-use asset and total operating lease liability were $4,385 and $4,462, respectively, of which $1,596 of the operating lease liability is current.

The Company leases certain facilities for office and manufacturing purposes, comprising approximately 99% of the total lease population. All leased facilities are classified as operating leases with remaining lease terms between one and seven years. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and will include these options in the lease term when they are reasonably certain of being exercised. For all of the Company’s leases, lease and non-lease components are accounted for as a single lease component, as all non-lease components are immaterial to break out separately.

The components of lease costs, which are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of loss for the three and nine months ended September 30 were as follows:
Lease cost: Three months ended September 30, 2019 Nine months ended September 30, 2019
     
Operating lease costs (1)
 $411
 $1,150
Sublease income (2)
 82
 187
Total lease cost $329
 $963

(1) Variable lease costs were immaterial for the three and nine months ended September 30, 2019.
(2) Represents sublease income received for the vacated office facility in Charlotte, North Carolina, which was acquired with the FSC acquisition in February 2016. The lease and sublease agreements terminate in December 2020. The Company also vacated portions of its office facility in St. Louis, Missouri during May 2019 and August 2019 and started receiving sublease income starting in May 2019 and August 2019 from two different tenants. The lease agreement ends in April 2025 and the sublease agreement that started in May 2019 ends in May 2020, with a one year renewal and the sublease agreement that started in August 2019 ends in July 2020, and can continue thereafter on a month-to-month basis.

During the three and nine months ended September 30, 2019, the Company reduced its operating lease liabilities by $411 and $1,115 for cash paid. In addition, during the nine months ended September 30, 2019, new operating leases commenced resulting


in the recognition of operating lease right-of-use assets and liabilities of $1,000 and $0, respectively, as the entire lease payment was paid on March 31, 2019. There were no new leases during the three months ended September 30, 2019. As of September 30, 2019, the Company is aware of one additional embedded lease that has not yet commenced and will not commence until the time of FDA approval of the product (if approved). Once FDA approval is given and the start date is determined, annual production suite fees of approximately $3,000 to $4,000 would commence and at that time an operating lease right-of-use asset and corresponding operating lease liability will be recorded.

In connection with the 2019 French Restructuring plan discussed in Note 15: Restructuring Costs, during the three months ended September 30, 2019, the Company came to an agreement with the landlord of the leased office space in France, to exit the lease by December 31, 2019 with an early termination payment of approximately $820. The Company accounted for this change in the lease term as a modification of the original lease. As a result of this modification, the right-of-use asset and liability related to the French office lease that was remeasured, and the asset was subsequently tested for impairment as the fair value was less than the book value. Since the fair value was determined to be less than the book value, the Company recorded an impairment to the right of use asset of $826, which was recorded as a restructuring cost in the unaudited condensed consolidated statements of loss.

As of September 30, 2019, our operating leases have a weighted-average remaining lease term of 4.3 years and a weighted-average discount rate of 5.3%. Nearly all of Avadel’s lease contracts do not provide a readily determinable implicit rate. For these contracts, Avadel’s estimated incremental borrowing rate is based on information available at the inception of the lease.

Maturities of the Company’s operating lease liabilities were as follows:
Maturities: Operating Leases
   
Remaining three months of 2019 $1,117
2020 879
2021 670
2022 678
2023 690
Thereafter 941
Total lease payments 4,975
Less: interest 513
Present value of lease liabilities $4,462

Under the prior lease guidance, minimum rental commitments for non-cancelable leases as of December 31, 2018 were:
Lease Commitment: Operating Leases
   
2019 $1,191
2020 1,208
2021 1,008
2022 767
2023 695
Thereafter 967
Total minimum lease payments $5,836



NOTE 10:Long-Term Related Party Payable 
Long-term related party payable and related activity are reported at fair value and consist of the following at September 30, 2019 and December 31, 2018:
   
Activity during the Nine Months Ended
September 30, 2019
  
     Changes in Fair Value of Related Party Payable  
Long-Term Related Party Payable:
Balance,
December 31, 2018
 
Payments to
Related Parties
 Operating Expense 
Other
Expense
 Balance, September 30, 2019
          
Acquisition-related contingent consideration: 
  
  
  
  
Earn-out payments - Éclat Pharmaceuticals (a)$25,615
 $(8,640) $2,384
 $—
 $19,359
Financing-related: 
  
  
  
  
Royalty agreement - Deerfield (b)2,184
 (930) —
 330
 1,584
Royalty agreement - Broadfin (c)1,041
 (444) —
 166
 763
Total related party payable28,840
 $(10,014) $2,384
 $496
 21,706
Less: current portion(9,439)  
  
  
 (7,588)
Total long-term related party payable$19,401
  
  
  
 $14,118

Long-term related party payable and related activity are reported at fair value and consist of the following at September 30, 20192020 and June 30, 2019:2020:

  Activity during the three months ended
September 30, 2020		 
   Changes in Fair Value of Contingent Consideration Payable 
Contingent Consideration Payable:Balance,
June 30, 2020		PaymentsOperating ExpenseOther
Expense		Balance, September 30, 2020
Acquisition-related contingent consideration:     
Earn-out payments - Éclat Pharmaceuticals (a) (d)$1,656 $(1,587)$(69)$0 $0 
Financing-related:    
Royalty agreement - Deerfield (b) (d)175 (175)0 0 0 
Royalty agreement - Broadfin (c) (d)83 (83)0 0 0 
Total contingent consideration payable1,914 $(1,845)$(69)$0 0 
Less: current portion0    0 
Long-term contingent consideration payable$1,914    $0 

   
Activity during the Three Months Ended
September 30, 2019
  
     Changes in Fair Value of Related Party Payable  
Long-Term Related Party Payable:
Balance,
June 30, 2019
 
Payments to
Related Parties
 Operating Expense 
Other
Expense
 Balance, September 30, 2019
          
Acquisition-related contingent consideration: 
  
  
  
  
Earn-out payments - Éclat Pharmaceuticals (a)$21,582
 $(2,850) $627
 $—
 $19,359
Financing-related: 
  
  
  
  
Royalty agreement - Deerfield (b)1,799
 (309) —
 94
 1,584
Royalty agreement - Broadfin (c)866
 (148) —
 45
 763
Total related party payable24,247
 $(3,307) $627
 $139
 21,706
Less: current portion(8,264)  
  
  
 (7,588)
Total long-term related party payable$15,983
  
  
  
 $14,118
(a) In March 2012, the Company acquired all of the membership interests of Éclat from Breaking Stick Holdings, L.L.C. (“Breaking Stick”, formerly Éclat Holdings), an affiliate of Deerfield. Breaking Stick is majority owned by Deerfield, with a minority interest owned by the Company’s former CEO, and certain other current and former employees. As part of the consideration, the Company committed to provide quarterly earn-out payments equal to 20% of any gross profit generated by certain Éclat products. These payments will continue in perpetuity, to the extent gross profit of the related products also continue in perpetuity.
(b)As part of a February 2013 debt financing transaction conducted with Deerfield, the Company received cash of $2,600 in exchange for entering into a royalty agreement whereby the Company shall pay quarterly a 1.75% royalty on the net sales of certain Éclat products until December 31, 2024. In connection with such debt financing transaction, the Company granted Deerfield a security interest in the product registration rights of the Eclat products.
(c)As part of a December 2013 debt financing transaction conducted with Broadfin Healthcare Master Fund, a related party and current shareholder, the Company received cash of $2,200 in exchange for entering into a royalty agreement whereby the Company shall pay quarterly a 0.834% royalty on the net sales of certain Éclat products until December 31, 2024.

In connection with the disposition of the Hospital Products on June 30, 2020 as discussed in Note 4: Disposition of the Hospital Products, the Deerfield MIPA (with respect to certain sections thereof) and the Royalty Agreement were assigned to the Exela Buyer. Pursuant to the Purchase Agreement, the Exela Buyer assumed and will pay,

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At Septemberperform, satisfy and discharge the liabilities and obligations of Avadel Legacy and the Company under the Deerfield Royalty Agreement.

(b)As part of a February 2013 debt financing transaction conducted with Deerfield, the Company received cash of $2,600 in exchange for entering into a royalty agreement whereby the Company is obligated to pay quarterly a 1.75% royalty on the net sales of certain Éclat products until December 31, 2024. In connection with such debt financing transaction, the Company granted Deerfield a security interest in the product registration rights of the Éclat products. In connection with the disposition of the Hospital Products on June 30, 2019,2020 as discussed in Note 4: Disposition of the Hospital Products, the Deerfield MIPA (with respect to certain sections thereof) and the Royalty Agreement were assigned to the Exela Buyer. Pursuant to the Purchase Agreement, the Exela Buyer assumed and will pay, perform, satisfy and discharge the liabilities and obligations of Avadel Legacy and the Company under the Deerfield Royalty Agreement.
(c)As part of a December 2013 debt financing transaction conducted with Broadfin Healthcare Master Fund, a former related party and shareholder, the Company received cash of $2,200 in exchange for entering into a royalty agreement whereby the Company is obligated to pay quarterly a 0.834% royalty on the net sales of certain Éclat products until December 31, 2024. In connection with the disposition of the Hospital Products on June 30, 2020 as discussed in Note 4: Disposition of the Hospital Products, the Broadfin Royalty Agreement was assigned to the Exela Buyer and the Exela Buyer assumed and shall pay, perform, satisfy and discharge the liabilities and obligations of the Company under the Broadfin Royalty Agreement.
(d)Deerfield and Broadfin Healthcare Master Trust disposed of their 2023 Notes and ordinary shares in the Company during the six months ended June 30, 2020 and are no longer considered related parties.
Before the sale of the Hospital Products on June 30, 2020, the fair value of each related partycontingent consideration payable listed in (a), (b) and (c) above was estimated using a discounted cash flow model based on estimated and projected annual net revenues or gross profit, as appropriate, of each of the specified Éclat products using an appropriate risk-adjusted discount rate of 15%14%. These fair value measurements are based on significant inputs not observable in the market and thus represent a levelLevel 3 measurement as defined in ASC 820. Subsequent changes in the fair value of the acquisition-related related partycontingent consideration payables, resulting primarily from management’s revision of key assumptions, will be recorded in the unaudited condensed consolidated statements of loss(loss) income in the line items entitled “Changes in fair value of related party contingent consideration” for items noted in (b) above and in “Other expense - changes in fair value of related partycontingent consideration payable” for items (b) and (c) above. See Note 1: Summary of Significant Accounting Policies under the caption Acquisition-related Contingent Consideration and Financing-related Royalty Agreements in Part II, Item 8 of the Company’s 20182019 Annual Report on Form 10-K for more information on key assumptions used to determine the fair value of these liabilities. 
ThePrior to June 30, 2020, the Company has chosenchose to make a fair value election pursuant to ASC 825, “Financial Instruments” for its royalty agreements detailed in items (b) and (c) above. These financing-related liabilities are recorded at fair market value on the unaudited condensed consolidated balance sheets and the periodic change in fair market value is recorded as a component of “Other expense – change in fair value of related partycontingent consideration payable” on the unaudited condensed consolidated statements of loss.(loss) income.
The following table summarizes changes to the related partycontingent consideration payables, a recurring Level 3 measurement, for the nine-month periods ended September 30, 20192020 and 2018,2019, respectively:
Contingent Consideration Payable Rollforward:Balance
Balance, December 31, 2018$28,840 
Payments of contingent consideration(10,014)
Fair value adjustments (1)
2,880 
Balance, September 30, 2019$21,706 
Balance, December 31, 2019$17,327 
Payments of contingent consideration(6,189)
Fair value adjustments (1)
3,762 
   Disposition of the Hospital Products(14,900)
Balance, September 30, 2020$0 
Related Party Payable Rollforward: Balance
   
Balance, December 31, 2017 $98,925
Payments of related party payable (19,261)
Fair value adjustments (1)
 (18,468)
Expiration of warrants (2,167)
Disposition of the pediatric assets (20,337)
Balance, September 30, 2018 $38,692
   
Balance, December 31, 2018 $28,840
Payments of related party payable (10,014)
Fair value adjustments (1)
 2,880
Balance, September 30, 2019 $21,706
(1) Fair value adjustments are reported as changes in fair value of related party contingent consideration and other expense - changes in fair value of related partycontingent consideration payable in the unaudited condensed consolidated statements of loss. (loss) income.


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NOTE 11: Long-Term Debt
Long-term debt is summarized as follows:
September 30, 2020December 31, 2019
Principal amount of 4.50% exchangeable senior notes due 2023$143,750 $143,750 
Less: unamortized debt discount and issuance costs, net(17,230)(22,064)
Net carrying amount of liability component126,520 121,686 
Less: current maturities0 0 
     Long-term debt$126,520 $121,686 
Equity component:
Equity component of exchangeable notes, net of issuance costs$(26,699)$(26,699)

  September 30, 2019 December 31, 2018
Principal amount of 4.50% exchangeable senior notes due 2023 $143,750
 $143,750
Less: debt discount and issuance costs, net (23,618) (28,059)
Net carrying amount of liability component 120,132
 115,691
Other debt 35
 149
     Subtotal 120,167
 115,840
Less: current maturities (35) (106)
     Long-term debt $120,132
 $115,734
     
Equity component:    
Equity component of exchangeable notes, net of issuance costs $(26,699) $(26,699)



NOTE 12:Income Taxes

The componentsCoronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, includes significant business tax provisions. In particular, the CARES Act modified the rules associated with net operating losses (“NOLs”). Under the temporary provisions of lossthe CARES Act, NOL carryforwards and carrybacks may offset 100% of taxable income for taxable years beginning before income taxes are as follows: 
  Three Months Ended September 30, Nine Months Ended September 30,
Loss Before Income Taxes: 2019 2018 2019 2018
         
Ireland $(14,302) $(18,314) $(36,625) $(34,203)
United States 5,952
 1,773
 12,309
 (1,043)
France 1,720
 79
 (2,530) 441
Total loss before income taxes $(6,630) $(16,462) $(26,846) $(34,805)
The items accounting for2021. In addition, NOLs arising in 2018, 2019 and 2020 taxable years may be carried back to each of the difference betweenpreceding five years to generate a refund. During the nine months ended September 30, 2020, the income tax provision computed atbenefit includes a discrete tax benefit of $9,124 as a result of our ability under the CARES Act to carry back NOLs incurred to periods when the statutory rate and the Company’s effectiveU.S. Federal tax rate are as follows:was 35% versus our current U.S. Federal tax rate of 21%. During the nine months ended September 30, 2020, the Company received $3,351 in cash tax refunds from carryback claims related to the CARES Act from the carryback of 2018 tax losses. During the three months ended September 30, 2020 the Company filed refund claims for $18,753 associated with the carryback of 2019 tax losses.
  Three Months Ended September 30, Nine Months Ended September 30,
Income Tax Rate Reconciliation: 2019 2018 2019 2018
         
Statutory tax rate  
 12.5 %
12.5 % 12.5 % 12.5 %
International tax rates differential (4.3)%
7.0 % 4.1 % 6.9 %
Change in valuation allowance (31.1)%
(18.3)% (27.0)% (14.9)%
Change in fair value of nondeductible contingent consideration 4.1 %
8.7 % (0.1)% 9.9 %
Nondeductible stock-based compensation — %
(3.5)% (0.2)% (2.6)%
Unrecognized tax benefits (8.8)%
(3.5)% (3.3)% (3.1)%
State and local income taxes, net of federal (0.2)%
0.1 % (0.2)% 0.2 %
Nondeductible interest expense (4.5)% — % (2.6)% — %
Other (1.3)%
1.2 % 3.1 % 0.8 %
Effective income tax rate (33.6)%
4.2 % (13.7)% 9.7 %
         
Income tax benefit - at statutory tax rate $(829) $(2,058) $(3,355) $(4,351)
International tax rates differential 283
 (1,153) (1,108) (2,394)
Change in valuation allowance 2,059
 3,007
 7,242
 5,188
Change in fair value of nondeductible contingent consideration (270) (1,431) 33
 (3,436)
Nondeductible stock-based compensation 1
 578
 50
 914
Unrecognized tax benefits 581
 578
 873
 1,086
State and local income taxes, net of federal 14
 (13) 41
 (70)
Nondeductible interest expense 299
 —
 709
 —
Other 96
 (199) (844) (297)
Income tax provision (benefit) - at effective income tax rate $2,234
 $(691) $3,641
 $(3,360)

The income tax provisionbenefit was $5,040 for the three months ended September 30, 2020 resulting in an effective tax rate of 30.1%. The income tax expense was $2,234 for the three months ended September 30, 2019 and a benefitresulting in an effective tax rate of $691(33.6)%. The net increase in the effective income tax rate for the three months ended September 30, 2018. The increase2020, as compared to the same period in 2019, was primarily due to decreased income in the U.S. due to the sale of the Hospital Products.

The income tax provisionbenefit was $9,258 for the threenine months ended September 30, 2019 is primarily the result2020 resulting in an effective tax rate of a decrease in the amount of nontaxable gain from the revaluation of contingent consideration and an increase in the amount of valuation allowances recorded on foreign income tax losses.

(102.3)%. The income tax provision was $3,641 for the nine months ended September 30, 2019 and a benefitresulting in an effective tax rate of $3,360(13.7)%. The net decrease in the effective income tax rate for the nine months ended September 30, 2018. The increase2020, as compared to the same period in 2019, is primarily due to the discrete tax benefits recognized under the CARES Act as described above, favorable income tax provision forbenefits from the U.S. Orphan Drug and Research & Development Tax Credit, which did not occur during the nine months ended September 30, 2019, is primarily the result of a decrease the amount of nontaxable gain from the revaluation of contingent consideration and an increasepartially offset by increased income in the amount of valuation allowances recorded on foreign income tax losses.

The IRS commenced an examinationU.S. due to the sale of the Company's U.S. income tax returns for 2016 and 2017Hospital Products during the second quarter 2019. nine months ended September 30, 2020.




During the nine months ended September 30, 2020, the Company substantially completed the 2015 through 2017 U.S. Federal Tax Audit. Completion of the audit resulted in an assessment of $1,937 for the 2015 through 2017 U.S. Federal Tax Returns compared to the IRS Claims of $50,695 made on July 2, 2019 and the updated IRS Claims of $9,302 on October 2, 2019 made as part of the Specialty Pharma bankruptcy proceedings, which at this time does not include interest and penalties. The Company settled the $1,937 assessment.


- 23 -

NOTE 13:Other Assets and Liabilities 
Various other assets and liabilities are summarized as follows:
Prepaid Expenses and Other Current Assets:September 30, 2020December 31, 2019
Valued-added tax recoverable$353 $1,051 
Prepaid and other expenses1,426 2,116 
Short-term deposit1,477 0 
Guarantee from Armistice364 454 
Income tax receivable18,593 536 
Short term note receivable from Exela (see Note 4)
24,750 0 
Other91 107 
Total  
$47,054 $4,264 
Prepaid Expenses and Other Current Assets: September 30, 2019 December 31, 2018
     
Valued-added tax recoverable $807
 $1,378
Prepaid and other expenses 2,757
 2,145
Guarantee from Armistice (see Note 14)
 560
 534
Income tax receivable 594
 921
Research and development tax credit receivable 270
 283
Short-term deposit —
 3,350
Other 175
 225
Total  
 $5,163
 $8,836
Other Non-Current Assets:September 30, 2020December 31, 2019
Deferred tax assets, net$15,479 $29,427 
Long-term deposits0 1,477 
Guarantee from Armistice1,117 1,367 
Right of use assets at contract manufacturing organizations5,201 6,428 
Other467 575 
Total  
$22,264 $39,274 
Accrued ExpensesSeptember 30, 2020December 31, 2019
Accrued compensation$1,897 $3,944 
Accrued social charges394 592 
Accrued restructuring (see Note 15)
728 2,949 
Customer allowances6,588 6,470 
Accrued transaction fees related to the disposition of the Hospital Products2,500 — 
Accrued contract research organization charges361 2,098 
Accrued contract manufacturing organization costs1,009 735 
Other2,921 3,022 
Total  
$16,398 $19,810 
Other Current Liabilities:September 30, 2020December 31, 2019
Accrued interest$1,078 $2,695 
Due to Exela1,817 0 
Guarantee to Deerfield365 455 
Other171 725 
Total  
$3,431 $3,875 

Other Non-Current Liabilities:September 30, 2020December 31, 2019
Customer allowances$659 $981 
Unrecognized tax benefits3,143 6,465 
Guarantee to Deerfield1,121 1,372 
Other15 55 
Total  
$4,938 $8,873 

Other Non-Current Assets: September 30, 2019 December 31, 2018
     
Deferred tax assets, net $21,636
 $23,029
Long-term deposits 1,477
 1,477
Guarantee from Armistice (see Note 14)
 5,271
 5,697
Right of use assets at contract manufacturing organizations 6,494
 5,894
Other 49
 49
Total  
 $34,927
 $36,146
- 24 -
Accrued Expenses September 30, 2019 December 31, 2018
     
Accrued compensation $2,322
 $3,971
Accrued social charges 482
 1,009
Accrued restructuring (see Note 15)
 1,737
 879
Customer allowances 6,244
 6,541
Accrued contract research organization charges 3,389
 1,000
Accrued contract manufacturing organization costs 1,284
 2,028
Accrued contract sales organization and marketing costs —
 3,469
Other 1,559
 2,798
Total  
 $17,017
 $21,695
Other Non-Current Liabilities: September 30, 2019 December 31, 2018
     
Provision for retirement indemnity $—
 $1,024
Customer allowances 923
 1,352
Unrecognized tax benefits 7,717
 5,315
Guarantee to Deerfield (see Note 14)
 5,289
 5,717
Other 43
 594
Total  
 $13,972
 $14,002


NOTE 14: Equity Transactions

14: DivestitureShelf Registration Statement on Form S-3

In February 2020, we filed with the SEC a new shelf registration statement on Form S-3 (the 2020 Shelf Registration Statement) (File No. 333-236258) that allows issuance and sale by us, from time to time, of:

(a)up to $250,000 in aggregate of ordinary shares, nominal value US$0.01 per share (the “Ordinary Shares”), each of which may be represented by American Depositary Shares (“ADSs”), preferred shares, nominal value US$0.01 per share (the “Preferred Shares”), debt securities (the “Debt Securities”), warrants to purchase Ordinary Shares, ADSs, Preferred Shares and/or Debt Securities (the “Warrants”), and/or units consisting of Ordinary Shares, ADSs, Preferred Shares, one or more Debt Securities or Warrants in one or more series, in any combination, pursuant to the terms of the Pediatric Assets2020 Shelf Registration Statement, the base prospectus contained in the 2020 Shelf Registration Statement (the “Base Prospectus”), and any amendments or supplements thereto (together, the “Securities”); including


(b)up to $50,000 of ADSs that may be issued and sold from time to time pursuant to the terms of an Open Market Sale AgreementSM, entered into with Jefferies LLC on February 4, 2020 (the “Sales Agreement”), the 2020 Shelf Registration Statement, the Base Prospectus and the terms of the sales agreement prospectus contained in the 2020 Shelf Registration Statement.

The transactions costs associated with the 2020 Shelf Registration Statement totaled approximately $428 of which $214 was charged against additional paid-in capital during the nine months ended September 30, 2020 as a result of the May 2020 Public Offering, discussed below. The remaining costs of $214 are recorded as a prepaid asset at September 30, 2020.

February 2020 Private Placement

On February 12, 2018, the Company, together with its subsidiaries Avadel Pharmaceuticals (USA), Inc., Avadel Pediatrics, Inc., FSC Therapeutics, LLC (“FSC Therapeutics”), and Avadel US Holdings, Inc. (“Holdings”), as the “Sellers,”21, 2020, we announced that we entered into an asset purchasea definitive agreement (the “Purchase Agreement”for the sale of our ADSs and Series A Non-Voting Convertible Preferred Shares (“Series A Preferred”) with Cerecor, Inc. (“Cerecor”).in a private placement to a group of institutional accredited investors. The transaction closed on February 16, 2018 wherein Cerecor purchased from the Sellers four pediatric commercial stage assets – Karbinal™ ER, Cefaclor, Flexichamber™private placement resulted in gross proceeds of approximately $65,000 before deducting placement agent and AcipHex® Sprinkle™, together with certain associated business assets –other offering expenses, which were held by FSC.  The Company acquired FSCresulted in February 2016 from Deerfield and certainnet proceeds of its affiliates. $60,570.

Pursuant to the Purchase Agreement, Cerecor assumed the Company’s  remaining payment obligations to Deerfield under the Membership Interest Purchase Agreement, dated as of February


5, 2016, between Holdings, Flamel Technologies SA (the predecessorterms of the Company)private placement, we issued 8,680 ADSs and Deerfield488 shares of Series A Preferred at a price of $7.09 per share, priced at-the-market under Nasdaq rules. Each share of non-voting Series A Preferred is convertible into one ADS, provided that conversion will be prohibited if, as a result, the holder and certain of its affiliates which payment obligations consistwould own more than 9.99% of the following (collectively, the “Assumed Obligations”): (i) a quarterly paymenttotal number of $263 beginning in July 2018 and ending in October 2020, amounting to an aggregate payment obligation of $2,625; (ii) a payment in January 2021 of $15,263; and (iii) a quarterly royalty payment of 15% on net salesAvadel ADSs outstanding. The closing of the FSC products throughprivate placement occurred on February 5, 2026 (“FSC Product Royalties”), in an aggregate amount of up to approximately $10,300.  Cerecor also assumed certain contracts and other obligations related to the acquired assets, and in that connection Holdings agreed to pay Cerecor certain make-whole payments associated with obligations Cerecor is assuming related to a certain supply contract related to Karbinal™ ER.25, 2020.


In conjunction with the divestiture, the Company also entered into the following arrangements:

License and Development Agreement

Also, in connection with the closing under the Purchase Agreement, Flamel Ireland Limited, an Irish limited company operating under the trade name of Avadel Ireland (“Avadel Ireland”) and a wholly-owned subsidiary of the Company, and Cerecor entered into a license and development agreement (the “License and Development Agreement”) pursuant to which, among other things:

Avadel Ireland will provide Cerecor with four product formulations utilizing Avadel Ireland’s LiquiTime™ technology, and will complete pilot bioequivalence studies for such product formulations within 18 months;

Cerecor will reimburse Avadel Ireland for developmentIssuance costs of the four LiquiTime™ products in excess$4,430 have been recorded as a reduction of $1,000 in the aggregate;additional paid-in capital.


Upon transfer of the four product formulations, Cerecor will assume all remaining development costs and responsibilities for the product development, clinical studies, NDA applications and associated filing fees; andMay 2020 Public Offering

Upon regulatory approval and commercial launch of any LiquiTime™ products, Cerecor will pay Avadel Ireland quarterly royalties based on a percentage of net sales of any such products in the mid-single digit range. 

Effective October 25, 2019, Cerecor and Avadel Ireland agreed to terminate the License and Development Agreement.

Deerfield Guarantee


In connection with the closing undershelf registration statement described above, on April 28, 2020, we announced the Purchase Agreement,pricing of an underwritten public offering of 11,630 Ordinary Shares, in the form of ADSs at a price to the public of $10.75 per ADS. Each ADS represents the right to receive one Ordinary Share. All of the ADSs were offered by us and the gross proceeds to us from the offering were approximately $125,000, before deducting underwriting discounts and commissions and offering expenses, which resulted in net proceeds of $116,924. The offering closed on May 1, 2020.

August 2020 Treasury Shares Retirement

In August 2020, the Company and Holdings provided their guarantee (the “Deerfield Guarantee”) in favor of Deerfield. Under the Deerfield Guarantee, the Company and Holdings guaranteed to Deerfield the payment by Cerecor of the Assumed Obligations under the Membership Interest Purchase Agreement between the Company and Deerfield dated February 5, 2016. The Assumed Obligations include (i) a quarterly payment of $263 beginning in July 2018 and ending in October 2020, amounting to an aggregate payment obligation of $2,625; (ii) a payment in January 2021 of $15,263; and (iii) a quarterly royalty payment of 15% on net sales of the FSC products through February 6, 2026 (“FSC Product Royalties”), in an aggregate amount of up to approximately $10,300. In addition, under the Deerfield Guarantee, the Company and Holdings guaranteed that Deerfield would receive certain minimum annual FSC Product Royalties through February 6, 2026 (the “Minimum Royalties”). Given the Company’s explicit guarantee to Deerfield, the Company recorded the guarantee in accordance with ASC 460. A valuation was performed, which was based largely on an analysis of the potential timing of each possible cash outflow described above and the likelihood of Cerecor’s default on such payments assuming an S&P credit rating of CCC+. The result of this valuation identified a guarantee liability of $6,643. This liability is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield. At September 30, 2019, the carrying value of this liability was $5,851.

Armistice Guarantee

In connection with the closing under the Purchase Agreement, Armistice Capital Master Fund, Ltd., the then majority shareholder of Cerecor, guaranteed to Holdings the payment by Cerecor of the Assumed Obligations, including the Minimum Royalties. A valuation of the guarantee asset was performed in accordance with ASC 460 and a guarantee asset of $6,620 was recorded. This asset is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield noted above. At September 30, 2019, the carrying value of this asset was $5,831.

The fair values of the Avadel guarantee to Deerfield and the guarantee received by Avadel from Armistice largely offset and when combined are not material.



Based on management’s review of ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the dispositionretired all of our pediatric assets and related liabilities did not qualify for discontinued operations reporting. Our results of operations for the period January 1, 2018 through February 16, 2018 include the results of FSC, prior to its February 16, 2018 disposition date.

Recent Updates to Guarantees
On October 10, 2019 Cerecor entered into a purchase and sale agreement with a Aytu BioScience, Inc (“Buyer”) pursuant to which the Buyer will purchase certain assets from Cerecor and assume certain of Cerecor’s liabilities, including all of Cerecor’s liabilities assumed as part of the Purchase Agreement noted above. As part of this transaction, on November 1, 2019, Armistice has agreed to deposit $15,000 in an escrow account governed by an escrow agreement between Armistice and Deerfield having the purpose of securing the $15,000 balloon payment due January 2021 as part of the Membership Interest Purchase Agreement. As part of the Cerecor transaction with the buyer, Deerfield contractually acknowledges and agrees that they will seek payment from the escrow funds before requesting payment from the Company pursuant to the Deerfield Guarantee discussed above.5,407 treasury shares, or $49,998 previously repurchased ordinary shares. As a result, we reduced additional paid-in capital by $49,944 and ordinary shares by $54 during the Companythree and nine months ended September 30, 2020. The portion allocated to additional paid-in capital is in processdetermined pro rata by applying a percentage, determined by dividing the number of assessingshares to be retired by the impact this escrow deposit has on the fair valuesnumber of shares issued and outstanding as of the guarantees and will adjust such carrying values in the quarter ending December 31, 2019.

The net impact of this transaction was not materialretirement date, to the unaudited condensed consolidated statementsbalance of loss.additional paid-in capital as of the retirement date. Based on this calculation, the entirety of the excess of repurchase price over par of $49,944 was allocated to additional paid-in capital.


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NOTE 15: Restructuring Costs
2019 French Restructuring
During the second quarter of 2019, the Company initiated a plan to substantially reduce all of its workforce at its Vénissieux, France site (“2019 French Restructuring”). This reduction iswas part of an effort to align the Group’sCompany’s cost structure with our ongoing and future planned projects. The reduction in workforce is projected to be substantially complete bywas completed during the end of calendar year 2019,three months ended June 30, 2020. Restructuring charges associated with this plan recognized during the three and to result in employee severance, benefits and other costs of up to approximately $3,500, which are likely to be recognized through December 31, 2019.nine months ended September 30, 2020 were immaterial. Restructuring charges associated with this plan of $1,259 and $3,198 were recognized during the three and nine months ended September 30, 2019. Included in the 2019 French Restructuringrestructuring charges of $3,198 were charges for employee severance, benefits and other costs of $2,774, a charge of $598 related to fixed asset impairment, a charge of $826 related to the early termination penalty related to the office lease termination (see Note 9: Leases) as well as a benefit of $1,000 related to the reversal of the French retirement indemnity obligation.
The following table sets forth activities for the Company’s cost reduction plan obligations for the three and nine months ended September 30, 2020 and 2019:
2019 French Restructuring Obligation: 20192019 French Restructuring Obligation:20202019
  
Balance of restructuring accrual at January 1, $—
Balance of restructuring accrual at January 1,$1,922 $0 
Charges for employee severance, benefits and other costs 2,774
Charges for employee severance, benefits and other costs173 2,774 
Payments (1,837)Payments(1,813)(1,837)
Foreign currency impact (42)Foreign currency impact(45)(42)
Balance of restructuring accrual at September 30, $895
Balance of restructuring accrual at September 30,$237 $895 
The 2019 French Restructuring liabilities of $884 and $11$237 are included in the unaudited condensed consolidated balance sheet in accrued expenses and accounts payable at September 30, 2019, respectively.2020.


2019 Corporate Restructuring


During the first quarter of 2019, the Company announced a plan to reduce its Corporate workforce by more than 50% (“2019 Corporate Restructuring”). The reduction in workforce is primarily a result of the exit of Noctiva during the first quarter of 2019 (see Note 3: Subsidiary Bankruptcy and Deconsolidation), as well as an effort to better align the Company’s remaining cost structure at our U.S. and Ireland locations with our ongoing and future planned projects. The reduction in workforce is projected to be substantially complete bywas completed during the end of calendar year 2019, and to result in employee severance, benefits and other costs of up to approximately $3,000, which are likely to be recognized through December 31, 2019.three months ended September 30, 2020. The restructuring charges associated with this plan recognized during the three and nine months ended September 30, 2020 were immaterial, compared to the restructuring charges of $607 and $1,570 were recognized during the three and nine months ended September 30, 2019, respectively. Included in the 2019 Corporate Restructuring expense of $607 for the three months ended September 30, 2019 were charges for employee severance, benefit and other costs. Included in the 2019 Corporate Restructuring charges of $1,570 for the nine months


ended September 30, 2019, were charges for employee severance, benefit and other costs of $2,966, as well as a benefit of $1,396 related to share based compensation forfeitures related to the employees affected by the global reduction in workforce.


The following table sets forth activities for the Company’s cost reduction plan obligations for the nine months ended September 30, 2020 and 2019:
2019 Corporate Restructuring Obligation:20202019
Balance of restructuring accrual at January 1,$1,080 $0 
Charges for employee severance, benefits and other costs206 2,966 
Payments(794)(2,113)
Balance of restructuring accrual at September 30,$492 $853 
2019 Corporate Restructuring Obligation: 2019
   
Balance of restructuring accrual at January 1, $—
Charges for employee severance, benefits and other costs 2,966
Payments (2,113)
Balance of restructuring accrual at September 30, $853
The 2019 Corporate Restructuring liabilities of $853$492 are included in the unaudited condensed consolidated balance sheet in accrued expenses at September 30, 2019.2020.
2017 French Restructuring
During
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NOTE 16: Share-Based Compensation

2020 Performance Share Units (“PSUs”)

At the first quarterAnnual Meeting of 2017,Stockholders held in August 2020, the 2020 Omnibus Incentive Compensation Plan was approved which provided for the grant of PSUs to certain executive officers and employees. These PSUs vest upon the achievement of certain regulatory milestones. As of September 30, 2020 152 PSUs were outstanding, none had vested and the weighted-average grant date fair value of all shares was $8.29 per share. The Company has not yet recognized any PSU-related stock-based compensation expense as the regulatory milestones have not yet been met; however, in the event the performance conditions are met before a certain date, approximately 150% of the outstanding shares, or $1,900 of compensation expense will be recognized by the Company announced a planfor the PSUs outstanding as of September 30, 2020.

On October 20, 2020, we granted 105 of PSUs to reduce its workforce at the Venissieux, France site by approximately 50% (“2017 French Restructuring”).  This reduction was an effort to align the Company’s cost structure with our ongoing and future planned projects. In July 2017, the Company completed negotiationscurrent employees, with the works council for our French operations and received approval fromweighted-average grant date fair value of the French Labor Commission (DIRECCTE) to implement the plan. The reduction was substantially complete at September 30, 2019. The 2017 French restructuring costs for the three months ended September 30, 2019 and 2018 were immaterial. The 2017 French Restructuring incomePSUs of $168 and restructuring charges of $268 were recognized during the nine months ended September 30, 2019 and 2018, respectively. The following table sets forth activities for the Company’s cost reduction plan obligations for the nine months ended September 30, 2019 and 2018:$5.36 per share.

2017 French Restructuring Obligation: 2019 2018
     
Balance of restructuring accrual at January 1, $879
 $1,000
Charges for employee severance, benefits and other (168) 268
Payments (663) (668)
Foreign currency impact (10) (19)
Balance of restructuring accrual at September 30, $38
 $581
The 2017 French Restructuring accrual is included in the unaudited condensed consolidated balance sheet in other non-current liabilities at September 30, 2019 and 2018.

NOTE 16:17:Net Loss(Loss) Income Per Share
Basic net loss(loss) income per share is calculated by dividing net loss(loss) income by the weighted average number of shares outstanding during each period. Diluted net (loss) income per share is calculated by dividing net (loss) income - diluted by the diluted number of shares outstanding during each period. Except where the result would be anti-dilutive to net loss,(loss) income, diluted net loss(loss) income per share would be calculated assuming the impact of the conversion of the 2023 Notes, the conversion of our preferred shares, the exercise of outstanding equity compensation awards, and ordinary shares expected to be issued under our employee stock purchase plan (“ESPP”) and the exercise of contingent consideration warrants, all which have been exercised or have expired during the first quarter of 2018..


We have a choice to settle the conversion obligation under the 2023 Notes in cash, shares or any combination of the two. We utilize the if-converted method to reflect the impact of the conversion of the 2023 Notes, unless the result is anti-dilutive. This method assumes the conversion of the 2023 Notes into shares of our ordinary shares and reflects the elimination of the interest expense related to the 2023 Notes.


The dilutive effect of the warrants, stock options, RSU’srestricted stock units, preferred shares and ordinary shares expected to be issued under or ESPP has been calculated using the treasury stock method.


The dilutive effect of the PSUs will be calculated using the treasury stock method, if and when the contingent vesting condition is achieved.
A reconciliation of basic and diluted net loss(loss) income per share, together with the related shares outstanding in thousands is as follows: 
  Three Months Ended September 30, Nine Months Ended September 30,
Net Loss Per Share: 2019 2018 2019 2018
         
Net loss $(8,864) $(15,771) $(30,487) $(31,445)
         
Weighted average shares:  
  
    
Basic shares 37,436
 36,904
 37,382
 37,410
Effect of dilutive securities—employee and director equity awards outstanding and 2023 Notes —
 —
 —
 —
Diluted shares 37,436
 36,904
 37,382
 37,410
         
Net loss per share - basic $(0.24)
$(0.43) $(0.82) $(0.84)
Net loss per share - diluted  
 $(0.24)
$(0.43) $(0.82) $(0.84)
Three Months Ended September 30,Nine Months Ended September 30,
Net (Loss) Income Per Share:2020201920202019
Net (loss) income$(11,703)$(8,864)$18,306 $(30,487)
Weighted average shares:  
Basic shares58,213 37,436 51,206 37,382 
Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes0 0 1,643 0 
Diluted shares58,213 37,436 52,849 37,382 
Net (loss) income per share - basic$(0.20)$(0.24)$0.36 $(0.82)
Net (loss) income per share - diluted  
$(0.20)$(0.24)$0.35 $(0.82)
Potential common shares of 19,54415,969 and 18,74219,544 were excluded from the calculation of weighted average shares for the three months ended September 30, 2020 and 2019, respectively, and 2018, respectively, because their effect was considered to be anti-dilutive. Potentialpotential common shares of 20,51215,789 and 16,64720,512 were excluded from the calculation of weighted average shares for the nine months ended September 30, 2020 and 2019, respectively, because either their effect was considered to be anti-dilutive or they were related to shares from PSUs for which the contingent vesting condition had not been achieved. For the three months ended September 30, 2020 and 2018, respectively. Forfor the three and nine months ended September 30, 2019, and 2018, the effects of dilutive securities were entirely excluded from the calculation of net loss per share as a net loss was reported in this period. 

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NOTE 17:18:Comprehensive Loss 
The following table shows the components of accumulated other comprehensive loss for the three and nine months ended September 30, 20192020 and 2018,2019, respectively, net of tax effects: 
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
Accumulated Other Comprehensive Loss: 2019 2018 2019 2018Accumulated Other Comprehensive Loss:2020201920202019
        
Foreign currency translation adjustment:  
  
    Foreign currency translation adjustment:  
Beginning balance $(23,720) $(23,435) $(23,621) $(23,202)Beginning balance$(23,733)$(23,720)$(23,738)$(23,621)
Net other comprehensive loss (210) (60) (309) (293)
Net other comprehensive income (loss)Net other comprehensive income (loss)534 (210)539 (309)
Balance at September 30, $(23,930) $(23,495) $(23,930) $(23,495)Balance at September 30,$(23,199)$(23,930)$(23,199)$(23,930)
        
Unrealized gain (loss) on marketable debt securities, net  
  
    
Unrealized gain on marketable debt securities, netUnrealized gain on marketable debt securities, net  
Beginning balance $872
 $(224) $205
 $(64)Beginning balance$1,215 $872 $932 $205 
Net other comprehensive income (loss), net of ($5), ($18), ($46) and ($88) tax, respectively 86
 68
 753
 (92)
Net other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectivelyNet other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectively66 86 349 753 
Balance at September 30, $958
 $(156) $958
 $(156)Balance at September 30,$1,281 $958 $1,281 $958 
Accumulated other comprehensive loss at September 30, $(22,972) $(23,651) $(22,972) $(23,651)Accumulated other comprehensive loss at September 30,$(21,918)$(22,972)$(21,918)$(22,972)
The effect on the Company’s unaudited condensed consolidated financial statements of amounts reclassified out of accumulated other comprehensive loss was immaterial for all periods presented.


NOTE 18:19:Revenue by Product 
The Company has determined that it operates in one1 segment, the development and commercialization of pharmaceutical products, including controlled-release therapeutic products based on its proprietary polymer based technology. The Company’s Chief Operating Decision Maker is the CEO.Chief Executive Officer (the “CEO”). The CEO reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions as well as resource allocations. All products are included in one segment because the Company’s products have similar economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods and regulatory environment. 


The following table presents a summary of total revenuesproduct sales by these products: 
Three Months Ended September 30,Nine Months Ended September 30,
Product Sales by Product:2020201920202019
Bloxiverz$0 $1,466 $2,201 $6,392 
Vazculep0 8,786 10,429 27,669 
Akovaz0 4,208 9,545 13,946 
Other0 (231)159 213 
Total product sales$0 $14,229 $22,334 $48,220 

On June 30, 2020, we sold the Hospital Products. See Note 4: Disposition of the Hospital Products.

  Three Months Ended September 30, Nine Months Ended September 30,
Revenues by Product: 2019 2018 2019 2018
         
Bloxiverz $1,466
 $3,656
 $6,392
 $16,691
Vazculep 8,786
 8,759
 27,669
 33,097
Akovaz 4,208
 5,991
 13,946
 28,083
Other (231) 1,420
 213
 4,232
Total product sales 14,229
 19,826
 48,220
 82,103
License revenue —
 —
 —
 246
Total revenues $14,229
 $19,826
 $48,220
 $82,349

NOTE 19:20:Commitments and Contingencies
Litigation  
The Company is subject to potential liabilities generally incidental to our business arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, employment, compliance and other matters that arise in the ordinary course of business. The Company accrues for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. At September 30, 20192020 and December 31, 2018,2019, there were no contingent liabilities with respect to any litigation, arbitration or administrative or
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other proceeding that are reasonably likely to have a material adverse effect on the Company’s unaudited condensed consolidated financial position, results of operations, cash flows or liquidity.   


Litigation Related to Noctiva


Note 3: Subsidiary Bankruptcy and Deconsolidation briefly describes the Chapter 11 bankruptcy case which our subsidiary Specialty Pharma commenced on February 6, 2019, and which on April 26, 2019 resulted in the bankruptcy court-approved sale of all of Specialty Pharma’s intangible assets and inventory to an unaffiliated third party. As a result of such sale, Specialty Pharma has completed its divestment of the assets of the Noctiva business. During the pendency of the bankruptcy case, all pending litigation against Specialty Pharma is automatically stayed and any new litigation against Specialty Pharma is precluded unless the bankruptcy court orders otherwise. Below are descriptions of aThere is currently no pending or threatened litigation or disputes to which Specialty Pharma is or would be a partyparty. All prior litigation and a contract disputedisputes involving Specialty Pharma bothhave been dismissed or resolved.

Material Commitments

We have been relieved of which matters are subject to the automatic stay during the bankruptcy case.

Ferring Litigation. Some of the patents covering the NoctivaTM product (the “Noctiva Patents”) are the subject of litigation initiated by Ferring Pharmaceuticals Inc. and two of its foreign affiliates, who manufacture a competing product known as Nocdurna.  Nocdurna was approved by the FDA in June 2018 and commercially launched in the U.S. in November 2018.  In this litigation, Ferring seeks to invalidate and disputes the inventorship of the Noctiva Patents, seeks damages for various alleged breaches of contractual and common law duties, and seeks damages for alleged infringement by NoctivaTM of Ferring’s “Nocdurna” trademark.  Specialty Pharma and certain other parties including Serenity Pharmaceuticals, LLC (“Serenity”) (the licensor of the Noctiva Patents) have defended this litigation, and have made counterclaims against Ferring, including for infringement of the Noctiva Patents and a declaratory judgment of noninfringement with respect to Ferring’s “Nocdurna” trademark. The court dismissed Ferring’s inventorship claim and its claims for alleged breaches of contractual and common law duties, although these dismissals may be appealed by Ferring.  On February 15, 2019, Specialty Pharma and its co-defendants moved to stay the litigation pending completion of the bankruptcy proceeding of Specialty Pharma. On May 15, 2019, that motion was denied due to an impending settlement of the litigation with respect to just Ferring and Specialty Pharma.

Contract Dispute. On January 21, 2019, Serenity gave notice to Specialty Pharma of an alleged breach of the parties’ Noctiva license agreement. Serenity alleges that Specialty Pharma breached its contractual obligation to devote commercially reasonable efforts to the commercialization of Noctiva and seeks unspecified damages. On January 27, 2019, Specialty Pharma notified Serenity of a claim for $1.7 million in damages as a result of Serenity’s breach of its contractual obligation to pay the costs of the Ferring Litigation. Serenity’s notice to Specialty Pharma invoked the dispute resolution provisions of the Noctiva license agreement, which culminate in arbitration, but neither party has yet initiated an arbitration proceeding or filed suit.



Material Commitments
Due to the Chapter 11 bankruptcy case of Specialty Pharma, the Company’s various commitments toall purchase finished product from suppliers has changed from what was included in Part II, Item 8 of the Company’s 2018 Annual Report on Form 10-K. As of September 30, 2019, commitments for these arrangements, at maximum quantities and at contractual prices over the remaining life of the contract, and excluding any waived commitments, are as follows for the years ended December 31:

Purchase Commitments: Balance
   
2019 $7,194
2020 1,320
2021 1,320
2022 1,320
2023 220
Thereafter —
Total $11,374

Other than commitments disclosed in Note 15:16: Contingent Liabilities and Commitments to the Company’s audited consolidated financial statements included in Part II, Item 8 of the Company’s 20182019 Annual Report on Form 10-K there were no other material commitments outsidedue to the sale of the normal courseHospital Products described in Note 4: Disposition of business. the Hospital Products.

During the three months ended September 30, 2020, we entered into a commitment with a contract manufacturer related to the purchase and validation of equipment to be used in the manufacture of FT218. The total cost of this commitment is estimated to be approximately $3,800 and is expected to be completed by the end of 2021.

Material commitments in the normal course of business include long-term debt obligations which are disclosed in Note 10:11: Long-Term Debt, respectively, to the Company’s unaudited condensed consolidated financial statements included in Part II, Item 8 of the Company’s 2018 Annual Report on Form 10-K andstatements. Our long-term contingent consideration payable as disclosed in Note 10: Long-Term Related PartyContingent Consideration Payablehas also been relieved due to the Company’s unaudited condensed consolidated financial statements includedsale of the Hospital Products.
Guarantees

Deerfield Guarantee

The fair values of our guarantee to Deerfield and the guarantee received by us from Armistice largely offset and when combined are not material.

In connection with our February 2018 divestiture of our pediatric assets, we guaranteed to Deerfield the quarterly royalty payment of 15% on net sales of the FSC products through February 6, 2026 (“FSC Product Royalties”), in Part I, Item 1an aggregate amount of up to approximately $10,300. Given our explicit guarantee to Deerfield, the Company recorded the guarantee in accordance with ASC 460. The balance of this report.

guarantee liability was $1,486 at September 30, 2020. This liability is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield.


Armistice Guarantee

In connection with our February 2018 divestiture of the pediatric assets, Armistice Capital Master Fund, Ltd., the majority shareholder of Cerecor, guaranteed to us the FSC Product Royalties. The Company recorded the guarantee in accordance with ASC 460. The balance of this guarantee asset was $1,481 at September 30, 2020. This asset is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
Management’s Discussion and Analysis
(In thousands, except per share data)
(Unaudited)
 
You should read the discussion and analysis of our financial condition and results of operations set forth in this Item 2 together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this quarterly report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties, and reference is made to the “Cautionary Note Regarding Forward-Looking Statements” set forth immediately following the Table of Contents of this Quarterly Report on Form 10-Q for further information on the forward looking statements herein. In addition, you should read the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 201916, 2020 and Part II, Item 1A in this quarterly report on Form 10-Q for a discussion of additional important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this quarterly report.
Overview
General Overview
Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is a branded specialty pharmaceuticalan emerging biopharmaceutical company. Our primary focuslead product candidate, FT218, is an investigational once-nightly formulation of sodium oxybate for the treatment of excessive daytime sleepiness (“EDS”) and cataplexy in narcolepsy patients. FT218 uses our Micropump controlled release drug-delivery technology.

We are primarily focused on the development and potential United States (“U.S.”) Food and Drug Administration (“FDA”) approval for FT218 which is in a Phase 3 clinical trial forof FT218. Outside of our lead product candidate, we continue to evaluate opportunities to expand our product portfolio.

Recent Developments

Disposition of the treatmentHospital Products

On June 30, 2020 (“Closing Date”), we announced the sale of narcolepsy patients suffering from excessive daytime sleepiness (EDS) and cataplexy.  In addition, we market threeour portfolio of sterile injectable drugs used in the hospital setting (the “Hospital Products”), including our three commercial products, Akovaz, Bloxiverz and Vazculep, as well as Nouress, which were developed under our “unapproved marketed drug” (UMD) program.  The Company is headquarteredapproved by the FDA to Exela Sterile Medicines LLC (“Exela Buyer”) (the “Transaction”) pursuant to an asset purchase agreement between Avadel U.S. Holdings Inc., Avadel Legacy Pharmaceuticals, LLC, Exela Holdings, Inc. and the Exela Buyer (“Purchase Agreement”). Pursuant to the Purchase Agreement, Exela Buyer paid us $14,500 on the Closing Date and will pay an additional $27,500 in Dublin, Ireland with operationsten equal monthly installments which began in St. Louis, Missouri and Lyon, France.September 2020 for total aggregate consideration of $42,000. During the three months ended September 30, 2020, we received the first installment payment of $2,750. For more information, please visit www.avadel.com.see our Current Report on Form 8-K filed with the SEC on July 2, 2020.
Avadel
Subsidiary Bankruptcy

At a hearing conducted on October 6, 2020, the Bankruptcy Court granted final approval of Specialty Pharma’s disclosure statement and confirmed its Chapter 11 plan of liquidation. Pursuant to the plan, the appointment of a Plan Administrator was also approved. The Plan Administrator will be responsible for making distributions to creditors, managing the final windup and dissolution of Specialty Pharma, and taking other steps in accordance with the plan of liquidation. The plan of liquidation became effective on October 20, 2020.

FT218 (Micropump sodium oxybate)

FT218 is developing FT218, an investigationala once-nightly formulation of sodium oxybate based on its propriety Micropump® drug delivery technology, for the treatment of EDS and cataplexy in patients suffering from narcolepsy. FT218 is currently being evaluated in a Phase 3 clinical trial called REST-ON. In addition, the Company submitted a new drug application (“NDA”) in March 2019 on a fourth sterile injectable drug which we refer to as AV001, for use in the hospital setting. AV001, if approved, could contribute revenues to Avadel starting in 2020. In May 2019, the FDA accepted the NDA for AV001, with a Prescription Drug User Fee Act (PDUFA) target action date of December 15, 2019.
Our current marketed products include:

Akovaz® (ephedrine sulfate injection, USP), an alpha- and beta-adrenergic agonist and a norepinephrine-releasing agent that is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.
Bloxiverz® (neostigmine methylsulfate injection), a cholinesterase inhibitor, is indicated for the reversal of the effects of non-depolarizing neuromuscular blocking agents (NMBAs) after surgery.

Vazculep® (phenylephrine hydrochloride injection), an alpha-1 adrenergic receptor agonist indicated for the treatment of clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia.

Each of our Akovaz, Bloxiverz and Vazculep products is used primarily in the hospital setting and was developed under our UMD program.
Business Strategies
Our primary business strategy is to focus on the development and potential FDA approval for FT218 which is in a Phase 3 clinical trial for the treatment of narcolepsy patients suffering from EDS and cataplexy. In addition, we will continue market and distribute our current approved hospital products portfolio, including seeking FDA approval for and the commercialization of our fourth UMD product. Additionally, we will continue to evaluate opportunities to expand our product portfolio. These strategies are described below in greater detail.
FT218 (Micropump® sodium oxybate): FT218 (Micropump® sodium oxybate): Avadel is developing a product that uses our Micropump®Micropump controlled release drug-delivery technology for the treatment of EDS and cataplexy in patients suffering from narcolepsy. Avadel


currently refers to this product as FT218. FT218 is a Micropump®-based formulation of sodium oxybate. Sodium oxybate is the sodium salt of gamma hydroxybutyrate, an endogenous compound and metabolite of the neurotransmitter gamma-aminobutyric acid. Sodium oxybate has been described as a therapeutic agent with high medical value. Sodium oxybate is approved in Europe and the United StatesU.S. as a twice nightlytwice-nightly formulation indicated for the treatment of EDS and cataplexy in patients with narcolepsy.

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In preparation for a clinical
The REST-ON trial of FT218, Avadel reached an agreement with the FDA for the design and planned analysis of our pivotal Phase 3 study, Rest-On through a Special Protocol Assessment (“SPA”). A SPA is an acknowledgment by the FDA that the design and planned analysis of a pivotal clinical trial adequately addresses the objectives necessary to support a regulatory submission. Pursuant to the SPA, in December 2016, Avadel initiated patient enrollment and dosing for the Rest-On clinical trial to assess the safety and efficacy of a once-nightly formulation of FT218 for the treatment of EDS and cataplexy in patients suffering from narcolepsy. The study iswas a randomized, double-blind, placebo-controlled study of 264that enrolled 212 patients beingand was conducted in 45 to 55 clinical sites in the U.S., Canada, Western Europe and Australia. Avadel believes that, if successful, this study could demonstrate improved efficacy, safety andThe last patient, satisfaction over the current primary product serving this market, which is a twice nightly sodium oxybate formulation, for which the marketer has forecasted revenues of approximately $1.6 billion for the year ended December 31, 2019.

In September 2019, the Company announced that the FDA agreed to the Company’s proposed amendments to the statistical analysis plan and protocol under its SPA for FT218, resulting in a lower sample size needed to demonstrate significance for both excessive daytime sleepiness and cataplexy in narcolepsy patients. No modifications were made to the fundamental design of the study, including the primary or secondary endpoints, dosing scheme or duration of the study, and the SPA remains intact. The study will now target enrolling 205 patients. Based on this updated target size and current enrollment, the Company expects to complete enrollment bylast visit was completed at the end of 2019 and have topline data in the secondfirst quarter of 2020 and positive top line data from the REST-ON trial was announced on April 27, 2020. Patients who received 9g of once-nightly FT218 demonstrated a statistically significant and clinically meaningful improvement compared to placebo across the three co-primary endpoints of the trial: maintenance of wakefulness test, or MWT, clinical global impression-improvement, or CGI-I, and mean weekly cataplexy attacks. We observed the 9g dose of once-nightly FT218 to be generally well tolerated. Adverse reactions commonly associated with sodium oxybate were observed in a small number of patients (nausea 1.3%, vomiting 5.2%, decreased appetite 2.6%, dizziness 5.2%, somnolence 3.9%, tremor 1.3%, enuresis 9%) and 3.9% of the patients who received 9g of FT218 discontinued the trial due to adverse reactions. We also assessed the three co-primary endpoints in patients who received 7.5g and 6g of once-nightly FT218. Patients who received either 7.5g or 6g of once-nightly FT218 also demonstrated statistically significant, clinically meaningful improvements compared to placebo for each of the three co-primary endpoints. 


In January 2018, the FDA granted FT218 Orphan Drug Designation, which makes the drug eligible for certain development and commercial incentives, including a potential U.S. market exclusivity for up to seven yearsyears. Additionally, in April 2019, our first FT218 patent was issued, providing intellectual property protection into mid-2037. One or more FT218-related U.S. patents have issued since, and there are additional patent applications currently in development and/or pending at the U.S. Patent and Trademark Office (“USPTO”), as well as foreign patent offices.

In July 2020, we announced that the only once-nightly formulation. However, please seefirst patient was dosed initiating an open-label extension (“OLE”)/switch study of FT218 as a potential treatment for excessive daytime sleepiness and cataplexy in patients with narcolepsy. The OLE/switch study will examine the information set forth under the caption “- Risks Related to Regulatorylong-term safety and Legal Matters - Ifmaintenance of efficacy of FT218 is approved by the FDA, we may not obtain orphan drug marketing exclusivity”in patients with narcolepsy who participated in the “Risk Factors” includedREST-ON study, as well as dosing and preference data for patients switching from twice-nightly sodium oxybate to once-nightly FT218 regardless if they participated in Part I, Item 1AREST-ON or not. We anticipate that the study will enroll about 250 patients at most of the Company’s Annual Report on Form 10-K filedNorth American clinical trial sites that participated in the REST-ON study.

We believe FT218 has the potential to demonstrate improved dosing compliance, safety and patient satisfaction over the current standard of care for EDS and cataplexy in patients with narcolepsy, which is a twice-nightly sodium oxybate formulation. If approved, we believe FT218 has the SEC on March 15, 2019.potential to take a significant share of the sodium oxybate market. The current market size for the twice-nightly administration of sodium oxybate is estimated at an annualized revenue run rate of $1.6 billion.


DevelopmentMicropump Drug-Delivery Technology

Our Micropump drug-delivery technology allows for the delayed delivery of Micropump®-Based Products
Avadel’s Micropump® drug delivery technology presentssmall molecule drugs taken orally, which has the potential to improve dosing compliance, reduce toxicity and improve patient compliance. Beyond FT218, we believe there could be other product development opportunities for our Micropump drug-delivery technology, representing either “life cycle”life cycle opportunities, whereby additional intellectual property can be added to a pharmaceutical product to extend the commercial viability of a currently marketed product, or innovative formulation opportunities for new chemical entities (“NCEs”). FT218entities.

Previously Approved FDA Products

On June 30, 2020, we announced the sale of our portfolio of sterile injectable drugs used in the hospital setting, including our three commercial products, Akovaz, Bloxiverz and Vazculep, as well as Nouress, which is formulated using this technology. Ifapproved by the U.S. FDA to Exela Sterile Medicines LLC. This sale included the following FDA approved products:

•Bloxiverz (neostigmine methylsulfate injection) - Bloxiverz was approved by the FDA this product may be commercialized eitherin May 2013 and was launched in July 2013. Bloxiverz is a drug used intravenously in the operating room to reverse the effects of non-depolarizing neuromuscular blocking agents after surgery. Bloxiverz was the first FDA-approved version of neostigmine methylsulfate. Today, neostigmine is one of the two most frequently used products for the reversal of the effects of other agents used for neuromuscular blocks. There are approximately 2,500 vials of neostigmine sold annually in the U.S.
•Vazculep (phenylephrine hydrochloride injection) - Vazculep was approved by Avadel and/or by partners via licensing/distribution agreements.
Unapproved Marketed Drug (“UMD”) Products
In 2006, the FDA issued its Marketed Unapproved Drugsin June 2014 and was launched in October 2014. Vazculep is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia. There are approximately 7,400 vials of Vazculep sold annually in the U.S.

•Akovaz (ephedrine sulfate injection) - Compliance Policy Guide with the intention to incentivize pharmaceutical companies to pursue approvals for pharmaceutical products, many of which pre-date the establishment of the FDA. Although in most cases these products are not protectedAkovaz, was approved by patents or similar intellectual property, the FDA’s Compliance Policy Guide dictates that should the FDA approve in April 2016 and was launched in August 2016. Akovaz was the first FDA approved formulation of ephedrine sulfate, an alpha- and beta- adrenergic agonist and
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a new drug applicationnorepinephrine-releasing agent that is indicated for any such products via a 505(b)(2) process,the treatment of clinically important hypotension occurring in the setting of anesthesia. There are approximately 6,800 vials of Akovaz sold annually in the U.S.

•Nouress (cysteine hydrochloride injection) - Nouress was approved by the FDA will remove competing unapproved manufacturers until a generic applicationin December 2019. Nouress is approved. Avadel believes that over a thousand unapproved drugs are marketed in the United States today and, while many of these products are outdated therapies, we strategically evaluate those UMD products that are more commonly used as candidates for possible future FDA approval and marketing under our UMD program.
To date, Avadel has received FDA approvals for three UMD products which we currently market under the brand names Bloxiverz® (neostigmine methylsulfate injection), Vazculep® (phenylephrine hydrochloride injection) and Akovaz® (ephedrine sulfate injection).

Additional UMD Products. Avadel is developing and intends to seek FDA approval of an NDA for AV001, a sterile injectable product for use in the hospital setting. Ifsetting, and two issued U.S. patents currently cover that product. Several additional patent applications for Nouress are pending with the NDA is approved, AV001 could contribute revenues to Avadel starting in 2020. The Company submitted the NDA in March 2019,U.S. Patent and it was originally granted Priority Review status by the FDA resulting in a six-month review period with an initial assigned PDUFA target date of September 15, 2019. However, on July 31, 2019, the Company received notification that the FDA extended the PDUFA date to December 15, 2019. This extension relates to recent submissions the Company made in response to FDA requests for additional analytical information. The FDA determined that these submissions constitute a major amendment and will require additional time to review. The Company believes that this three-month extensionTrademark Office (“USPTO”).


should not impact the launch timeline, which is still anticipated for early 2020. In addition, Avadel continues to monitor and evaluate other UMDs with large existing markets and limited competition for feasibility of possible future NDAs. Avadel believes its strategy to create opportunities to commercialize UMD products in markets with a limited number of competitors may have a limited number of opportunities given the lack of patent protection from competition. Avadel believes this shorter-term strategy may provide us with near term revenue growth and provide cash flows that can be used to fund R&D and inorganic initiatives for the development of FT218 and, perhaps, other products.


Corporate Information


The Company wasWe were incorporated on December 1, 2015 as an Irish private limited company, and re-registered as an Irish public limited company or plc,(“plc”), on November 21, 2016. Our principal place of businessregistered address is located at Block 10-1, Blanchardstown Corporate Park, Ballycoolin,10 Earlsfort Terrace, Dublin 15, Ireland. Avadel’s2, Ireland and our phone number is 011-353-1-485-1200.+353-1-920-1000. We file annual, quarterly and current reports, proxy statements and other documents with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our website is www.avadel.com, where we make available free of charge our reports (and any amendments thereto) on Forms 10-K, 10-Q and 8-K as soon as reasonably practicable after they are electronically filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”).SEC. These filings are also available to the public at www.sec.gov.
The Company is the successor to Flamel Technologies S.A., a French société anonyme (“Flamel”), as the result of the France-to-Ireland redomestication merger of Flamel with and into the Company completed on December 31, 2016 (the “Merger”). In the Merger, we changed our company name to Avadel Pharmaceuticals plc and our jurisdiction of organization to Ireland; we assumed all the assets and liabilities of Flamel; and we issued one Avadel ordinary share (either directly or in the form of an American Depositary Share (ADS)) in exchange for each formerly outstanding share of Flamel, all of which were canceled. Thus, an Avadel ordinary share held (either directly or represented by an ADS) immediately after the Merger continued to represent the same proportional interest in our equity owned by the holder of a share of Flamel immediately prior to the Merger. References in this Annual Report on Form 10-K to “Avadel,” the “Company,” “we,” “our,” “us,” and similar terms shall be deemed to be references to Flamel prior to the completion of the Merger, unless the context otherwise requires. Additional details about the Merger are set forth in Item 1 under the caption “The Reincorporation Merger” of the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019.
The CompanyWe currently hashave five direct wholly-owned subsidiaries: (a) Avadel US Holdings, Inc., (b) Flamel Ireland Limited, which conducts business under the name Avadel Ireland, (c) Avadel Investment Company Limited, (d) Avadel Finance Ireland Designated Activity Company and (e) Avadel France Holding SAS. Avadel US Holdings, Inc., a Delaware corporation, is the holding entity of (i) Avadel Specialty Pharmaceuticals, LLC (currently the subject of a voluntary Chapter 11 bankruptcy proceeding as noted in Note 3: Subsidiary Bankruptcy and Deconsolidation)proceeding), (ii) Avadel Legacy Pharmaceuticals, LLC, (iii) Avadel Management Corporation, (iv) FSC Holding Company, and (v) Avadel Operations Company, Inc. and (vi) Avadel CNS Pharmaceuticals LLC. Avadel Finance Ireland Designated Activity Company is the holding entity of Avadel Finance Cayman Limited. Flamel Ireland Limited (operating under the trade name Avadel Ireland) is an Irish corporation which, since December 16, 2014, has been the owner of substantially all of Avadel’s intellectual property.corporation. Avadel France Holding SAS, a French société par actions simplifiée,, is the holding entity of Avadel Research SAS through which Avadel conducts substantially all of its R&D activities. A complete list of our subsidiaries can be found in Exhibit 21.1 of our Annual Report on Form 10-K filed with the SEC on March 16, 2020.

References in these unaudited condensed consolidated financial statements and the notes thereto to “Avadel,” the “Company,” “we,” “our,” “us,” and similar terms shall be deemed to be references to Flamel prior to the completion of the Merger, unless the context otherwise requires.
Key Business Trends and Highlights
In operating our business and monitoring our performance, we consider a number of performance measures, as well as trends affecting our industry as a whole, which include the following: 
•Healthcare and Regulatory Reform: Various health care reform laws in the U.S. may impact our ability to successfully commercialize our products and technologies. The success of our commercialization efforts may depend on the extent to which the government health administration authorities, the health insurance funds in the E.U. Member States, private health insurers and other third-party payers in the U.S. will reimburse consumers for the cost of healthcare products and services.


•Competition and Technological Change: Competition in the pharmaceutical and biotechnology industry continues to be intense and is expected to increase. We compete with academic laboratories, research institutions, universities, joint ventures, and other pharmaceutical and biotechnology companies, including other companies developing niche branded or generic specialty pharmaceutical products or drug delivery platforms. Furthermore, major technological changes can happen quickly in the pharmaceutical and biotechnology industries. Such rapid technological change, or the development by our competitors of technologically improved or differentiated products, could render our drug delivery platforms obsolete or noncompetitive.
•Pricing Environment for Pharmaceuticals: The pricing environment continues to be in the political spotlight in the U.S. As a result, the need to obtain and maintain appropriate pricing for our products may become more challenging due to, among other things, the attention being paid to healthcare cost containment and other austerity measures in the U.S. and worldwide.
•Generics Playing a Larger Role in Healthcare: Generic pharmaceutical products will continue to play a large role in the U.S. healthcare system. Specifically, we have seen, or likely will see, additional generic competition to our current and future products and we continue to expect generic competition in the future.
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•Access to and Cost of Capital: The process of raising capital and associated cost of such capital for a company of our financial profile can be difficult and potentially expensive. If the need were to arise to raise additional capital, access to that capital may be difficult and/or expensive and, as a result, could create liquidity challenges for the Company.
•Net Loss from Operations in 2019: In part because2020: Since we expectsold our Hospital Products at June 30, 2020 and will no longer generate revenue from sales of our hospital products to significantly decline from 2018’s levels and we will incur substantial expenses to further the clinical development of FT218, we likely willexpect to incur a net loss in 2019 the amount of2020, which is not knownwe are unable to usestimate at this time.


Impact of COVID-19

Since early 2020, we have seen the profound impact that the novel coronavirus (“COVID-19”) is having on human health, the global economy and society at large. We have been actively monitoring the COVID-19 situation and have taken measures to mitigate the potential impacts to our employees and business, such as implementing a work from home policy. We believe the impact of COVID-19 and measures to prevent its spread could impact our business in a number of ways, including: i) possibly delaying any remaining development activities for FT218, the submission of our NDA for FT218 to the FDA, the FDA review timeline of FT218, and/or our ongoing RESTORE open-label extension/switch study, ii) disruptions to our supply chain and third parties that we use; and iii) requiring our employees to work from home for an extended period of time. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

Financial Highlights


Highlights of our consolidated results for the three and nine months ended September 30, 20192020 are as follows: 
•Revenue was $14,229$0 and $48,220$22,334 for the three and nine months ended September 30, 2019,2020, respectively, compared to $19,826$14,229 and $82,349$48,220 in the same periods last year, respectively. ThisThe quarter over quarter and year over year decrease wasdecreases were primarily the result of increased competition driving lower prices as noted above in our discussionthe sale of Key Business Trends and Highlights. We experienced price and unit volume declines across all our hospital products due to additional competition.
the Hospital Products on June 30, 2020.
•Operating loss was $4,147 and $16,765$13,697 for the three months ended September 30, 2020 and operating income was $20,075 for the nine months ended September 30, 2019,2020, respectively, compared to an operating loss of $14,095$4,147 and $29,505$16,765 and for the same periodsperiod last year, respectively. The decreaseincrease in operating loss for the three months ended September 30, 20192020 was largely driven by lowera decline in gross margin (i.e., total revenues minus cost of products) of $11,406 driven by the sale of the Hospital Products and higher selling, general and administrative (SG&A) expensesexpense of $19,513 driven by the exit of Noctiva, partially offset by higher expense related to the changes in fair value of related party contingent consideration of $7,742 and lower gross margin of $5,300.$3,107. The primary reasons for the decreaseincrease in operating lossincome for the nine months ended September 30, 2019 were (i) a $54,639 decline in SG&A2020 was driven by the gain on the disposition of Hospital Products of $45,760, lower R&D expense and (ii) a $8,083 decline in research and development expense,of $10,004, lower restructuring costs of $4,643, partially offset by (iii) a $30,616 decline inlower gross margin (i.e., total revenues minus cost of products) and (iv) a $19,420 increase in expense related to$21,917.
•Gain on the changes in fair valuedisposition of related party contingent consideration.
Net lossthe Hospital Products was $8,864 and $30,487$45,760 for the three and nine months ended September 30, 2019,2020. The net gain included sale proceeds of $42,000 ($27,500 was recorded as a current note receivable at June 30, 2020), write-off of our inventory, intangible asset, a portion of goodwill and other related assets of $8,212, estimated transaction fees of $2,928 and the reversal of our contingent consideration liability of $14,900.
•Net loss was $11,703 for the three months ended September 30, 2020 and net income was $18,306 for the nine months ended September 30, 2020, respectively, compared to net loss of $15,771$8,864 and $31,445$30,487 in the same periods last year, respectively. Included in the net lossincome during the nine months ended September 30, 20192020 was a lossgain on the deconsolidationdisposition of Avadel Specialty Pharmaceuticals, LLC (“Specialty Pharma”)the Hospital Products of $2,840. As a result of Avadel Specialty Pharmaceuticals, LLC bankruptcy filing on February 6, 2019, the Company concluded that it no longer controls the operations of this subsidiary and accordingly deconsolidated this subsidiary.$45,760.
•Diluted net loss per share was $0.24 and $0.82$0.20 for the three months ended September 30, 2020 and diluted net income was $0.35 for the nine months ended September 30, 2019,2020, respectively, compared to diluted net loss per share of $0.43$0.24 and $0.84$0.82 in the same periodperiods last year, respectively.
•Cash and marketable securities decreased $27,461increased $167,418 to $72,454$231,576 at September 30, 2019,2020, from $99,915$64,158 at December 31, 2018.2019. This decreaseincrease was largely driven by the February private placement which resulted in proceeds, net of placement fees of approximately $61,000, the May public offering, which resulted in proceeds, net of placement fees of approximately $117,000, cash proceeds from $30,072the disposition of the Hospital Products of $17,250, partially offset by $29,609 use of cash in operations.operations during the nine months ended September 30, 2020.




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Critical Accounting Estimates
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could be significantly different from these estimates. 
Our significant accounting policies are described in Note 1 of the audited consolidated financial statements included in our Annual Report Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Form 10-K”). The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies” section of the MD&A in our 20182019 Form 10-K.Effective January 1, 2019, the Company implemented ASC 842, Leases. The impact of adopting this new accounting standard required the Company to recognize $5,046 and $5,131 of assets and liabilities, respectively, related to the Company’s operating leases. See Note 9: Leases in the notes to the unaudited condensed consolidated financial statements for further information.

Results of Operations
The following is a summary of our financial results (in thousands, except per share amounts) for the three months ended September 30, 20192020 and 2018,2019, respectively:
   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Comparative Statements of (Loss) Income20202019$%
Product sales$— $14,229 $(14,229)(100.0)%
Operating expenses:  
Cost of products— 2,823 (2,823)(100.0)%
Research and development expenses5,569 7,539 (1,970)(26.1)%
Selling, general and administrative expenses8,423 5,316 3,107 58.4 %
Intangible asset amortization— 205 (205)(100.0)%
Changes in fair value of contingent consideration(69)627 (696)(111.0)%
Restructuring (income) costs(226)1,866 (2,092)(112.1)%
Total operating expense13,697 18,376 (4,679)(25.5)%
Operating loss(13,697)(4,147)(9,550)(230.3)%
Investment and other income, net213 781 (568)(72.7)%
Interest expense(3,259)(3,125)(134)(4.3)%
Other expense - changes in fair value of contingent consideration payable— (139)139 100.0 %
Loss before income taxes(16,743)(6,630)(10,113)(152.5)%
Income tax (benefit) provision(5,040)2,234 (7,274)(325.6)%
Net loss$(11,703)$(8,864)$(2,839)(32.0)%
Net loss per share - diluted$(0.20)$(0.24)$0.04 16.7 %
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      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Comparative Statements of Loss 2019 2018 $ %
         
Product sales $14,229
 $19,826
 $(5,597) (28.2)%
Total revenues 14,229
 19,826
 (5,597) (28.2)%
Operating expenses:  
  
 

 

Cost of products 2,823
 3,120
 (297) (9.5)%
Research and development expenses 7,539
 11,402
 (3,863) (33.9)%
Selling, general and administrative expenses 5,316
 24,829
 (19,513) (78.6)%
Intangible asset amortization 205
 1,620
 (1,415) (87.3)%
Changes in fair value of related party contingent consideration 627
 (7,115) 7,742
 108.8 %
Restructuring costs 1,866
 65
 1,801
 2,770.8 %
Total operating expenses 18,376
 33,921
 (15,545) (45.8)%
Operating loss (4,147) (14,095) 9,948
 70.6 %
Investment and other income, net 781
 208
 573
 275.5 %
Interest expense (3,125) (3,000) (125) (4.2)%
Other (expense) income - changes in fair value of related party payable (139) 425
 (564) (132.7)%
Loss before income taxes (6,630) (16,462) 9,832
 59.7 %
Income tax provision (benefit) 2,234
 (691) 2,925
 423.3 %
Net loss $(8,864) $(15,771) $6,907
 43.8 %
Net loss per share - diluted $(0.24) $(0.43) $0.19
 44.2 %







The following is a summary of our financial results (in thousands, except per share amounts) for the nine months ended September 30, 20192020 and 2018,2019, respectively:
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Comparative Statements of Income (Loss)20202019$%
Product sales$22,334 $48,220 $(25,886)(53.7)%
Operating expenses:  
Cost of products5,742 9,711 (3,969)(40.9)%
Research and development expenses15,156 25,160 (10,004)(39.8)%
Selling, general and administrative expenses23,431 22,520 911 4.0 %
Intangible asset amortization406 610 (204)(33.4)%
Changes in fair value of contingent consideration3,327 2,384 943 39.6 %
Gain on sale of Hospital Products(45,760)— (45,760)(100.0)%
Restructuring (income) costs(43)4,600 (4,643)(100.9)%
Total operating expense2,259 64,985 (62,726)(96.5)%
Operating income (loss)20,075 (16,765)36,840 219.7 %
Investment and other (expense) income, net(906)2,548 (3,454)(135.6)%
Interest expense(9,686)(9,293)(393)(4.2)%
Loss on deconsolidation of subsidiary— (2,840)2,840 100.0 %
Other expense - changes in fair value of contingent consideration payable(435)(496)61 12.3 %
Income (loss) before income taxes9,048 (26,846)35,894 133.7 %
Income tax (provision) benefit(9,258)3,641 (12,899)(354.3)%
Net income (loss)$18,306 $(30,487)$48,793 160.0 %
Net income (loss) per share - diluted$0.35 $(0.82)$1.17 142.7 %
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Comparative Statements of Loss 2019 2018 $ %
         
Product sales $48,220
 $82,103
 $(33,883) (41.3)%
License revenue —
 246
 (246) (100.0)%
Total revenues 48,220
 82,349
 (34,129) (41.4)%
Operating expenses:  
  
    
Cost of products 9,711
 13,224
 (3,513) (26.6)%
Research and development expenses 25,160
 33,243
 (8,083) (24.3)%
Selling, general and administrative expenses 22,520
 77,159
 (54,639) (70.8)%
Intangible asset amortization 610
 4,996
 (4,386) (87.8)%
Changes in fair value of related party contingent consideration 2,384
 (17,036) 19,420
 114.0 %
Restructuring costs 4,600
 268
 4,332
 1,616.4 %
Total operating expenses 64,985
 111,854
 (46,869) (41.9)%
Operating loss (16,765) (29,505) 12,740
 43.2 %
Investment and other income, net 2,548
 845
 1,703
 201.5 %
Interest expense (9,293) (7,577) (1,716) (22.6)%
Loss on deconsolidation of subsidiary (2,840) —
 (2,840) n/a
Other (expense) income - changes in fair value of related party payable (496) 1,432
 (1,928) (134.6)%
Loss before income taxes (26,846) (34,805) 7,959
 22.9 %
Income tax provision (benefit) 3,641
 (3,360) 7,001
 208.4 %
Net loss $(30,487) $(31,445) $958
 3.0 %
Net loss per share - diluted $(0.82) $(0.84) $0.02
 2.4 %
The revenuesProduct sales for each of the Company’s significant products for the three months ended September 30, 20192020 and 20182019 were as follows: 
  Three Months Ended
     Three Months Ended Three Months Ended September 30,Increase / (Decrease)
 Three Months Ended September 30, Increase / (Decrease) 2020 vs. 2019
 2019 vs. 2018
Revenues: 2019 2018 $ %
Product sales:Product sales:20202019$%
        
Bloxiverz $1,466
 $3,656
 $(2,190) (59.9)%Bloxiverz$— $1,466 (1,466)(100.0)%
Vazculep 8,786
 8,759
 27
 0.3 %Vazculep— 8,786 (8,786)(100.0)%
Akovaz 4,208
 5,991
 (1,783) (29.8)%Akovaz— 4,208 (4,208)(100.0)%
Other (231) 1,420
 (1,651) (116.3)%Other— (231)231 100.0 %
Product sales 14,229
 19,826
 (5,597) (28.2)%Product sales$— $14,229 $(14,229)(100.0)%
License revenue —
 —
 —
 n/a
Total revenues $14,229
 $19,826
 $(5,597) (28.2)%
Total revenuesProduct sales were $14,229$0 for the three months ended September 30, 2019,2020, compared to $19,826$14,229 for the same prior year period. Bloxiverz’s revenue declined $2,190The decrease in the current quarter when comparedproduct sales was due to the same prior year period primarily due to lower net selling price and lower unit volumes sold driven largely by new competition which enteredsale of the market driving price and unit volumes lower. Vazculep’s revenue remained flat during the quarter when compared to the prior year period due primarily to slightly higher pricing, offset by lower volumes. Akovaz’s revenue declined $1,783 driven largely by lower net selling price due to new competition which entered the market driving lower prices. The decrease of other revenue is driven by lower net productHospital Products on June 30, 2020.
- 35 -

Product sales related to Noctiva, as it was deconsolidated in February 2019.


The revenues for each of the Company’s significant products for the nine months ended September 30, 20192020 and 20182019 were as follows: 

   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Product sales:20202019$%
Bloxiverz$2,201 $6,392 $(4,191)(65.6)%
Vazculep10,429 27,669 (17,240)(62.3)%
Akovaz9,545 13,946 (4,401)(31.6)%
Other159 213 (54)(25.4)%
Product sales$22,334 $48,220 $(25,886)(53.7)%
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Revenues: 2019 2018 $ %
         
Bloxiverz $6,392
 $16,691
 $(10,299) (61.7)%
Vazculep 27,669
 33,097
 (5,428) (16.4)%
Akovaz 13,946
 28,083
 (14,137) (50.3)%
Other 213
 4,232
 (4,019) (95.0)%
Product sales 48,220
 82,103
 (33,883) (41.3)%
License revenue —
 246
 (246) (100.0)%
Total revenues $48,220
 $82,349
 $(34,129) (41.4)%
Total revenuesProduct sales were $48,220$22,334 for the nine months ended September 30, 2019,2020, compared to $82,349$48,220 for the same prior year period. Bloxiverz’s revenue declined $10,299 when compared toThe decline in product sales is driven by the same period last year, primarily due tosale of the Hospital Products on June 30, 2020 as well as lower unitunits volumes and net selling prices driven largely byfor Bloxiverz through the first six months of 2020 as compared to the prior year and lower unit volumes for Vazculep during the first six months of the year as compared to the prior year. due to new competitors that entered the market. Vazculep’s revenue declined $5,428

   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Cost of Products:20202019$%
Cost of products$— $2,823 $(2,823)(100.0)%
Percentage of total revenuesn/a19.8 %  

Cost of products decreased $2,823 or 100.0% during the three months ended September 30, 2020 compared to the same period lastprior year due primarily to lower unit volumes and net selling prices driven largely by new competitors that entered the market. Akovaz’s revenue declined $14,137period driven by lower unit volumes and net selling prices driven largely by new competitors that enteredJune 30, 2020 sale of the market. The decrease in other revenuesHospital Products.
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Cost of Products:20202019$%
Cost of products$5,742 $9,711 $(3,969)(40.9)%
Percentage of total revenues25.7 %20.1 %  
Cost of products decreased $3,969 or 40.9% during the nine months ended September 30, 2019 is driven by the deconsolidation of Specialty Pharma on February 6, 2019 as well as a reduction in revenue related to the February 2018 divestiture of the pediatric products.

      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Cost of Products: 2019 2018 $ %
         
Cost of products $2,823
 $3,120
 $(297) (9.5)%
Percentage of total revenues 19.8% 15.7%  
  
Cost of products decreased $297 or 9.5% during the three months ended September 30, 2019 compared to the same prior year period. As a percentage of total revenue, cost of products sold was higher than the prior year period due to lower net selling prices of the Company’s hospital products.
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Cost of Products: 2019 2018 $ %
         
Cost of products $9,711
 $13,224
 $(3,513) (26.6)%
Percentage of total revenues 20.1% 16.1%  
  
Cost of products decreased $3,513 or 26.6% during the nine months ended September 30, 20192020 compared to the same prior year period driven by lower sold units. As a percentage of total revenue, cost of products sold was higher than the prior year period primarilyunits due to lower net selling pricesthe June 30, 2020 sale of the Company’s hospital products.Hospital Products.




     Three Months Ended   Three Months Ended
 Three Months Ended September 30, Increase / (Decrease) Three Months Ended September 30,Increase / (Decrease)
 2019 vs. 2018 2020 vs. 2019
Research and Development Expenses: 2019 2018 $ %Research and Development Expenses:20202019$%
        
Research and development expenses $7,539
 $11,402
 $(3,863) (33.9)%Research and development expenses5,569 7,539 $(1,970)(26.1)%
Percentage of total revenues 53.0% 57.5%  
  
Research and development (“R&D”) expenses decreased $3,863$1,970 or 33.9%26.1% during the three months ended September 30, 20192020 as compared to the same period in 2018.2019. This decline was a resultdriven by the completion of $600 of lower spending associated with the exit of Noctiva,FT218 clinical study during the three months ending March 31, 2020, as well as lower payroll, benefits and share-based compensation of $1,100 due$400 related to the 2019 Corporate and French restructuring plans and $2,200partially offset by higher API purchases of cost reductions at$1,700 in the Company’s Lyon, France R&D center.current quarter. The Company continues to invest a substantial portion of R&D in its FT218 development program.

- 36 -

     Six Months Ended   Nine Months Ended
 Nine Months Ended September 30, Increase / (Decrease) Nine Months Ended September 30,Increase / (Decrease)
 2019 vs. 2018 2020 vs. 2019
Research and Development Expenses: 2019 2018 $ %Research and Development Expenses:20202019$%
        
Research and development expenses $25,160
 $33,243
 $(8,083) (24.3)%Research and development expenses$15,156 $25,160 $(10,004)(39.8)%
Percentage of total revenues 52.2% 40.4%  
  
Research and developmentR&D expenses decreased $8,083$10,004 or 24.3%39.8% during the nine months ended September 30, 20192020 as compared to the same period in 2018.2019. This decline was a resultdriven by the completion of $2,600 of lower spending associated with the exit of Noctiva,FT218 clinical study during the three months ending March 31, 2020 and lower payroll, benefits and share-based compensation of $2,000approximately $3,300 related to the 2019 Corporate and French restructuring plans and $3,400 of cost reductions at the Company’s Lyon, France R&D center.plans. The Company continues to invest a substantial portion of R&D in its FT218 development program.


   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Selling, General and Administrative Expenses:20202019$%
Selling, general and administrative expenses$8,423 $5,316 $3,107 58.4 %
      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Selling, General and Administrative Expenses: 2019 2018 $ %
         
Selling, general and administrative expenses $5,316
 $24,829
 $(19,513) (78.6)%
Percentage of total revenues 37.4% 125.2%  
  

Selling, general and administrative (“SG&A) expenses decreased $19,513increased $3,107 or 78.6%58.4% during the three months ended September 30, 20192020 as compared to the same prior year period. This decreaseincrease was primarily due to a decreasean increase in consulting and professional fees of $16,000approximately $900, an increase in market research costs of sales and marketing costs related to the exit of Noctiva that was incurred during the three months ended September 30, 2018. Also contributing to the decrease is lower other payroll and$900, higher share-based compensation costs of $2,700 due to reduced headcount as a result$800 and higher legal fees of the 2019 Corporate and French restructuring plans.$800.
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Selling, General and Administrative Expenses:20202019$%
Selling, general and administrative expenses$23,431 $22,520 $911 4.0 %
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Selling, General and Administrative Expenses: 2019 2018 $ %
         
Selling, general and administrative expenses $22,520
 $77,159
 $(54,639) (70.8)%
Percentage of total revenues 46.7% 93.7%  
  
Selling, general and administrativeSG&A expenses decreased $54,639increased $911 or 70.8%4.0% during the nine months ended September 30, 20192020 as compared to the same prior year period. This decreaseincrease was primarily due to an increase in market research costs, consulting and professional fees and legal costs of approximately $1,300, $1,200 and $900 respectively, partially offset by a decrease of $44,200$2,200 of sales and marketing costs related to the exit of Noctiva during the first quarter 2019 as well as $2,700 of decreased costs due to the 2018 divestiture of the pediatric products. Also contributing to the decrease is lower other payroll and share-based compensation of $7,700 due to reduced headcount as a result of the 2019 Corporate and French restructuring plans.2019.



   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Intangibles Asset Amortization:20202019$%
Intangible asset amortization$— $205 $(205)(100.0)%


      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Intangibles Asset Amortization: 2019 2018 $ %
         
Intangible asset amortization $205
 $1,620
 $(1,415) (87.3)%
Percentage of total revenues 1.4% 8.2%  
  
Intangible asset amortization expense decreased $1,415 or 87.3% duringfor the three months ended September 30, 2019 driven byrelated to the impairmentamortization of our acquired developed technology - Vazculep. This intangible asset was transferred to Exela Sterile Medicines LLC on June 30, 2020 as part of the intangible asset related to Noctiva at December 31, 2018.disposition of the Hospital Products. See Note 4: Disposition of the Hospital Products.

   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Intangibles Asset Amortization:20202019$%
Intangible asset amortization$406 $610 $(204)(33.4)%
- 37 -

      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Intangibles Asset Amortization: 2019 2018 $ %
         
Intangible asset amortization $610
 $4,996
 $(4,386) (87.8)%
Percentage of total revenues 1.3% 6.1%  
  
Intangible asset amortization expense decreased $4,386 or 87.8% duringfor the nine months ended September 30, 2020 and 2019 driven byrelates to the impairmentamortization of our acquired developed technology - Vazculep. This intangible asset was transferred to Exela Sterile Medicines LLC on June 30, 2020 as part of the intangible assetdisposition of the Hospital Products. See Note 4: Disposition of the Hospital Products.

   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Changes in Fair Value of Contingent Consideration:20202019$%
Changes in fair value of contingent consideration$(69)$627 $(696)(111.0)%

Prior to the sale of the Hospital Products on June 30, 2020, we computed the fair value of the contingent consideration using several significant assumptions and when these assumptions change, due to underlying market conditions, the fair value of these liabilities changed as well. Each of the underlying assumptions used to determine the fair values of these contingent liabilities can, and often do, change based on adjustments in current market conditions, competition and other factors. These changes can have a material impact on our unaudited condensed consolidated statements of (loss) income and balance sheet.  

As a result of changes in the underlying assumptions used to determine the estimated fair values of our acquisition-related contingent consideration earn-out payments - Éclat, we recorded an expense of $69 and income of $627 and increased and decreased the fair value of the acquisition-related contingent consideration earn-out payments - Éclat for the three months ended September 30, 2020 and 2019, respectively. As noted in our critical accounting estimates included in the 2019 Form 10-K, there are numerous assumptions and estimates we use when determining the fair value of the acquisition-related earn-out payments - Éclat. These assumptions include estimates of pricing, market size, the market share the related products are forecast to achieve, the cost of goods related to Noctivasuch products and an appropriate discount rate to use when present valuing the related cash flows.

For the three months ended September 30, 2020, as a result of changes to these estimates when compared to the same estimates at December 31, 2018.2019, we recorded an increase in the fair value of our contingent consideration liabilities due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.

      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Changes in Fair Value of Related Party Contingent Consideration: 2019 2018 $ %
         
Changes in fair value of related party contingent consideration $627
 $(7,115) $7,742
 108.8%
Percentage of total revenues 4.4% (35.9)%  
  
For the three months ended September 30, 2019, as a result of changes to these estimates when compared to the same estimates at December 31, 2018, we recorded a decrease in the fair value of our contingent consideration liabilities, largely due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.

   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Changes in Fair Value of Contingent Consideration:20202019$%
Changes in fair value of contingent consideration$3,327 $2,384 $943 39.6 %

We compute the fair value of the related party contingent consideration using several significant assumptions and when these assumptions change, due to underlying market conditions, the fair value of these liabilities change as well. Each of the underlying assumptions used to determine the fair values of these contingent liabilities can, and often do, change based on adjustments in current market conditions, competition and other factors. These changes can have a material impact on our unaudited condensed consolidated statements of loss(loss) income and balance sheet.  


As a result of changes in the underlying assumptions used to determine the estimated fair values of our acquisition-related contingent consideration earn-out payments - Éclat, we recorded a gain of $627 andan expense of $7,115$3,327 and increased/lowered$2,384 and increased the fair value of the acquisition-related contingent consideration earn-out payments - Éclat for the threenine months ended September 30, 20192020 and 2018,2019, respectively. As noted in our critical accounting estimates included in the 20182019 Form 10-K, there are numerous assumptions and estimates we use when determining the fair value of the acquisition-related earn-out payments - Éclat. These assumptions include estimates of pricing, market size, the market share the related products are forecast to achieve, the cost of goods related to such products and an appropriate discount rate to use when present valuing the related cash flows.


- 38 -

For the threenine months ended September 30, 2019,2020, as a result of changes to these estimates when compared to the same estimates at June 30,December 31, 2019, we recorded an increase in the fair value of our contingent consideration liabilities due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.

For the three months ended September 30, 2018, as a result of changes to these estimates when compared to the same estimates at June 30, 2018, we recorded a decrease in the fair value of our contingent consideration liabilities, largely due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.



      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Changes in Fair Value of Related Party Contingent Consideration: 2019 2018 $ %
         
Changes in fair value of related party contingent consideration $2,384
 $(17,036) $19,420
 114.0%
Percentage of total revenues 4.9% (20.7)%  
  

We compute the fair value of the related party contingent consideration using several significant assumptions and when these assumptions change, due to underlying market conditions, the fair value of these liabilities change as well. Each of the underlying assumptions used to determine the fair values of these contingent liabilities can, and often do, change based on adjustments in current market conditions, competition and other factors. These changes can have a material impact on our unaudited condensed consolidated statements of loss and balance sheet.  

As a result of changes in the underlying assumptions used to determine the estimated fair values of our acquisition-related contingent consideration earn-out payments - Éclat, we recorded an expense of $2,384 and a gain of $17,036 and increased/lowered the fair value of the acquisition-related contingent consideration earn-out payments - Éclat for the nine months ended September 30, 2019 and 2018, respectively. As noted in our critical accounting estimates included in the 2018 Form 10-K, there are numerous assumptions and estimates we use when determining the fair value of the acquisition-related earn-out payments - Éclat. These assumptions include estimates of pricing, market size, the market share the related products are forecast to achieve, the cost of goods related to such products and an appropriate discount rate to use when present valuing the related cash flows.


For the nine months ended September 30, 2019, as a result of changes to these estimates when compared to the same estimates at December 31, 2018, we recorded an increase in the fair value of our contingent consideration liabilities, due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.

For the nine months ended September 30, 2018, as a result of changes to these estimates when compared to the same estimates at December 31, 2017, we recorded a decrease in the fair value of our contingent consideration liabilities, largely due to changes in certain underlying market conditions of the acquisition-related contingent consideration earn-out payments - Éclat.


      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Restructuring Costs 2019 2018 $ %
         
Restructuring costs $1,866
 $65
 $1,801
 2,770.8%
Percentage of total revenues 13.1% 0.3%  
  
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Gain on Sale of Hospital Products20202019$%
Gain on sale of Hospital Products$45,760 $— $45,760 100.0 %
During
On June 30, 2020, we sold our assets, rights and interests related to Bloxiverz, Vazculep, Akovaz and Nouress to the first quarterExela Buyer pursuant to an asset purchase agreement by and among us and the Exela Buyer. We recognized a net $45,760 gain on this transaction. See Note 4: Disposition of 2019, the Company announced a plan to reduce its Corporate workforce at our U.S.Hospital Products.

   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Restructuring (Income) Costs20202019$%
Restructuring (income) costs$(226)$1,866 $(2,092)(112.1)%

Restructuring income of $226 and Ireland sites by more than 50%. This reduction is an effort to align the Company’s cost structure with its ongoing and future planned projects and revenue stream. Additionally,restructuring costs of $1,866 were recognized during the second quarter ofthree months ended September 30, 2020 and 2019, respectively. Restructuring income during the Company announced a planthree months ended September 30, 2020, was related to reduce its French workforce.  This reduction is an effortshare-based compensation forfeitures related to align the Company’s cost structure with our ongoing and future planned projects. See Note 15:2019 Corporate Restructuring Costs for further details. As a result of these actions,actions. Restructuring costs during the Company recorded restructuring charges of $1,866 that arethree months ended September 30, 2019 were primarily related to the 2019 French and Corporate restructuring plans. These chargesRestructuring actions and mainly included severance and legal costs, see Note 15: Restructuring Costs for further details.
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Restructuring (Income) Costs20202019$%
Restructuring (income) costs$(43)$4,600 $(4,643)(100.9)%
Restructuring income of $43 and the termination payment for vacating the French office leases by the end of the year.


      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Restructuring Costs 2019 2018 $ %
         
Restructuring costs $4,600
 $268
 $4,332
 1,616.4%
Percentage of total revenues 9.5% 0.3%  
  
Restructuring chargescosts of $4,600 were recognized during the nine months ended September 30, 2019. These charges2020 and 2019, respectively. Restructuring (income) costs were primarily related to the 2019 French and Corporate restructuringRestructuring actions and mainly included severance and legal costs, impairment of certain assets, the reversal of certain retirement indemnity obligations, share-based compensation and the termination payment for vacating the French office leases by the end of the year. See see Note 15: Restructuring Costs for further details.
- 39 -

      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Investment and Other Income, net 2019 2018 $ %
         
Investment and other income, net $781
 $208
 $573
 275.5%
Percentage of total revenues 5.5% 1.0%  
  
   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Investment and Other (Expense) Income, net20202019$%
Investment and other (expense) income, net$213 $781 $(568)(72.7)%
Investment and other (expense) income, net increaseddecreased for the three months ended September 30, 20192020 when compared to the same period in the prior year driven by lower realized gains on our marketable securities during the accrual of the 2018 employment tax audit incurrent period when compared to the prior year, which was paid by the Company in 2019.period.
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Investment and Other Income, net 2019 2018 $ %
         
Investment and other income, net $2,548
 $845
 $1,703
 201.5%
Percentage of total revenues 5.3% 1.0%  
  
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Investment and Other (Expense) Income, net20202019$%
Investment and other (expense) income, net$(906)$2,548 $(3,454)(135.6)%
Investment and other (expense) income, net increaseddecreased for the nine months ended September 30, 20192020 when compared to the same period in the prior year driven by highera $800 legal settlement related to a bankruptcy claim, an increase in net unrealized gainslosses on our marketable equity securities and net realized losses on our marketable securities during the current period when compared to net unrealized gains on our marketable securities during the prior period.
     Three Months Ended   Three Months Ended
 Three Months Ended September 30, Increase / (Decrease) Three Months Ended September 30,Increase / (Decrease)
 2019 vs. 2018 2020 vs. 2019
Interest Expense 2019 2018 $ %Interest Expense20202019$%
        
Interest expense $3,125
 $3,000
 $125
 4.2%Interest expense$3,259 $3,125 $134 4.3 %
Percentage of total revenues 22.0% 15.1%  
  
Interest expense of $3,259 and $3,125 for the three months end September 30, 2020 and 2019 was largely comparableis related to the same period in the prior year. Interest expense represents the imputed interest on the 2023 Notes.Notes that were issued in February 2018.

   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Interest Expense20202019$%
Interest expense$9,686 $9,293 $393 4.2 %


      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Interest Expense 2019 2018 $ %
         
Interest expense $9,293
 $7,577
 $1,716
 22.6%
Percentage of total revenues 19.3% 9.2%  
  


Interest expense increased $1,716of $9,686 and $9,293 for the nine months end September 30, 2020 and 2019 when comparedis related to the same period in the prior year as a result of a nine months of interest recorded in 2019 versus 7.5 months of this amount in 2018 due toon the 2023 Notes that were issued in February 2018.

   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Loss on Deconsolidation of Subsidiary20202019$%
Loss on deconsolidation of subsidiary$— $(2,840)$2,840 100.0 %

      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Loss on Deconsolidation of Subsidiary 2019 2018 $ %
         
Loss on deconsolidation of subsidiary $(2,840) $—
 $(2,840) n/a
Percentage of total revenues (5.9)% —%  
  

As a result of Avadel Specialty Pharmaceuticals, LLCPharma’s bankruptcy filing on February 6, 2019, the Company concluded that it no longer controls its operations and accordingly deconsolidated this subsidiary. The Company recorded a loss on the deconsolidation during the nine months ended September 30, 2019 as a result of removing the net assets and certain liabilities of this subsidiary from our unaudited condensed consolidated financial statements. See Note 3: Subsidiary Bankruptcy and Deconsolidation for more discussion.


      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Other (Expense) Income - Changes in Fair Value of Related Party Payable 2019 2018 $ %
         
Other (expense) income - changes in fair value of related party payable $(139) $425
 $(564) (132.7)%
Percentage of total revenues (1.0)% 2.1%  
  
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   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Other Expense - Changes in Fair Value of Contingent Consideration Payable20202019$%
Other expense - changes in fair value of contingent consideration payable$— $(139)$139 100.0 %

We recorded expense of $139 and income of $425 to increase and reduceof the fair value of these liabilities during the three months ended September 30, 2019, and 2018, respectively, due to the same reasons associated with the Éclat product sales forecasts as described in the section “Changes in Fair Value of Related Party Contingent Consideration” for these periods. As noted in our critical accounting estimates section included in the 2018our 2019 Form 10-K, there are a number of assumptions and estimates we use when determining the fair value of the related partycontingent consideration payable payments. These estimates include pricing, market size, the market share the related products are forecast to achieve and an appropriate discount rate to use when present valuing the related cash flows. These estimates often do change based on changes in current market conditions, competition and other factors.


The items accounting for the difference between the income tax benefit computed at the statutory rate and the Company’s effective tax rate for the three months ended September 30, 2020 and 2019, are as follows: 
      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Other (Expense) Income - Changes in Fair Value of Related Party Payable 2019 2018 $ %
         
Other (expense) income - changes in fair value of related party payable $(496) $1,432
 $(1,928) (134.6)%
Percentage of total revenues (1.0)% 1.7%  
  
   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Other Expense - Changes in Fair Value of Contingent Consideration Payable20202019$%
Other expense - changes in fair value of contingent consideration payable$(435)$(496)$61 12.3 %


We recorded expense of $496$435 and income of $1,432$496 to increase and reduce the fair value of these liabilities during the nine months ended September 30, 20192020 and 2018,2019, respectively, due to the same reasons associated with the Éclat product sales forecasts as described in the section “Changes in Fair Value of Related Party Contingent Consideration” for these periods. As noted in our


critical accounting estimates section included in the 2018our 2019 Form 10-K, there are a number of assumptions and estimates we use when determining the fair value of the related partycontingent consideration payable payments. These estimates include pricing, market size, the market share the related products are forecast to achieve and an appropriate discount rate to use when present valuing the related cash flows. These estimates often do change based on changes in current market conditions, competition and other factors.


   Three Months Ended
 Three Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Income Tax (Benefit) Provision:20202019$%
Income tax (benefit) provision$(5,040)$2,234 $(7,274)(325.6)%
Percentage of loss before income taxes(30.1)%33.6 %  
      Three Months Ended
  Three Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Income Tax Provision (Benefit): 2019 2018 $ %
         
Income tax provision (benefit) $2,234
 $(691) $2,925
 423.3%
Percentage of loss before income taxes 33.7% (4.2)%  
  

The items accounting for the difference between the income tax provision (benefit) computed at the statutory rate and the Company’s effective tax ratebenefit was $5,040 for the three months ended September 30, 2019 and 2018, are as follows: 
  Three Months Ended September 30,
  2019 2018
     
Statutory tax rate  
 12.5 % 12.5 %
International tax rates differential (4.3)% 7.0 %
Change in valuation allowance (31.1)% (18.3)%
Change in fair value of nondeductible contingent consideration 4.1 % 8.7 %
Nondeductible stock-based compensation — % (3.5)%
Unrecognized tax benefits (8.8)% (3.5)%
State and local income taxes, net of federal (0.2)% 0.1 %
Nondeductible interest expense (4.5)% — %
Other (1.3)% 1.2 %
Effective income tax rate (33.6)% 4.2 %
     
Income tax benefit - at statutory tax rate $(829) $(2,058)
International tax rates differential 283
 (1,153)
Change in valuation allowance 2,059
 3,007
Change in fair value of nondeductible contingent consideration (270) (1,431)
Nondeductible stock-based compensation 1
 578
Unrecognized tax benefits 581
 578
State and local income taxes, net of federal 14
 (13)
Nondeductible interest expense 299
 —
Other 96
 (199)
Income tax provision (benefit) - at effective income tax rate $2,234
 $(691)
2020 resulting in an effective tax rate of 30.1%. The income tax provisionexpense was $2,234 for the three months ended September 30, 2019 and a benefitresulting in an effective tax rate of $691(33.6%). The net increase in the effective income tax rate for the three months ended September 30, 2018. The increase2020, as compared to the same period in 2019, was primarily due to decreased income in the U.S. due to the sale of the Hospital Products.

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   Nine Months Ended
 Nine Months Ended September 30,Increase / (Decrease)
 2020 vs. 2019
Income Tax (Benefit) Provision:20202019$%
Income tax (benefit) provision$(9,258)$3,641 $(12,899)(354.3)%
Percentage of income before income taxes(102.3)%(13.7)%  

The income tax provisionbenefit was $9,258 for the threenine months ended September 30, 2019 is primarily the result of a decrease2020 resulting in the amount of nontaxable gain from the revaluation of contingent consideration and an increase in the amount of valuation allowances recorded on foreign income tax losses.


      Six Months Ended
  Nine Months Ended September 30, Increase / (Decrease)
   2019 vs. 2018
Income Tax Provision (Benefit): 2019 2018 $ %
         
Income tax provision (benefit) $3,641
 $(3,360) $7,001
 208.4%
Percentage of loss before income taxes 13.6% (9.7)%  
  

The items accounting for the difference between the income tax provision (benefit) computed at the statutory rate and the Company’s effective tax rate for the six months ended September 30, 2019 and 2018, are as follows: 
  Nine Months Ended September 30,
  2019 2018
     
Statutory tax rate  
 12.5 % 12.5 %
International tax rates differential 4.1 % 6.9 %
Change in valuation allowance (27.0)% (14.9)%
Change in fair value of nondeductible contingent consideration (0.1)% 9.9 %
Nondeductible stock-based compensation (0.2)% (2.6)%
Unrecognized tax benefits (3.3)% (3.1)%
State and local income taxes, net of federal (0.2)% 0.2 %
Nondeductible interest expense (2.6)% — %
Other 3.1 % 0.8 %
Effective income tax rate (13.7)% 9.7 %
     
Income tax benefit - at statutory tax rate $(3,355) $(4,351)
International tax rates differential (1,108) (2,394)
Change in valuation allowance 7,242
 5,188
Change in fair value of nondeductible contingent consideration 33
 (3,436)
Nondeductible stock-based compensation 50
 914
Unrecognized tax benefits 873
 1,086
State and local income taxes, net of federal 41
 (70)
Nondeductible interest expense 709
 —
Other (844) (297)
Income tax provision (benefit) - at effective income tax rate $3,641
 $(3,360)

of (102.3%). The income tax provision was $3,641 for the nine months ended September 30, 2019 and a benefitresulting in an effective tax rate of $3,360(13.7%). The net decrease in the effective income tax rate for the nine months ended September 30, 2018. The increase2020, as compared to the same period in 2019, is primarily due to the discrete tax benefits recognized under the CARES Act as described above, favorable income tax provision forbenefits from the U.S. Orphan Drug and Research & Development Tax Credit, which did not occur during the nine months ended September 30, 2019, is primarily the result of a decrease the amount of nontaxable gain from the revaluation of contingent consideration and an increasepartially offset by increased income in the amount of valuation allowances recorded on foreign income tax losses.

The IRS commenced an examinationU.S. due to the sale of the Company's U.S. income tax returns for 2016 and 2017Hospital Products during the second quarter 2019.nine months ended September 30, 2020.




Liquidity and Capital Resources
The Company’s cash flows from operating, investing and financing activities, as reflected in the unaudited condensed consolidated statements of cash flows, are summarized in the following table: 
  Nine Months Ended
     Nine Months Ended Nine Months Ended September 30,Increase / (Decrease)
 Nine Months Ended September 30, Increase / (Decrease) 2020 vs. 2019
 2019 vs. 2018
Net cash provided by (used in): 2019 2018 $ %
Net cash (used in) provided by:Net cash (used in) provided by:20202019$%
        
Operating activities $(30,072) $(58,190) $28,118
 48.3 %Operating activities$(29,609)$(30,072)$463 1.5 %
Investing activities 33,553
 (53,188) 86,741
 163.1 %Investing activities(76,962)33,553 (110,515)(329.4)%
Financing activities 14
 112,735
 (112,721) (100.0)%Financing activities179,500 14 179,486 1,282,042.9 %
Operating Activities 
Net cash used in operating activities of $30,072$29,609 for the nine months ended September 30, 20192020 decreased $28,118$463 compared to the same prior year period. This decrease in cash used in operating cash flow is due to higherdriven by cash earnings (net loss adjusted for non-cash credits and charges) of $16,943 when comparedcollection on all outstanding accounts receivable subsequent to the same period last year. The decrease in cash used in operating cash flow was also due to lower cash used for accrued expensessale of $9,281 when compared to the same period last year and lower cash payments for related party contingent consideration of $8,602hospital products, as well as the $2,750 installment payment received from Exela during the current period when compared to the prior period.three months ended September 30, 2020.
Investing Activities 
Cash used in investing activities was $76,962 for the nine months ended September 30, 2020 compared to cash provided by investing activities of $33,553 for the nine months ended September 30, 2019. Cash used in investing activities for the nine months ended September 30, 2020 was $33,553driven by higher net purchases of marketable securities during the current quarter, partially offset by proceeds received from the disposition of the Hospital Products. Cash provided by investing activities for the nine months ended September 30, 2019 was relateddue to net cash proceeds received from the excess of sales over purchases of marketable securities. Cash used in investing activities of $53,188 during the same prior year period was related to the use of cash to purchase marketable securities in excess of sales of marketable securities. The Company also made a payment of $20,000  during the second quarter of 2018 related to the Company’s purchase of developed technology as part of the ELAA with Serenity Pharmaceuticals, LLC.
Financing Activities 
Cash provided by financing activities for the nine months ended September 30, 20192020 was $14, which decreased $112,721 from$179,500 and was driven by the same prior year period. DuringMay public offering that resulted in net proceeds of $116,924, the nine months ended September 30, 2018, $143,750February private placement that resulted in net proceeds of cash was provided by financing activities through the issuance$60,570, and stock option exercises of the 2018 Notes. A portion of the proceeds from the offering of the 2018 Notes was used for share repurchases totaling $27,637 and to pay direct expenses of $6,190 associated with the issuance of the 2018 Notes.$1,829.
Liquidity and Risk Management 
The adequacy of our cash resources depends on the outcome of certain business conditions including the cost of our FT218 clinical development plan, our cost structure, our hospital productsHospital Products revenue stream and other factors set forth in “Risk Factors” within Part I, Item 1A of the 20182019 Form 10-K and within Part II, Item 1A of this quarterly report on Form 10-Q. To complete the FT218 clinical development plan and to ensure an adequate and robust NDA for filing with the FDA we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate our business. Our assumptions concerning the outcome of certain business conditions may prove to be wrong or other
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factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash and marketable securities balances which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business. Additionally, we are unable to estimate the near or long term impact that COVID-19, which may have a material adverse impact on our business.
In February 2020, we announced that we had entered into a definitive agreement for the sale of our ADSs and Series A Non-Voting Convertible Preferred Shares (“Series A Preferred”) in a private placement to a group of institutional accredited investors. The private placement resulted in gross proceeds of approximately $65,000 before deducting placement agent and other offering expenses, which resulted in net proceeds of $60,570.
Also, in February 2020, we filed a shelf registration statement on Form S-3 that allows issuance and sale by us, from time to time, of :
•up to $250,000 in aggregate of ordinary shares, nominal value US$0.01 per share (the “Ordinary Shares”), each of which may be represented by ADSs, preferred shares, nominal value US$0.01 per share (the “Preferred Shares”), debt securities (the “Debt Securities”), warrants to purchase Ordinary Shares, ADSs, Preferred Shares and/or Debt Securities (the “Warrants”), and/or units consisting of Ordinary Shares, ADSs, Preferred Shares, one or more Debt Securities or Warrants in one or more series, in any combination, pursuant to the terms of the 2020 Shelf Registration Statement, the base prospectus contained in the 2020 Shelf Registration Statement (the “Base Prospectus”), and any amendments or supplements thereto (together, the “Securities”); including
•up to $50,000 of ADSs that may be issued and sold from time to time pursuant to the terms of an Open Market Sale AgreementSM (“the Sales Agreement”), entered into with Jefferies LLC on February 4, 2020, the 2020 Shelf Registration Statement, the Base Prospectus and the terms of the sales agreement prospectus contained in the 2020 Shelf Registration Statement.
On April 28, 2020, we announced the pricing of an underwritten public offering of 11,630 ordinary shares, in the form of American Depositary Shares (“ADSs”) at a price to the public of $10.75 per ADS. Each ADS represents the right to receive one ordinary share. All of the ADSs are being offered by Avadel. The gross proceeds to us from the offering was approximately $125,000, before deducting underwriting discounts and commissions and estimated offering expenses, which resulted in net proceeds of approximately $116,924.

If available to us, raising additional capital may be accomplished through one or more public or private debt or equity financings, collaborations or partnering arrangements. Any equity financing would be dilutive to our shareholders.
Borrowings
In February 2018, we issuedCash, cash equivalent and marketable security balances as of September 30, 2020 and unused financing sources are expected to provide the 2023 Notes. We received net proceedsCompany with the flexibility to meet its liquidity needs in 2020, including its operating requirements related to the development of approximately $137,560 from the sale of the 2023 Notes, after deducting fees and expenses of $6,190.FT218.


Share Repurchase Programs
The Company fully completed its authorized share buyback program during the year ended December 31, 2018.



Other Matters
Litigation  
The Company is subject to potential liabilities generally incidental to our business arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, employment, compliance and other matters that arise in the ordinary course of business. The Company accrues for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. At September 30, 20192020 and December 31, 2018,2019, there were no contingent liabilities with respect to any litigation, arbitration or administrative or other proceeding that are reasonably likely to have a material adverse effect on the Company’s unaudited condensed consolidated financial position, results of operations, cash flows or liquidity. 
Litigation Related to Noctiva


Note 3: Subsidiary Bankruptcy and Deconsolidation briefly describes the Chapter 11 bankruptcy case which our subsidiary Specialty Pharma commenced on February 6, 2019, and which on April 26, 2019 resulted in the bankruptcy court-approved sale of all of Specialty Pharma’s intangible assets and inventory to an unaffiliated third party. As a result of such sale, Specialty Pharma has completed its divestment of the assets of the Noctiva business. During the pendency of the bankruptcy case, all pending litigation against Specialty Pharma is automatically stayed and any new litigation against Specialty Pharma is precluded unless the bankruptcy court orders otherwise. Below are descriptions of aThere is currently no pending or threatened litigation or disputes to
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which Specialty Pharma is or would be a partyparty. All prior litigation and a contract disputedisputes involving Specialty Pharma both of which matters are subject to the automatic stay during the bankruptcy case.have been dismissed or resolved.

Ferring Litigation. Some of the patents covering the NoctivaTM product (the “Noctiva Patents”) are the subject of litigation initiated by Ferring Pharmaceuticals Inc. and two of its foreign affiliates, who manufacture a competing product known as Nocdurna.  Nocdurna was approved by the FDA in June 2018 and commercially launched in the U.S. in November 2018.  In this litigation, Ferring seeks to invalidate and disputes the inventorship of the Noctiva Patents, seeks damages for various alleged breaches of contractual and common law duties, and seeks damages for alleged infringement by NoctivaTM of Ferring’s “Nocdurna” trademark.  Specialty Pharma and certain other parties including Serenity Pharmaceuticals, LLC (“Serenity”) (the licensor of the Noctiva Patents) have defended this litigation, and have made counterclaims against Ferring, including for infringement of the Noctiva Patents and a declaratory judgment of noninfringement with respect to Ferring’s “Nocdurna” trademark. The court dismissed Ferring’s inventorship claim and its claims for alleged breaches of contractual and common law duties, although these dismissals may be appealed by Ferring.  On February 15, 2019, Specialty Pharma and its co-defendants moved to stay the litigation pending completion of the bankruptcy proceeding of Specialty Pharma. On May 15, 2019, that motion was denied due to an impending settlement of the litigation with respect to just Ferring and Specialty Pharma.

Contract Dispute. On January 21, 2019, Serenity gave notice to Specialty Pharma of an alleged breach of the parties’ Noctiva license agreement. Serenity alleges that Specialty Pharma breached its contractual obligation to devote commercially reasonable efforts to the commercialization of Noctiva and seeks unspecified damages. On January 27, 2019, Specialty Pharma notified Serenity of a claim for $1.7 million in damages as a result of Serenity’s breach of its contractual obligation to pay the costs of the Ferring Litigation. Serenity’s notice to Specialty Pharma invoked the dispute resolution provisions of the Noctiva license agreement, which culminate in arbitration, but neither party has yet initiated an arbitration proceeding or filed suit.

Tax Matters. On July 2, 2019, Specialty Pharma was made aware of a $50,695 claim made by the Internal Revenue Service (IRS) as part of the bankruptcy claims process against Specialty Pharma. On October 2, 2019 the IRS amended the original claim filed in July, reducing the claim to $9,302. Specialty Pharma files its U.S. federal tax return as a member of the Company’s consolidated U.S. tax group. As such, the IRS claim was filed against Specialty Pharma in the bankruptcy proceedings due to IRS tax law requirements for joint and several liability of all members in a consolidated U.S. tax group. Both Specialty Pharma and the Company disagree with the merits of the amended IRS claim and intend to defend their positions vigorously.


Material Commitments  


Due to the Chapter 11 bankruptcy caseWe have been relieved of Specialty Pharma, the Company’s various commitments toall purchase finished product from suppliers has changed from what was included in Part II, Item 8 of the Company’s 2018 Annual Report on Form 10-K. As of September 30, 2019, commitments for these arrangements, at maximum quantities and at contractual prices over the remaining life of the contract, and excluding any waived commitments, are as follows for the years ended December 31:



Purchase Commitments: Balance
   
2019 $7,194
2020 1,320
2021 1,320
2022 1,320
2023 220
Thereafter —
Total $11,374

Other than commitments disclosed in Note 15:16: Contingent Liabilities and Commitments to the Company’s audited consolidated financial statements included in Part II, Item 8 of the Company’s 20182019 Annual Report on Form 10-K there were no other material commitments outsidedue to the sale of the normal courseHospital Products described in Note 4: Disposition of business. the Hospital Products.

During the three months ended September 30, 2020, we entered into a commitment with a contract manufacturer related to the purchase and validation of equipment to be used in the manufacture of FT218. The total cost of this commitment is estimated to be approximately $3,800 and is expected to be completed by the end of 2021.

Material commitments in the normal course of business include long-term debt obligations which are disclosed in Note 10:11: Long-Term Debt, respectively, to the Company’s unaudited condensed consolidated financial statements included in Part II, Item 8 of the Company’s 2018 Annual Report on Form 10-K andstatements. Our long-term contingent consideration payable as disclosed in Note 10: Long-Term Related PartyContingent Consideration Payablehas also been relieved due to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1sale of this report.the Hospital Products.

Contractual Obligations

Disclosures regarding contractual obligations are included in Part II, Item 7 of the Company’s 20182019 Annual Report on Form 10-K and updated in Note 10: Long-Term Related PartyContingent Consideration Payable to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
The Company is subject to interest rate risk as a result of its portfolio of marketable securities. The primary objectives of our investment policy are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and competitive yield. Although our investments are subject to market risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or certain types of investment. Our investment policy allows us to maintain a portfolio of cash equivalents and marketable securities in a variety of instruments, including U.S. federal government and federal agency securities, European Government bonds, corporate bonds or commercial paper issued by U.S. or European corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, tax-exempt obligations of states, agencies, and municipalities in the U.S and Europe, and equities.A hypothetical 50 basis point change in interest rates would not result in a material decrease or increase in the fair value of our securities due to the general short-term nature of our investment portfolio.

ITEM 4.     CONTROLS AND PROCEDURES.
Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2019,2020, the end of the period covered by this quarterly report on Form 10-Q.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2019.2020. 
Changes in Internal Control over Financial Reporting
During the nine months ended September 30, 2019, as part of our restructuring initiatives described in this Quarterly Report under Item 1 “Financial Statements - Note 15 (Restructuring Costs)” and Item 2 “Management Discussion and Analysis of Results of Operations and Financial Condition - Results of Operation,” we moved all of our Irish and a portion of our French accounting operations to St. Louis, Missouri. Further, as part of these restructuring initiatives, the Company completed the outsourcing of a majority of its Information Technology resources to a third party. These movesThere were made in order to consolidate our accounting


systems, gain efficiencies of scale, reduce costs and make internal control over financial reporting more consistent across our various entities. These moves were not made in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. Other than theseno changes there has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the quarterthree months ended September 30, 20192020 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. We continue

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to work from home due to the COVID-19 pandemic and will continue to monitor the impact on the design and operating effectiveness of our internal controls.

PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
ITEM 1.    LEGAL PROCEEDINGS.
The information contained in Note 19: 20: Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report is incorporated by reference herein.
ITEM 1A.    RISK FACTORS.
Except as set forth below, there have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, 20182019 filed with the SEC on March 15, 2019.16, 2020.


COVID-19 may materially and adversely affect our business and our financial results.

The trading pricerecent COVID-19 pandemic is understood to have originated in Wuhan, China in December 2019 and has since spread globally, including to the United States and European countries. The continued spread of COVID-19 could adversely impact our operations, including our ability to initiate or complete clinical trials, manufacture sufficient supply of our American Depositary Shares (ADSs) could fall, causing themproduct candidates, file our New Drug Application, or NDA, for FT218 or to be delisted from trading on Nasdaq, making it more difficultmanufacture FT218 at sufficient scale for investors to sell our ADSs.

The closing pricecommercialization, if approved. Any delay in submission of our American Depositary Shares (ADSs) was between $1.09NDA could adversely affect our ability to obtain regulatory approval for and $2.05 duringto commercialize FT218, particularly on our current projected timelines, increase our operating expenses and have a material adverse effect on our business and financial results.

In addition, COVID-19 has resulted in significant governmental measures being implemented to control the period from February 26, 2019spread of the virus, including quarantines, travel restrictions, social distancing and business shutdowns. We have taken temporary precautionary measures intended to June 6, 2019. Under Nasdaq Listing Rules 5550 (a)(2)help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely. We have already suspended non-essential travel worldwide for our employees and 5810(c)(3)(A), ifare discouraging employee attendance at other gatherings. These measures could negatively affect our business. For instance, temporarily requiring all employees to work remotely may induce absenteeism, disrupt our operations or increase the bid pricerisk of our ADSs closes below $1.00 for 30 consecutive business days, our ADSs could be subject to delisting from Nasdaq, after a grace period of 180 calendar days to regain compliance. To regain compliance, the closing bid price of our ADSs would need to meet or exceed $1.00 for a minimum of 10 consecutive business days during the grace period. If we do not regain compliance Nasdaq would provide notice that our ADSs will be subject to delisting. While the trading prices of our ADSs are currently above $3.00, such prices have been and continue to be volatile, and there is no assurance that our ADSs would not trade below $1.00 for 30 consecutive business dayscybersecurity incident. COVID-19 has also caused volatility in the futureglobal financial markets and be subject to Nasdaq delisting. If our ADSs were to be delisted from Nasdaq, and not listed on another national securities exchange, trading of our ADSs could be conductedthreatened a slowdown in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In that event, itglobal economy, which may be more difficult to dispose of, or obtain accurate price quotations for,negatively affect our ADSs, and there would likely also be a reduction in our coverage by security analysts and the news media, which could cause the price of our ADSs to decline further. As a result, the trading market for our ADSs could become limited, possibly impairing your ability to liquidate your investment in our company and causing the value of your investment to decline. Also, it may be difficult for us to raise additional capital if weon attractive terms or at all.

The extent to which COVID-19 may impact our business will depend on future developments, which are not listed on Nasdaq or another major exchange.

Although we recently announced an accelerated estimated timetable for completing our REST-ON clinical trial for FT218, we could experience unanticipated difficultieshighly uncertain and cannot be predicted with enrollingconfidence, such as the final patients or with other aspectsduration of the clinical trialpandemic, the severity of COVID-19 or the full FT218 development program,effectiveness of actions to contain and treat COVID-19, particularly in the geographies where we or our third party suppliers and contract manufacturers, or contract research organizations operate. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. If we or any of the third parties with whom we engage, however, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could increasehave a material adverse impact on our business and our results of operations and financial condition.

Disruptions at the costFDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

As of June 23, 2020, the programFDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals and further delayconducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to maintain this pace and delays or setbacks are possible in the future. On July 10, 2020, the FDA announced its completion.goal of restarting domestic on-site inspections during the week of July 20, but such activities will depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter.Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. We cannot guarantee

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Our FT218 product development program has become substantially more importantthat the FDA will be able to complete any required inspections or take other necessary actions in respect to our success in the aftermath of the disappointing sales results for Noctiva and the Specialty Pharma bankruptcy filing. In September 2019, we announced FDA approval of amendments to the statistical analysis plan and protocol for our REST-ON phase 3 clinical trial for FT218, resulting in a lower sample size needed to demonstrate statistical significance. As a result of these amendments, we expect to complete enrollment in the REST-ON clinical trial by the end of 2019 and have topline data in the second quarter of 2020, which dates are earlier than we had previously estimated. As of November 12, 2019, we had enrolled 200 new patients in the REST-ON clinical trial, with an additional 5 patients needed to complete the sample size. Notwithstanding the new estimated timetable announced in September 2019, we could experience unanticipated difficulties in enrolling patients or with other aspects of the program, and as a result there is no assurance that we will complete enrollment by the end of 2019 as predicted, or that we will complete the clinical trial and collect all data before the end of the second quarter of 2020. Any such unanticipated difficulties could delay the completion of the REST-ON clinical trial and increase its cost.product candidates.


ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Securities Purchase Agreement

On February 21, 2020, we announced that we entered into a definitive agreement for the sale of our ADSs and Series A Non-Voting Convertible Preferred Shares (“Series A Preferred”) in a private placement to a group of institutional accredited investors. The private placement resulted in gross proceeds of approximately $65,000 before deducting placement agent and other offering expenses which resulted in net proceeds of $60,570.

Pursuant to the terms of the private placement, we issued 8,680,225 ADSs and 487,614 shares of Series A Preferred at a price of $7.09 per share, priced at-the-market under Nasdaq rules. Each share of non-voting Series A Preferred is convertible into one ADS, provided that conversion will be prohibited if, as a result, the holder and its affiliates would own more than 9.99% of the total number of Avadel ADSs outstanding. The closing of the private placement occurred on February 25, 2020. Proceeds from the private placement will be used to fund continued clinical and program development of FT218, including our open-label extension study for REST-ON, a switch study to evaluate patients switching from twice-nightly sodium oxybate to once-nightly FT218, as well as for general corporate purposes.

The Company fully completed its authorized share buyback program duringprivate placement was exempt from registration pursuant to Section 4(a)(2) of the year ended December 31, 2018.Securities Act as a transaction by an issuer not involving a public offering.



In connection with the shelf registration statement, on April 28, 2020 we announced the pricing of an underwritten public offering of 11,630,000 ADSs at a price to the public of $10.75 per ADS. Each ADS represents the right to receive one Ordinary Share. All of the ADSs were offered by us and the gross proceeds to us from the offering were approximately $125,000, before deducting underwriting discounts and commissions and offering expenses, which resulted in net proceeds of $116,924. The offering closed on May 1, 2020.
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES. 
None.
ITEM 4.    MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5.    OTHER INFORMATION.

None.

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ITEM 6.    EXHIBITS.
Exhibit No.Description
31.1*
31.2*
32.1**
32.2**
101.INS*101.SCH*XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) (filed herewith)
______________________ 
*    Filed herewith. 
**          Furnished herewith. 

+          Indicates management contract or compensatory plan or arrangement.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
AVADEL PHARMACEUTICALS PLC
(Registrant)
Date: November 12, 20199, 2020By:/s/ Michael F. KananGregory J. Divis
Michael F. KananGregory J. Divis
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
Date: November 9, 2020By:/s/ Thomas S. McHugh
Thomas S. McHugh
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial and Accounting Officer)
 





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