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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Nature of Operations. Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is a biopharmaceutical company. The Company is registered as an Irish public limited company. The Company’s headquarters are in Dublin, Ireland with operations in St. Louis, Missouri, United States (“U.S”). The Company’s lead product candidate, FT218, is an investigational once-nightly, extended-release formulation of sodium oxybate for the treatment of excessive daytime sleepiness (“EDS”) or cataplexy in adults with narcolepsy. The Company is primarily focused on the development and potential United States (“U.S.”) Food and Drug Administration (“FDA”) approval of FT218. In December 2020, the Company submitted a New Drug Application (“NDA”) to the FDA for FT218 to treat excessive daytime sleepiness or cataplexy in adults with narcolepsy. In February 2021, the NDA for FT218 was accepted by the FDA and was assigned a Prescription Drug User Fee Act (“PDUFA”) target action date of October 15, 2021. On October 15, 2021, the Company announced that the FDA informed us that the review of the Company’s NDA for FT218 was ongoing beyond its previously assigned target action date. As of the date of this Annual Report, the FDA’s review of the Company’s NDA for FT218 remains ongoing. Outside of the Company’s lead product candidate, the Company continues to evaluate opportunities to expand its product portfolio. As of the date of this Annual Report, the Company does not have any approved or commercialized products in its portfolio. Basis of Presentation. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and all subsidiaries. All intercompany accounts and transactions have been eliminated. The Company’s results of operations for the period January 1, 2019 through February 6, 2019 include the results of Avadel Specialty Pharmaceuticals, LLC (“Specialty Pharma”) prior to its February 6, 2019 voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. See Note 3: Subsidiary Bankruptcy and Deconsolidation. Reclassifications Certain reclassifications are made to prior year amounts whenever necessary to conform with the current year presentation. Certain reclassifications have been made to the Consolidated Statements of Cash Flows for the fiscal year ended December 31, 2019 and balances within Note 14: Other Assets and Liabilities for the year ended December 31, 2020 to condense line items of the same nature into a single line. This change does not affect previously reported net cash flows used in operating activities in the Consolidated Statements of Cash Flows. Out of Period Adjustments In 2021, the Company determined that 0.50% of additional interest expense (the “Additional Interest”), as defined in the indenture dated as of February 16, 2018 among Avadel Finance Cayman Ltd, Avadel Pharmaceuticals PLC, and The Bank of New York Mellon as trustee (the “Indenture”), was owed on its long term 4.50% exchangeable unsecured senior notes due 2023 (the “2023 Notes”) from a period of February 17, 2019 through December 31, 2021, totaling $817, $773, and $635 for the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2020, the Company’s accrued interest was understated by $1,408. The Additional Interest resulted from not removing a restrictive legend from the 2023 Notes 365 days following their original issuance on February 16, 2018. The restrictive legend was removed in March 2022 and the Additional Interest is no longer applicable following the date of removal of the restrictive legend. The Company identified and recorded an out of period adjustment for cumulative amount of the Additional Interest in 2021 of $1,408. Management assessed the materiality of the impact of the out of period adjustment on its financial statements, both quantitatively and qualitatively, and determined that it was not material for any quarterly or annual period. The 2023 Notes were issued on February 16, 2018 (the “Original Issuance”) with a restrictive legend which remained in place until March 14, 2022. Per the terms of the Indenture, if the restrictive legend on the 2023 Notes was not removed on the 365th day following the original issuance of the 2023 Notes, the Company owed Additional Interest, payable on each of the semi-annual interest payment dates of February 1 and August 1 beginning August 1, 2019 and each of the semi-annual payment dates thereafter until the restrictive legend was removed. The non-payment of the Additional Interest expense on the semi-annual payment dates, which was first due beginning August 1, 2019, is defined as an “Event of Default” in the Indenture, causing the Company to be in technical default of its 2023 Notes until the default was cured. The Additional Interest was paid to the trustee on March 10, 2022, which under the terms of the indenture, management believes cured the Event of Default for all periods. Additionally, on March 14, 2022, the restrictive legend on the 2023 Notes was removed and the Company is not subject to the Additional Interest after that date. Had the Company identified and been unable to cure the technical default prior to the issuance of its financial statements for fiscal years 2020 and 2019, it could have resulted in the reclassification of the long-term principal balance of 2023 Notes reported in those periods. As a result of curing the technical default, the Company classified the 2023 Notes as long-term at December 31, 2021 and 2020. The Indenture is included as Exhibit 4.2 to this Annual Report on Form 10-K. Revenue. Prior to June 30, 2020, revenue included sales of pharmaceutical products, licensing fees, and, if any, milestone payments for research and development (“R&D”) achievements. To determine the appropriate revenue recognition, the Company performs 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. 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. Product Sales Prior to June 30, 2020, the Company sold products primarily through wholesalers and considered these wholesalers to be the Company’s customers. Revenue from product sales is recognized when the customer obtains control of the Company’s product, which occurs typically upon receipt by the customer. The Company’s gross product sales were subject to a variety of price adjustments in arriving at reported net product sales. These adjustments included estimates of product returns, chargebacks, payment discounts, rebates, and other sales allowances and are estimated based on analysis of historical data for the product or comparable products, future expectations for such products and other judgments and analysis. Research and Development (“R&D”). R&D expenses consist primarily of costs related to outside services, personnel expenses, clinical studies and other R&D expenses. Outside services and clinical studies costs relate primarily to services performed by clinical research organizations and related clinical or development manufacturing costs, materials and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses relate primarily to salaries, benefits and share-based compensation. Other R&D expenses primarily include overhead allocations consisting of various support and facilities-related costs. R&D expenditures are charged to operations as incurred. Raw materials used in the production of pre-clinical and clinical products are expensed as R&D costs. The Company recognizes refundable R&D tax credits received for spending on innovative R&D as an offset of R&D expenses. Advertising Expenses. The Company expenses the costs of advertising as incurred. Branded advertising expenses were $0, $312 and $372 for the years ended December 31, 2021, 2020 and 2019, respectively. Share-based Compensation. The Company accounts for share-based compensation based on the estimated grant-date fair value. The fair value of stock options is estimated using Black-Scholes option-pricing valuation models (“Black-Scholes model”). As required by the Black-Scholes model, estimates are made of the underlying volatility of Avadel stock, a risk-free rate and an expected term of the option or warrant. The Company estimates the expected term using a simplified method, as the Company does not have enough historical exercise data for a majority of such options upon which to estimate an expected term. The Company recognizes compensation cost, net of an estimated forfeiture rate, using the accelerated method over the requisite service period of the award. Income Taxes. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits in the income tax expense line in the consolidated statements of (loss) income. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand, cash on deposit and fixed term deposits which are highly liquid investments with original maturities of less than three months. Marketable Securities. The Company’s marketable securities are considered to be available for sale and are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive (loss) income (“AOCI”) in shareholders’ equity, with the exception of unrealized gains and losses on equity instruments and allowances for expected credit losses, if any, which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. If the criteria are not met, the Company evaluates whether the decline in fair value has resulted from a credit loss or other factors. In making this assessment, management considers, among other factors, the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Allowance for Credit Losses. Amounts owed to the Company are presented net of an allowance that includes as assessment of expected credit losses. 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. To the extent that the Company identifies that any individual customer's credit quality has deteriorated, the Company establishes allowances based on the individual risk characteristics of that customer. The Company makes concerted efforts to collect all outstanding balances due from customers; however, amounts are written off against the allowance when the related balances are no longer deemed collectible Property and Equipment. Property and equipment is stated at historical cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:
Software, office and computer equipment | 3 years
Leasehold improvements, furniture, fixtures and fittings | 5-10 years
Goodwill. Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed. The Company has determined that it operates in a single segment and have a single reporting unit associated with the development and commercialization of pharmaceutical products. The Company tests goodwill for impairment annually and when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company determined that no impairment of goodwill existed at December 31, 2021 and 2020. Long-Lived Assets. Long-lived assets include fixed assets and intangible assets. Prior to the sale of the Company’s portfolio of sterile injectable drugs used in the hospital setting (“Hospital Products”) on June 30, 2020, intangible assets consisted primarily of purchased licenses and intangible assets recognized as part of the Éclat Pharmaceuticals acquisition. Acquired in-process research and development (“IPR&D”) had an indefinite life and was not amortized until completion and development of the project, at which time the IPR&D became an amortizable asset, for which amortization of such intangible assets was computed using the straight-line method over the estimated useful life of the assets. Long-lived assets are reviewed for impairment whenever conditions indicate that the carrying value of the assets may not be fully recoverable. Such impairment tests are based on a comparison of the pretax undiscounted cash flows expected to be generated by the asset to the recorded value of the asset or other market-based value approaches. If impairment is indicated, the asset value is written down to its market value if readily determinable or its estimated fair value based on discounted cash flows. Any significant changes in business or market conditions that vary from current expectations could have an impact on the fair value of these assets and any potential associated impairment. On June 30, 2020, the Company transferred its remaining intangible asset to Exela Sterile Medicines LLC (“Exela Buyer”) as part of the disposition of the Hospital Products. Lease Obligations. The Company determines if a contract is a lease at the inception of the arrangement. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. 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. Short term leases with an initial term of 12 months or less are not recorded on the balance sheet and the associated lease payments are recognized in the consolidated statements of (loss) income on a straight-line basis over the lease term. The Company’s lease contracts do not provide a readily determinable implicit rate. The Company’s estimated incremental borrowing rate is based on information available at the inception of the lease. The Company’s lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of (loss) income. Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including marketable securities and contingent liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the periods presented. These estimates and assumptions are based on the best information available to management at the balance sheet dates and depending on the nature of the estimate can require significant judgments. Changes to these estimates and judgments can have and have had a material impact on the Company’s consolidated statements of (loss) income and balance sheets. Actual results could differ from those estimates under different assumptions or conditions.

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