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Business Combination | 6 Months Ended
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Jun. 30, 2026
Business Combination [Abstract] |
Business Combination | 3. BUSINESS COMBINATION Acquisition of Avadel Pharmaceuticals plc On February 12, 2026 (the “Closing Date”), the Company completed the acquisition of Avadel Pharmaceuticals plc (now operating as Avadel Pharmaceuticals Limited) (“Avadel”), pursuant to the definitive transaction agreement entered into in October 2025 and subsequently amended in November 2025 (the “Transaction Agreement”), adding both LUMRYZ to the Company’s portfolio of proprietary commercial products and a commercial organization with experience in narcolepsy. Pursuant to the Transaction Agreement, the Company acquired the entire issued and to be issued ordinary share capital of Avadel (the “Avadel Acquisition”) for consideration of (i) $21.00 per ordinary share, nominal value $0.01 per share, of Avadel (each, an “Avadel Share”), payable in cash at closing and (ii) a non-transferable contingent value right (the “CVR”) entitling holders of Avadel Shares to a potential additional cash payment of $1.50 per Avadel Share, contingent upon achievement of a certain specified milestone (the “CVR Milestone”). The Avadel Acquisition has been accounted for as a business combination, using the acquisition method of accounting in accordance with Topic 805. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The Company’s purchase price allocation is preliminary and based on the information available as of the reporting date. The Company’s estimates and assumptions are subject to refinement as the Company continues to review information related to the Avadel Acquisition. The Company remains in the process of reviewing and finalizing the measurement of certain assets acquired and liabilities assumed, including but not limited to: tax positions, and other tax-related matters, and the estimated fair values of acquired intangible assets and inventory. Adjustments to the valuation of assets acquired and liabilities assumed will result in a corresponding adjustment to goodwill. The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the Closing Date. The total preliminary purchase consideration related to the Avadel Acquisition was as follows:
(In thousands) |  | Amount |
Cash consideration paid for Avadel’s ordinary shares |  | $ | 2,064,310 |
Cash consideration paid for cash settlement of Avadel equity awards |  |  | 134,897 |
Fair value of CVR contingent consideration |  |  | 107,713 |
Total preliminary purchase consideration |  | $ | 2,306,920 |
The following table summarizes the preliminary estimates of the fair value of assets acquired and liabilities assumed as of the Closing Date:
(In thousands) |  | February 12, 2026 |
Acquired Assets: |  |  |
Cash and cash equivalents |  | $ | 114,135 |
Receivables |  |  | 50,389 |
Inventory |  |  | 147,323 |
Prepaid expenses and other current assets |  |  | 13,483 |
Property, plant and equipment |  |  | 796 |
Right-of-use assets |  |  | 2,297 |
Intangible assets |  |  | 1,794,900 |
Deferred tax assets(1) |  |  | 849 |
Other assets |  |  | 6,550 |
Total fair value of assets acquired |  | $ | 2,130,722 |
Assumed Liabilities: |  |  |
Accounts payable and accrued expenses |  | $ | 124,654 |
Accrued sales discounts, allowances and reserves |  |  | 24,969 |
Operating lease liabilities |  |  | 2,296 |
Deferred tax liability |  |  | 183,129 |
Other long-term liabilities(2) |  |  | — |
Total recognized identifiable net assets acquired and liabilities assumed |  | $ | 1,795,674 |
Goodwill(1)(2) |  |  | 511,246 |
Preliminary fair value of total consideration |  | $ | 2,306,920 |
Contingent consideration |  |  | 107,713 |
Total Cash Consideration Paid |  | $ | 2,199,207 |
(1) Inclusive of a measurement period adjustment of $0.4 million to reduce the deferred tax asset and increase goodwill following further review of Avadel’s uncertain tax position and associated deferred tax assets as of the Closing Date. (2) Inclusive of a measurement period adjustment of $2.1 million to reduce the uncertain tax position and goodwill following further review of Avadel’s uncertain tax position as of the Closing Date. Contingent Consideration In connection with the Avadel Acquisition, the vesting of certain outstanding Avadel equity awards was accelerated as of the Closing Date and each vested Avadel equity award became entitled to receive cash consideration and the right to receive one CVR per Avadel Share. The purchase price for the Avadel Acquisition includes $134.9 million related to Avadel Shares for which vesting was accelerated in connection with the acquisition and is attributable to pre-combination service. As of the Closing Date, the Company also recognized $18.4 million of share-based compensation expense related to the acceleration of unvested share-based compensation awards attributable to post-combination service. Contingent payments of up to $165.7 million may become due to former Avadel shareholders upon the achievement of the CVR Milestone. In connection therewith, the Company recorded a contingent consideration liability of $107.7 million as of the Closing Date to reflect the estimated fair value of such contingent consideration associated with the purchase consideration related to the Avadel Acquisition. As of the Closing Date, the Company also recognized $1.8 million of share-based compensation expense related to the fair value of the contingent CVR payment that may be made to former Avadel employees attributable to post-combination service. The estimated fair value of the contingent consideration was determined under an income approach using a DCF model. The key assumptions considered include probability of milestone achievement and estimated discount rates. At each reporting period after the Avadel Acquisition, the Company will revalue the contingent consideration liability and will record increases or decreases in the fair value of the liability in its condensed consolidated statements of operations and comprehensive (loss) income. Please refer to Note 18, Commitments and Contingent Liabilities, in these “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q for information related to changes in the fair value of the contingent consideration. Acquired Inventory The fair value of the acquired inventory was estimated using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or to dispose of the inventory, as well as a market-participant profit allowance. Acquired Intangible Assets The identifiable intangible assets acquired included the following:
(In thousands) |  |  |
LUMRYZ |  | $ | 1,768,600 |
In-process research and development |  |  | 26,300 |
Total identifiable intangible assets |  | $ | 1,794,900 |
The fair value of LUMRYZ was estimated based on a multi-period excess earnings method which calculates the present value of the estimated revenues and net cash flows derived from LUMRYZ. Amortization of LUMRYZ is calculated using the percentage of excess earnings over the economic useful life method. The IPR&D relates to the product candidate acquired in the Avadel Acquisition, valiloxybate. Due to the early stage of development of this asset, and given the proximity to the Closing Date of a license agreement entered into by Avadel related to valiloxybate and the lack of suitable market comparables, the valuation was prepared utilizing a cost approach consisting of the upfront payment under the license agreement, together with additional development costs incurred by Avadel through prior to the Closing Date in respect of valiloxybate. Deferred Tax Liabilities The deferred tax liability of $183.1 million relates to the tax effect of the difference between the fair value and tax basis of acquired intangible assets owned by an Irish subsidiary of the Company. The deferred tax asset of $0.8 million relates to the tax effect of acquired net operating losses and temporary differences, partially offset by the difference between the fair value and tax basis of acquired intangible assets and inventory owned by a U.S. subsidiary of the Company. As of the Closing Date, Avadel recorded an uncertain tax position of $2.2 million in connection with a U.S. state tax position. Upon further review of the position and identification of historic tax filings of a subsidiary of Avadel, the Company determined that the uncertainty was resolved prior to the Avadel Acquisition. Accordingly, the Company has removed the uncertain tax position liability and reduced the value of the associated deferred tax asset by approximately $0.4 million. These adjustments have resulted in a reduction of the estimated value of the goodwill recorded in connection with the Avadel Acquisition by $1.8 million as of the Closing Date. Goodwill The excess of the estimated fair value of the purchase price consideration over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the Avadel Acquisition. The factors that contributed to the recognition of goodwill included the synergies that are specific to the Company’s business and not available to market participants, including the acquisition of a commercial organization with experience in narcolepsy which accelerates the Company’s commercial entry into the sleep medicine market and provides a strong foundation for the potential launch of alixorexton, the Company’s lead orexin development candidate. Revenues and Net (Loss) Income of Avadel The operations of Avadel for the period of the Closing Date through June 30, 2026 have been included in the Company’s condensed consolidated statements of operations and comprehensive (loss) income. During the three and six months ended June 30, 2026, the Company recorded total revenues of $96.6 million and $136.1 million, respectively, and net loss of $2.7 million and net income of $13.6 million, respectively, related to the operations of Avadel. Transaction Costs In conjunction with the Avadel Acquisition, the Company incurred approximately $1.1 million and $35.9 million of transaction costs during the three and six months ended June 30, 2026, respectively, all of which were recognized as selling, general and administrative in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. There were no transaction costs for the Avadel Acquisition incurred during the three or six months ended June 30, 2025. Pro forma financial information (unaudited) The following unaudited pro forma information presents the combined results of operations for the three and six months ended June 30, 2026 and 2025 as if the Avadel Acquisition had been completed on January 1, 2025. The unaudited pro forma financial information is based on the historical financial information for the Company and Avadel, along with certain pro forma adjustments described below. The unaudited pro forma information for the three and six months ended June 30, 2026 reflects revenues and net loss of Avadel from January 1, 2026 through the Closing Date, and excludes approximately $77.7 million of total direct one-time transaction costs incurred by Avadel, of which $64.6 million were incurred from January 1, 2026 through the Closing Date. The following unaudited pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations had the Avadel Acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results.
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(In thousands) |  | 2026 |  |  | 2025 |  |  | 2026 |  |  | 2025 |
Revenues |  | $ | 496,009 |  |  | $ | 458,786 |  |  | $ | 921,749 |  |  | $ | 817,807 |
Net (loss) income |  |  | 22,638 |  |  |  | 23,270 |  |  |  | (5,722 | ) |  |  | (97,229 | )
The unaudited pro forma financial information includes, where applicable, adjustments primarily for: (i) increased amortization expense related to the LUMRYZ intangible asset acquired; (ii) increased costs of goods manufactured and sold related to the amortization of inventory fair value adjustments; (iii) increased interest expense to reflect the borrowings under the Facilities (as defined in Note 12, Long-Term Debt in these “Notes to Condensed Consolidated Financial Statements”), including the interest and amortization of deferred financing costs, net of reversal of historical interest expense and loss on extinguishment of Avadel’s royalty financing obligation; (iv) adjustment of approximately $45.6 million in direct one-time acquisition transaction costs, including $9.7 million recognized in fiscal year 2025, from the periods incurred to the period these expenses would have been recognized given the assumed transaction date identified above; (v) adjustment of $20.2 million related to the acceleration of unvested share-based compensation awards attributable to post-combination service and the fair value related to the contingent CVR payment that could be made to former Avadel employees if the specified CVR milestone is met, from the period incurred to the periods in which these expenses would have been recognized with the assumed transaction date identified above; and (vi) the related income tax effects of these adjustments to the income tax provision (benefit) for the Company. The unaudited pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the Avadel Acquisition or revenue growth that may be anticipated.

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