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, ~~2020~~2021

☐ 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

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AVADEL PHARMACEUTICALS PLC

(Exact name of registrant as specified in its charter)

———————


Ireland	000-28508	98-1341933
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

10 Earlsfort Terrace

Dublin 2, Ireland

D02 T380

(Address of Principal Executive Office and Zip Code)

+~~011-1-485-1200~~353-1-901-5201

(Registrant’s telephone number, including area code)

N/A

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

———————

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


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

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

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

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

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

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


Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated	¨	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 ~~5, 2020, 58,272,734~~4, 2021, 58,620,088 ordinary shares, nominal value $0.01 each, of the Company were outstanding.

TABLE OF CONTENTS

We own various trademark registrations and applications, and unregistered trademarks, including ~~Avadel~~Avadel™, Micropump™, LiquiTime™ and ~~MicroPump.~~Medusa™. 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, our LinkedIn or our Twitter account (@AvadelPharma) to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at ~~www.avadelpharmaceuticals.com~~.www.avadel.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, LinkedIn account or our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.

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Cautionary Disclosure Regarding Forward-Looking Statements

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

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

•Our reliance on a single lead product candidate, FT218, the timing of and our ability to obtain regulatory approval, ~~of and~~if at all;

•Our ability to obtain desired regulatory exclusivity for FT218, including orphan drug exclusivity;

•Our ability to successfully commercialize FT218 ~~including~~in a timely manner or at all, if approved;

•The ability of FT218, if approved and launched commercially, to gain market acceptance;

•Our ability to enter into strategic partnerships for the commercialization, manufacturing and distribution of FT218, if approved;

•Our dependence on a single manufacturer for the manufacturing of our lead product candidate and a single supplier for certain raw materials in our lead product candidate and any ~~delays~~failure of such third party suppliers to either manufacture our product candidate in ~~submission~~a timely manner or ~~approval related~~ to ~~COVID-19;~~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 size and market participation for our lead product candidate, if approved and commercialized;

•Our expectations about pending and potential future patent infringement claims against us;

•Any further restructuring actions that may be required and our ability to obtain any required consents (including any consents required pursuant to the Indenture governing our exchange notes due 2023, or the 2023 Notes);

•Our ability to continue to service the 2023 Notes, including making the ongoing interest payments on the 2023 Notes, settling exchanges of the 2023 Notes in cash or completing any required repurchases of the 2023 Notes;

•The ~~ability of our product candidates, if approved, to gain market acceptance;~~

•~~Our ability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our product candidates;~~

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

•~~Our expectations about the potential market sizes and market participation potential for our approved or proposed products;~~

•~~The~~ potential impact of COVID-19 on our business and future operating results;

•Our ability to hire and retain members of our management team and our employees; and

•Competition existing today or that will likely arise in the future.

These forward-looking statements are neither promises nor guarantees of future performance due to a variety of risks and uncertainties and other factors more fully discussed in the “Risk Factors” section in Part I, Item 1A of the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March ~~16, 2020~~9, 2021 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 on which the statements were made and are not guarantees of future performance. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to revise any forward-looking statements to reflect events or developments occurring after the date of this ~~quarterly report,~~Quarterly Report, even if new information becomes available in the future.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AVADEL PHARMACEUTICALS PLC

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			Three Months Ended September 30,				Nine Months Ended September 30,
											2021		2020		2021		2020

Product sales	Product sales	$	0	$	14,229	$	22,334	$	48,220	Product sales	$	—	$	—	$	—	$	22,334

Operating expenses:	Operating expenses:									Operating expenses:
Cost of products	Cost of products	0		2,823		5,742		9,711		Cost of products	—		—		—		5,742
Research and development expenses	Research and development expenses	5,569		7,539		15,156		25,160		Research and development expenses	4,380		5,569		14,994		15,156
Selling, general and administrative expenses	Selling, general and administrative expenses	8,423		5,316		23,431		22,520		Selling, general and administrative expenses	21,283		8,423		47,469		23,431
Intangible asset amortization	Intangible asset amortization	0		205		406		610		Intangible asset amortization	—		—		—		406
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(69)		627		3,327		2,384		Changes in fair value of contingent consideration	—		(69)		—		3,327
Gain on sale of Hospital Products	Gain on sale of Hospital Products	0		0		(45,760)		0		Gain on sale of Hospital Products	—		—		—		(45,760)
Restructuring (income) costs		(226)		1,866		(43)		4,600
Restructuring income										Restructuring income	—		(226)		(53)		(43)
Total operating expense	Total operating expense	13,697		18,376		2,259		64,985		Total operating expense	25,663		13,697		62,410		2,259
Operating (loss) income	Operating (loss) income	(13,697)		(4,147)		20,075		(16,765)		Operating (loss) income	(25,663)		(13,697)		(62,410)		20,075
Investment and other income (expense), net	Investment and other income (expense), net	213		781		(906)		2,548		Investment and other income (expense), net	489		213		1,531		(906)
Interest expense	Interest expense	(3,259)		(3,125)		(9,686)		(9,293)		Interest expense	(1,929)		(3,259)		(5,788)		(9,686)
Loss on deconsolidation of subsidiary		0		0		0		(2,840)
Gain from release of certain liabilities										Gain from release of certain liabilities	—		—		166		—
Other expense - changes in fair value of contingent consideration payable	Other expense - changes in fair value of contingent consideration payable	0		(139)		(435)		(496)		Other expense - changes in fair value of contingent consideration payable	—		—		—		(435)

(Loss) income before income taxes	(Loss) income before income taxes	(16,743)		(6,630)		9,048		(26,846)		(Loss) income before income taxes	(27,103)		(16,743)		(66,501)		9,048
Income tax (benefit) provision		(5,040)		2,234		(9,258)		3,641
Income tax benefit										Income tax benefit	(5,101)		(5,040)		(11,473)		(9,258)
Net (loss) income	Net (loss) income	$	(11,703)	$	(8,864)	$	18,306	$	(30,487)	Net (loss) income	$	(22,002)	$	(11,703)	$	(55,028)	$	18,306

Net (loss) income per share - basic	Net (loss) income per share - basic	$	(0.20)	$	(0.24)	$	0.36	$	(0.82)	Net (loss) income per share - basic	$	(0.38)	$	(0.20)	$	(0.94)	$	0.36
Net (loss) income per share - diluted	Net (loss) income per share - diluted	(0.20)		(0.24)		0.35		(0.82)		Net (loss) income per share - diluted	(0.38)		(0.20)		(0.94)		0.35

Weighted average number of shares outstanding - basic	Weighted average number of shares outstanding - basic	58,213		37,436		51,206		37,382		Weighted average number of shares outstanding - basic	58,585		58,213		58,506		51,206
Weighted average number of shares outstanding - diluted	Weighted average number of shares outstanding - diluted	58,213		37,436		52,849		37,382		Weighted average number of shares outstanding - diluted	58,585		58,213		58,506		52,849

See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (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,
		2020		2019		2020		2019			2021		2020		2021		2020

Net (loss) income	Net (loss) income	$	(11,703)	$	(8,864)	$	18,306	$	(30,487)	Net (loss) income	$	(22,002)	$	(11,703)	$	(55,028)	$	18,306
Other comprehensive (loss) income, net of tax:	Other comprehensive (loss) income, net of tax:									Other comprehensive (loss) income, net of tax:
Foreign currency translation gain (loss)		534		(210)		539		(309)
Net other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectively		66		86		349		753
Total other comprehensive income (loss), net of tax		600		(124)		888		444
Foreign currency translation (loss) income										Foreign currency translation (loss) income	(237)		534		(839)		539
Net other comprehensive (loss) income, net of income tax (benefit) provision of $(59), $1, $(220) and $131, respectively										Net other comprehensive (loss) income, net of income tax (benefit) provision of $(59), $1, $(220) and $131, respectively	(157)		66		(854)		349
Total other comprehensive (loss) income, net of tax										Total other comprehensive (loss) income, net of tax	(394)		600		(1,693)		888
Total comprehensive (loss) income	Total comprehensive (loss) income	$	(11,103)	$	(8,988)	$	19,194	$	(30,043)	Total comprehensive (loss) income	$	(22,396)	$	(11,103)	$	(56,721)	$	19,194

See accompanying notes to unaudited condensed consolidated financial statements.

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AVADEL PHARMACEUTICALS PLC

~~UNAUDITED~~ CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

September 30, 2020 December 31, 2019
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 83,109 $ 9,774
Marketable securities 148,467 54,384
Accounts receivable 0 8,281
Inventories 0 3,570
Research and development tax credit receivable 3,058 2,107
Prepaid expenses and other current assets 47,054 4,264
Total current assets 281,688 82,380
Property and equipment, net 373 544
Operating lease right-of-use assets 2,866 3,612
Goodwill 16,836 18,491
Intangible assets, net 0 813
Research and development tax credit receivable 3,608 6,322
Other non-current assets 22,264 39,274
Total assets $ 327,635 $ 151,436
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term contingent consideration payable $ 0 $ 5,554
Current portion of operating lease liability 520 645
Accounts payable 2,660 6,100
Accrued expenses 16,398 19,810
Other current liabilities 3,431 3,875
Total current liabilities 23,009 35,984
Long-term debt 126,520 121,686
Long-term contingent consideration payable, less current portion 0 11,773
Long-term operating lease liability 1,968 2,319
Other non-current liabilities 4,938 8,873
Total liabilities 156,435 180,635
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, respectively 5 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, 2019 582 429
Treasury shares, at cost, 0 and 5,407 shares held at September 30, 2020 and December 31, 2019, respectively 0 (49,998)
Additional paid-in capital 565,440 434,391
Accumulated deficit (372,909) (391,215)
Accumulated other comprehensive loss (21,918) (22,806)
Total shareholders’ equity (deficit) 171,200 (29,199)
Total liabilities and shareholders’ equity (deficit) $ 327,635 $ 151,436


	September 30, 2021		December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	58,169	$	71,722
Marketable securities	122,924		149,680


Research and development tax credit receivable	2,493		3,326
Prepaid expenses and other current assets	22,234		38,726
Total current assets	205,820		263,454
Property and equipment, net	304		359
Operating lease right-of-use assets	2,070		2,604
Goodwill	16,836		16,836

Research and development tax credit receivable	961		3,445
Other non-current assets	38,098		24,939
Total assets	$	264,089	$	311,637

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:

Current portion of operating lease liability	$	504	$	474
Accounts payable	6,874		2,934
Accrued expenses	8,738		6,501

Other current liabilities	1,471		5,200
Total current liabilities	17,587		15,109
Long-term debt	142,086		128,210

Long-term operating lease liability	1,460		1,840
Other non-current liabilities	3,999		4,212
Total liabilities	165,132		149,371

Shareholders’ equity:
Preferred shares, nominal value of $0.01 per share; 50,000 shares authorized; 488 issued and outstanding at September 30, 2021 and 488 issued and outstanding at December 31, 2020, respectively	5		5
Ordinary shares, nominal value of $0.01 per share; 500,000 shares authorized; 58,616 issued and outstanding at September 30, 2021 and 58,396 issued and outstanding at December 31, 2020	586		583
Additional paid-in capital	546,565		566,916
Accumulated deficit	(425,455)		(384,187)
Accumulated other comprehensive loss	(22,744)		(21,051)
Total shareholders’ equity	98,957		162,266
Total liabilities and shareholders’ equity	$	264,089	$	311,637

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)~~(unaudited)

Nine Months Ended September 30, ~~2020~~2021


		Ordinary shares			Preferred shares			Additional		Accumulated		Accumulated other comprehensive		Treasury shares			Total shareholders’			Ordinary shares			Preferred shares			Additional		Accumulated		Accumulated other comprehensive		Total shareholders’
		Shares	Amount		Shares	Amount		paid-in capital		deficit		loss		Shares	Amount		equity (deficit)			Shares	Amount		Shares	Amount		paid-in capital		deficit		loss		equity
Balance, December 31, 2019		42,927	$	429	0	$	0	$	434,391	$	(391,215)	$	(22,806)	5,407	$	(49,998)	$	(29,199)
Balance, December 31, 2020																			Balance, December 31, 2020	58,396	$	583	488	$	5	$	566,916	$	(384,187)	$	(21,051)	$	162,266
Impact of the adoption of ASU 2020-06																			Impact of the adoption of ASU 2020-06	—	—		—	—		(26,699)		13,760		—		(12,939)
Net loss	Net loss	—	—		—	—		—		(865)		—		—	—		(865)		Net loss	—	—		—	—		—		(13,445)		—		(13,445)
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—		—		(821)		—	—		(821)		Other comprehensive loss	—	—		—	—		—		—		(1,255)		(1,255)
Exercise of stock options	Exercise of stock options	146	2		—	—		1,387		—		—		—	—		1,389		Exercise of stock options	23	—		—	—		106		—		—		106
February 2020 private placement		8,680	87		488	5		60,641		—		—		—��	—		60,733
Vesting of restricted shares	Vesting of restricted shares	19	—		—	—		—		—		—		—	—		0		Vesting of restricted shares	61	1		—	—		(1)		—		—		—
Employee share purchase plan share issuance	Employee share purchase plan share issuance	40	—		—	—		88		—		—		—	—		88		Employee share purchase plan share issuance	8	—		—	—		43		—		—		43
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		742		—		—		—	—		742		Stock-based compensation expense	—	—		—	—		1,728		—		—		1,728
Balance, March 31, 2020		51,812	$	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
Balance, March 31, 2021																			Balance, March 31, 2021	58,488	$	584	488	$	5	$	542,093	$	(383,872)	$	(22,306)	$	136,504
Net loss																			Net loss	—	—		—	—		—		(19,581)		—		(19,581)
Other comprehensive loss																			Other comprehensive loss	—	—		—	—		—		—		(44)		(44)
Stock-based compensation expense																			Stock-based compensation expense	—	—		—	—		2,001		—		—		2,001
Balance, June 30, 2021																			Balance, June 30, 2021	58,488	$	584	488	$	5	$	544,094	$	(403,453)	$	(22,350)	$	118,880
Net loss																			Net loss	—	—		—	—		—		(22,002)		—		(22,002)
Other comprehensive loss																			Other comprehensive loss	—	—		—	—		—		—		(394)		(394)
Exercise of stock options	Exercise of stock options	95	1		—	—		392		—		—		—	—		393		Exercise of stock options	25	1		—	—		62		—		—		63
February 2020 private placement		—	—		—	—		(94)		—		—		—	—		(94)
May 2020 public offering		11,630	116		—	—		116,858		—		—		—	—		116,974
Employee share purchase plan share issuance		—	—		—	—		33		—		—		—	—		33
Stock-based compensation expense		—	—		—	—		769		—		—		—	—		769
Balance, June 30, 2020		63,537	$	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 options		22	—		—	—		47		—		—		—	—		47
February 2020 private placement		—	—		—	—		(69)		—		—		—	—		(69)
May 2020 public offering		—	—		—	—		(50)		—		—		—	—		(50)
Vesting of restricted shares	Vesting of restricted shares	82	1		—	—		(1)		—		—		—	—		0		Vesting of restricted shares	94	1		—	—		(1)		—		—		—
Employee share purchase plan share issuance	Employee share purchase plan share issuance	9	—		—	—		56		—		—		—	—		56		Employee share purchase plan share issuance	9	—		—	—		51		—		—		51
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		194		—		—		—	—		194		Stock-based compensation expense	—	—		—	—		2,359		—		—		2,359
Retirement of treasury shares		(5,407)	(54)		—	—		(49,944)		—		—		(5,407)	49,998		—
Balance, September 30, 2020		58,243	$	582	488	$	5	$	565,440	$	(372,909)	$	(21,918)	0	$	0	$	171,200
Balance, September 30, 2021																			Balance, September 30, 2021	58,616	$	586	488	$	5	$	546,565	$	(425,455)	$	(22,744)	$	98,957

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AVADEL PHARMACEUTICALS PLC

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ ~~(DEFICIT)~~ EQUITY

(In thousands)

~~(Unaudited)~~(unaudited)

Nine Months Ended September 30, ~~2019~~2020

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 — — — — — — 0
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 loss — — — — (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)


	Ordinary shares			Preferred shares			Additional paid-in		Accumulated		Accumulated other comprehensive		Treasury shares			Total shareholders’ (deficit)
	Shares	Amount		Shares	Amount		capital		deficit		loss		Shares	Amount		equity
Balance, December 31, 2019	42,927	$	429	—	$	—	$	434,391	$	(391,215)	$	(22,806)	5,407	$	(49,998)	$	(29,199)
Net loss	—	—		—	—		—		(865)		—		—	—		(865)
Other comprehensive loss	—	—		—	—		—		—		(821)		—	—		(821)
Exercise of stock options	146	2		—	—		1,387		—		—		—	—		1,389
February 2020 private placement	8,680	87		488	5		60,641		—		—		—	—		60,733
Vesting of restricted shares	19	—		—	—		—		—		—		—	—		—
Employee share purchase plan share issuance	40	—		—	—		88		—		—		—	—		88
Stock-based compensation expense	—	—		—	—		742		—		—		—	—		742
Balance, March 31, 2020	51,812	$	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 options	95	1		—	—		392		—		—		—	—		393
February 2020 private placement	—	—		—	—		(94)		—		—		—	—		(94)
May 2020 public offering	11,630	116		—	—		116,858		—		—		—	—		116,974
Employee share purchase plan share issuance	—	—		—	—		33		—		—		—	—		33
Stock-based compensation expense	—	—		—	—		769		—		—		—	—		769
Balance, June 30, 2020	63,537	$	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 Options	22	—		—	—		47		—		—		—	—		47
February 2020 private placement	—	—		—	—		(69)		—		—		—	—		(69)
May 2020 public offering	—	—		—	—		(50)		—		—		—	—		(50)
Vesting of restricted shares	82	1		—	—		(1)		—		—		—	—		—
Employee share purchase plan share issuance	9	—		—	—		56		—		—		—	—		56
Stock-based compensation expense	—	—		—	—		194		—		—		—	—		194
Retirement of treasury shares	(5,407)	(54)		—	—		(49,944)		—		—		(5,407)	49,998		—
Balance, September 30, 2020	58,243	$	582	488	$	5	$	565,440	$	(372,909)	$	(21,918)	—	$	—	$	171,200

- 8 -

AVADEL PHARMACEUTICALS PLC

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020

Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	18,306	$	(30,487)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(55,028)	$	18,306
Adjustments to reconcile net (loss) income to net cash used in operating activities:						Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	1,297		1,690		Depreciation and amortization	614		1,297
Loss on disposal of property and equipment		0		478

Remeasurement of acquisition-related contingent consideration	Remeasurement of acquisition-related contingent consideration	3,327		2,384		Remeasurement of acquisition-related contingent consideration	—		3,327
Remeasurement of financing-related contingent consideration	Remeasurement of financing-related contingent consideration	435		496		Remeasurement of financing-related contingent consideration	—		435
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	4,835		4,424		Amortization of debt discount and debt issuance costs	937		4,835
Change in deferred tax and income tax deferred charge		(4,582)		1,333
Change in deferred taxes						Change in deferred taxes	(11,322)		(4,582)
Stock-based compensation expense	Stock-based compensation expense	1,705		177		Stock-based compensation expense	6,088		1,705
Gain on the disposition of the hospital products		(45,760)		0
Loss on deconsolidation of subsidiary		0		1,750
Gain from the disposition of the hospital products						Gain from the disposition of the hospital products	—		(45,760)
Gain from the release of certain liabilities						Gain from the release of certain liabilities	(166)		—
Other adjustments	Other adjustments	306		(667)		Other adjustments	1,056		306
Net changes in assets and liabilities	Net changes in assets and liabilities					Net changes in assets and liabilities
Accounts receivable	Accounts receivable	8,281		2,026		Accounts receivable	—		8,281
Inventories	Inventories	(1,352)		2,465		Inventories	—		(1,352)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,759		(1,859)		Prepaid expenses and other current assets	(54)		1,759
Research and development tax credit receivable	Research and development tax credit receivable	2,036		(749)		Research and development tax credit receivable	3,079		2,036
Accounts payable & other current liabilities	Accounts payable & other current liabilities	(4,051)		259		Accounts payable & other current liabilities	(201)		(4,051)
Accrued expenses	Accrued expenses	(6,625)		(2,379)		Accrued expenses	2,421		(6,625)

Earn-out payments for contingent consideration in excess of acquisition-date fair value	Earn-out payments for contingent consideration in excess of acquisition-date fair value	(5,323)		(8,640)		Earn-out payments for contingent consideration in excess of acquisition-date fair value	—		(5,323)
Royalty payments for contingent consideration payable in excess of original fair value	Royalty payments for contingent consideration payable in excess of original fair value	(866)		(1,374)		Royalty payments for contingent consideration payable in excess of original fair value	—		(866)
Other assets and liabilities	Other assets and liabilities	(3,337)		(1,399)		Other assets and liabilities	(2,228)		(3,337)
Net cash used in operating activities	Net cash used in operating activities	(29,609)		(30,072)		Net cash used in operating activities	(54,804)		(29,609)

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(33)		(29)		Purchases of property and equipment	(26)		(33)
Proceeds from the disposal of property and equipment		0		154

Proceeds from the disposition of the hospital products	Proceeds from the disposition of the hospital products	17,250		0		Proceeds from the disposition of the hospital products	16,500		17,250
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities	30,075		57,242		Proceeds from sales of marketable securities	83,726		30,075
Purchases of marketable securities	Purchases of marketable securities	(124,254)		(23,814)		Purchases of marketable securities	(58,591)		(124,254)
Net cash (used in) provided by investing activities		(76,962)		33,553
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	41,609		(76,962)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from the February 2020 private placement	Proceeds from the February 2020 private placement	60,570		0		Proceeds from the February 2020 private placement	—		60,570
Proceeds from the May 2020 public offering	Proceeds from the May 2020 public offering	116,924		0		Proceeds from the May 2020 public offering	—		116,924
Proceeds from stock option exercises and ESPP		2,006		123
Other financing activities, net		0		(109)
Proceeds from stock option exercises and employee stock purchase plan						Proceeds from stock option exercises and employee stock purchase plan	263		2,006

Net cash provided by financing activities	Net cash provided by financing activities	179,500		14		Net cash provided by financing activities	263		179,500

Effect of foreign currency exchange rate changes on cash and cash equivalents	Effect of foreign currency exchange rate changes on cash and cash equivalents	406		47		Effect of foreign currency exchange rate changes on cash and cash equivalents	(621)		406

Net change in cash and cash equivalents	Net change in cash and cash equivalents	73,335		3,542		Net change in cash and cash equivalents	(13,553)		73,335
Cash and cash equivalents at January 1,	Cash and cash equivalents at January 1,	9,774		9,325		Cash and cash equivalents at January 1,	71,722		9,774
Cash and cash equivalents at September 30,	Cash and cash equivalents at September 30,	$	83,109	$	12,867	Cash and cash equivalents at September 30,	$	58,169	$	83,109

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid	Interest paid	$	6,469	$	6,469	Interest paid	$	6,469	$	6,469
Income taxes (refund) paid, net		$	(1,788)	$	140
Income taxes paid (refund)						Income taxes paid (refund)	$	68	$	(1,788)

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~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 ~~an emerging~~a biopharmaceutical company. We are registered as an Irish public limited company. Our headquarters are in Dublin, Ireland and we have operations in St. Louis, Missouri, United States.

Our lead product candidate, FT218, is an investigational once-nightly, extended-release 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.~~

adults with narcolepsy. We are primarily focused on the development and potential United States (“U.S.”) Food and Drug Administration (“FDA”) approval of FT218. In December 2020, we submitted a New Drug Application (“NDA”) to the FDA for FT218 to treat excessive daytime sleepiness and 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, we announced that the FDA informed us that the review of our NDA for FT218 was ongoing beyond its previously assigned target action date.

Outside of our lead product candidate, we continue to evaluate opportunities to expand our product portfolio.

~~We were incorporated~~ As of September 30, 2021, we do not have any approved or commercialized products in Ireland on December 1, 2015 as a private limited company, and re-registered as an Irish public limited company on November 21, 2016. Our headquarters are in Dublin, Ireland and we have operations in St. Louis, Missouri, U.S.

~~FT218 (Micropump sodium oxybate)~~

~~FT218 is a once-nightly formulation of sodium oxybate that uses~~ our Micropump controlled release drug-delivery technology for the treatment of EDS and cataplexy in patients suffering from narcolepsy. Sodium oxybate is the 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 of FT218 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 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 (“Closing Date”), we announced the sale of our 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 is approved 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 ~~ten~~ ~~equal monthly installments which began in September 2020 for total 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 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.

•~~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 (ephedrine sulfate 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- adrenergic agonist and a norepinephrine-releasing agent that is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.

•~~Nouress (cysteine hydrochloride injection)~~ - Nouress was approved by the FDA in December 2019. Nouress is a sterile injectable product for use in the hospital setting, and two issued U.S. patents currently cover that product. Several additional patent applications for Nouress are pending with the U.S. Patent and Trademark Office (“USPTO”).

~~- 10 -~~

portfolio.

Basis of Presentation. The unaudited condensed consolidated balance sheet as of September 30, ~~2020,~~2021, which is derived from the prior year ~~2019~~2020 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 U.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 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 ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on March ~~16, 2020.~~9, 2021.

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

On February 6, 2019, our indirect wholly-owned subsidiary, Avadel Specialty Pharmaceuticals, LLC (“Specialty Pharma”), filed a voluntary petition for reorganization under Chapter 11 of the 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.

Reclassifications

Certain reclassifications are made to prior year amounts whenever necessary to conform with the current year presentation. InCertain adjustments have been made to the balances within Note ~~9: Goodwill~~11: Other Assets and ~~Intangible Assets~~Liabilities~~, we presented~~ for the year ended December 31, ~~2019 amortizable intangible assets - Acquired developed technology - Vazculep amount as total accumulated depreciation in this Form 10-Q as compared~~2020 to ~~showing year-to-date amortization in~~condense line items of the ~~Company’s 2019 Annual Report on Form 10-K filed with the SEC on March 16, 2020.~~same nature into a single line.

Revenue. Prior to June 30, 2020, ~~we generated~~ revenue ~~primarily~~was earned from the ~~sale~~sales of pharmaceutical ~~products to customers, which we refer to as the Hospital Products. On June 30, 2020, we sold the Hospital Products. See~~ ~~Note 4: Disposition of the Hospital Products.~~products.

Product Sales

Prior to June 30, 2020, we sold products primarily through wholesalers and considered these wholesalers to be our customers. ~~Revenue~~Under ASC 606, revenue from product sales ~~was~~is recognized when the customer ~~obtained~~obtains control of our product, ~~and our performance obligations were met,~~ which ~~occurred~~occurs typically upon receipt ~~of delivery to~~by the customer. ~~As is customary in the pharmaceutical industry, our~~Our gross product sales were subject to a variety of price adjustments in arriving at reported net product sales. These adjustments included estimates ~~for~~of product returns, chargebacks, payment discounts, rebates, and other sales allowances and ~~are~~were 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.~~products and other judgments and analysis.

For a complete discussion of the accounting for net product revenue, see Note 54: Revenue Recognition.

~~Accounts Receivable.~~ ~~Prior to the sale of the Hospital Products on June 30, 2020, a~~ccounts 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.

- 1110 -

NOTE 2: Newly Issued Accounting Standards

~~Recent~~Recently Adopted Accounting Guidance ~~Not Yet Adopted~~

In December 2019, the Financial 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 2019-12 ~~will be~~is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years and early adoption is permitted. We ~~are currently evaluating~~adopted the provisions of ASU 2019-12 on January 1, 2021. Adoption of ASU 2019-12 did not have any impact ~~of adopting ASU 2019-12.~~on our unaudited condensed consolidated financial statements.

~~NOTE~~In August 2020, the FASB issued ASU 2020-06, 3Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40)~~: Subsidiary Bankruptcy~~, to reduce the complexity associated with applying U.S. GAAP principles for certain financial instruments with characteristics of liabilities and ~~Deconsolidation~~equity. The amendments in this ASU reduce the number of accounting models for convertible instruments and expand the existing disclosure requirements over earnings per share as it relates to convertible instruments. Convertible debt will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. This ASU is effective for our fiscal year beginning January 1, 2022 and interim periods therein. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The amendments may be adopted through either a modified retrospective method, or a fully retrospective method.

~~Bankruptcy Filing~~The Company elected to early adopt ASU 2020-06 as of January 1, 2021 using a modified retrospective method. The Company’s 4.50% exchangeable senior notes due 2023 (the “2023 Notes”) are a convertible instrument with a cash-conversion feature that is accounted for within the scope of Subtopic 470-20. The Company calculated the cumulative-effect adjustment as of January 1, 2021 by comparing (i) the historical amortization schedule for the 2023 Notes through December 31, 2020 and ~~Deconsolidation~~

As(ii) an updated amortization schedule wherein the conversion feature within the 2023 Notes would not be separated as an equity component and subsequently recognized as non-cash interest expense under ASC 835-30. The adoption resulted in a ~~result of Specialty Pharma’s bankruptcy filing on February 6, 2019, Avadel has ceded authority for managing the business~~$26,699 decrease in additional paid-in capital, a $12,939 increase in long-term debt, and a $13,760 increase to the ~~Bankruptcy Court, and Avadel management cannot carry on Specialty Pharma’s activities in the ordinary course~~opening balance 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 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. On November 19, 2019, Specialty Pharma and the IRS 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 plan of liquidation. The plan of liquidation became effective on October 20, 2020.

~~Debtor 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, 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 was recorded as part of the loss on deconsolidation of subsidiary within the unaudited condensed consolidated statements of (loss) income for the nine months ended September 30, 2019.retained earnings.

NOTE 4:3: Disposition of the Hospital Products

On ~~the Closing Date,~~June 30, 2020 (the “Closing Date”), we announced the sale of our portfolio of sterile injectable drugs used in the hospital setting (“Hospital ~~Products,~~Products”), which included our three commercial products, Akovaz, Bloxiverz and Vazculep, as well as Nouress, to ~~the~~ Exela ~~Buyer~~Sterile Medicines LLC (“Exela Buyer”) pursuant to ~~the~~an Asset Purchase ~~Agreement.~~Agreement (the “Transaction”).

Pursuant to the Asset Purchase Agreement, the Exela Buyer agreed to pay a total aggregate consideration amount of $42,000, of which $14,500 was paid ~~$14,500~~ on the Closing Date and ~~will pay~~ an additional $27,500 was paid in ten equal monthly installments ~~beginning 90 days~~ following the Closing ~~Date for total aggregate consideration of $42,000.~~Date. During the ~~three months~~year ended ~~September 30,~~December 31, 2020, we collected four installment payments, totaling $11,000. We collected the ~~first~~remaining six installment ~~payment of $2,750.~~payments, totaling $16,500, during 2021. 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.~~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,

- 11 -

perform, satisfy and discharge the liabilities and obligations of Avadel Legacy under the Broadfin Royalty Agreement for obligations that arise after the Closing Date.

~~- 13 -~~

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~~following table represents the ~~aggregate consideration~~major classes 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.~~in exchange for aggregate consideration of $42,000, less transaction fees of $2,928.


	~~September~~June 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 payable	14,900
Net liabilities disposed of	6,688
Aggregate consideration	42,000
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~~statement of income (loss) for the nine months ended September 30, 2020 included below ~~are~~is 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 Reported Pro Forma Adjustments Notes Pro Forma
ASSETS
Cash and cash equivalents $ 9,774 $ 12,935 (a) $ 22,709
Inventories 3,570 (3,570) (b) 0
Prepaid expenses and other current assets 4,264 27,500 (c) 31,764
Goodwill 18,491 (1,654) (d) 16,837
Intangible assets, net 813 (813) (e) 0
Other non-current assets 39,274 (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 expenses 19,810 2,800 (h) 22,610
Long-term contingent consideration payable, less current portion 11,773 (11,773) (g) 0
Total liabilities 180,635 (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


	Unaudited Pro Forma Condensed Combined Statement of Income (Loss)
	Nine Months Ended September 30, 2020
	As Reported		Pro Forma Adjustments		Notes	Pro Forma


Product sales	$	22,334	$	(22,175)	(a)	$	159










Total operating expense	2,259		(8,489)		(b)	(6,230)
Operating income (loss)	20,075		(13,686)			6,389





Income (loss) before income taxes	$	9,048	$	(13,251)	(c)	$	(4,203)

~~- 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 Hospital 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 terms of the Purchase Agreement.

Unaudited Pro Forma Condensed Combined Statement of Income (Loss)
Nine Months Ended September 30, 2020
As Reported Pro Forma Adjustments Notes Pro Forma
Product sales $ 22,334 $ (22,175) (j) $ 159
Total operating expense 2,259 (8,489) (k) (6,230)
Operating income 20,075 (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 Reported Pro Forma Adjustments Notes Pro Forma
Product sales $ 48,220 $ (48,007) (j) $ 213
Total operating expense 64,985 (14,398) (m) 50,587
Operating loss (16,765) (33,609) (50,374)
Loss before income taxes $ (26,846) $ (33,113) (n) $ (59,959)

~~- 15 -~~

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

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

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

•Cost of products of $3,540.

•Research and ~~Development~~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)~~(c) This amount reflects the adjustments noted in ~~(j)~~(a) and ~~(k)~~(b) above, as well as estimated Changes in fair value of related party payable of $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:~~

- 12 -

•~~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 5:4: Revenue Recognition

Prior to June 30, 2020, we generated revenue primarily from the sale of pharmaceutical products to customers. On June 30, 2020, we sold the Hospital Products. See Note 4:3: Disposition of the Hospital Products.

Product Sales

Prior to June 30, 2020, we sold products primarily through wholesalers and considered these wholesalers to be our customers. Revenue from product sales was recognized when the customer obtained control of our product and our performance obligations were met, which occurred typically upon receipt of delivery to the customer. As is customary in the pharmaceutical industry, our gross product sales were subject to a variety of price adjustments in arriving at reported net product sales. These adjustments included 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 were recorded at the net selling price, which included 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 were based on the amounts earned or to be claimed on the related sales and were 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~~maintained a returns policy that generally ~~offers~~offered customers a right of return for product that has been purchased from the Company. The Company ~~estimates~~estimated the amount of product returns and records this estimate as a reduction of revenue in the period the related product revenue iswas recognized. The Company ~~currently estimates~~estimated 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.

Disaggregation of revenue

The Company’s source of revenue was 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 ~~19:~~15: 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.

- 13 -

There were ~~0 material~~no deferred contract costs at September 30, 2021 or December 31, 2020.

Transaction Price Allocated to the Remaining Performance Obligation

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

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 6:5: 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, 2020						As of December 31, 2019							As of September 30, 2021						As of December 31, 2020
Fair Value Measurements:	Fair Value Measurements:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Fair Value Measurements:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Marketable securities (see Note 7)
Equity securities		$	0	$	—	$	—	$	4,404	$	—	$	—
Money market and mutual funds		104,186		—		—		38,799		—		—
Marketable securities (see Note 6)														Marketable securities (see Note 6)

Mutual and money market funds														Mutual and money market funds	$	88,568	$	—	$	—	$	104,672	$	—	$	—
Corporate bonds	Corporate bonds	—		20,415		—		—		4,098		—		Corporate bonds	—		19,071		—		—		22,155		—
Government securities - U.S.	Government securities - U.S.	—		20,216		—		—		5,446		—		Government securities - U.S.	—		13,462		—		—		18,999		—

Other fixed-income securities	Other fixed-income securities	50		3,600		—		—		1,637		—		Other fixed-income securities	—		1,823		—		—		3,854		—

Total assets	Total assets	$	104,236	$	44,231	$	—	$	43,203	$	11,181	$	—	Total assets	$	88,568	$	34,356	$	—	$	104,672	$	45,008	$	—

Contingent consideration payable (see Note 10)		$	—	$	—	$	0	$	—	$	—	$	17,327
Total liabilities		$	—	$	—	$	0	$	—	$	—	$	17,327

- 14 -

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, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, there were no transfers in and out of Level 1, 2, or 3. During the three and nine ~~month periods~~months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, we did not recognize any ~~other-than-temporary impairment loss.~~allowances for credit losses.

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~~the 2023 ~~(the “2023 Notes”), a Level 2 input,~~Notes based on interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities or recent trading prices obtained from ~~brokers.~~brokers (a Level 2 input). The estimated fair value of the 2023 Notes at September 30, ~~2020~~2021 is ~~$116,636 compared to a book value of $126,520.~~$166,570.

See Note ~~11:~~9: Long-Term Debt for additional information regarding our debt obligations.

NOTE 7:6: 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) income and the change in the fair value of available-for-sale debt investments is recorded as other comprehensive loss in shareholders’ equity, ~~(deficit),~~ net of income tax effects. As of September 30, ~~2020,~~2021, we considered any decreases in fair value on our marketable securities to be driven by factors other than credit risk, including market risk.

~~- 18 -~~

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, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively:

September 30, 2020
Marketable Securities: Adjusted Cost Unrealized Gains Unrealized Losses Fair Value
Money market and mutual funds $ 103,204 $ 1,041 $ (59) $ 104,186
Corporate bonds 20,212 227 (24) 20,415
Government securities - U.S. 20,015 202 (1) 20,216
Other fixed-income securities 3,625 29 (4) 3,650
Total $ 147,056 $ 1,499 $ (88) $ 148,467


		December 31, 2019									September 30, 2021
Marketable Securities:	Marketable Securities:	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Marketable Securities:	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value

Equity securities		$	4,234	$	170	$	0	$	4,404
Money market and mutual funds		38,028		771		0		38,799

Mutual and money market funds										Mutual and money market funds	$	87,965	$	1,083	$	(480)	$	88,568
Corporate bonds	Corporate bonds	4,021		77		0		4,098		Corporate bonds	18,935		168		(32)		19,071
Government securities - U.S.	Government securities - U.S.	5,341		110		(5)		5,446		Government securities - U.S.	13,503		64		(105)		13,462

Other fixed-income securities	Other fixed-income securities	1,614		23		0		1,637		Other fixed-income securities	1,818		7		(2)		1,823
Total	Total	$	53,238	$	1,151	$	(5)	$	54,384	Total	$	122,221	$	1,322	$	(619)	$	122,924


	December 31, 2020
Marketable Securities:	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value


Mutual and money market funds	$	103,404	$	1,288	$	(20)	$	104,672
Corporate bonds	21,811		350		(6)		22,155
Government securities - U.S.	18,849		155		(5)		18,999
Other fixed-income securities	3,839		22		(7)		3,854
Total	$	147,903	$	1,815	$	(38)	$	149,680

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 (expense), net in the accompanying unaudited condensed consolidated statements of (loss) income.

We recognized gross realized gains of ~~$136~~$22 and ~~$71~~$136 for the three months ended September 30, ~~2020,~~2021 and ~~2019,~~2020, respectively. These realized gains were offset by realized losses of $8$66 and ~~$64~~$8 for the three months ended September 30, ~~2020,~~2021 and ~~2019,~~2020, respectively. We recognized gross realized gains of ~~$426~~$74 and ~~$339~~$426 for the nine months ended September 30, ~~2020,~~2021 and ~~2019,~~2020, respectively. These realized gains were offset by realized losses of ~~$886~~$173 and ~~$211~~$886 for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~We reflect these gains and losses as a component of investment income in the accompanying unaudited condensed consolidated statements of (loss) income.~~

- 15 -

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, ~~2020:~~2021:


		Maturities											Maturities
Marketable Debt Securities:	Marketable Debt Securities:	Less than 1 Year		1-5 Years		5-10 Years		Greater than 10 Years		Total		Marketable Debt Securities:	Less than 1 Year		1-5 Years		5-10 Years		Greater than 10 Years		Total

Corporate bonds	Corporate bonds	$	4,355	$	14,274	$	1,786	$	0	$	20,415	Corporate bonds	$	4,733	$	14,012	$	326	$	—	$	19,071
Government securities - U.S.	Government securities - U.S.	0		17,749		739		1,728		20,216		Government securities - U.S.	369		10,915		884		1,294		13,462

Other fixed-income securities	Other fixed-income securities	50		3,600		0		0		3,650		Other fixed-income securities	—		1,170		653		—		1,823
Total	Total	$	4,405	$	35,623	$	2,525	$	1,728	$	44,281	Total	$	5,102	$	26,097	$	1,863	$	1,294	$	34,356

~~The Company has~~

We have 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.

~~- 19 -~~

~~The following table shows the~~Total gross unrealized losses ~~and fair value~~ of our available-for-sale debt securities at September 30, ~~2020.~~2021 were immaterial. The unrealized losses ~~in the table below~~ are driven by factors other than credit risk and have been in aan 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 Value Unrealized Losses
Corporate bonds $ 8,371 $ 24
Government securities - U.S. 267 1
Other fixed-income securities 2,151 4
Total $ 10,789 $ 29

~~NOTE 8:Inventories~~

~~The principal categories of inventories, net of reserves of $0 and $914 at September 30, 2020 and December 31, 2019, respectively, are comprised of the following:~~

Inventory: September 30, 2020 December 31, 2019
Finished goods $ 0 $ 3,020
Raw materials 0 550
Total
$ 0 $ 3,570

~~The decrease in inventory at September 30, 2020 is a result of the June 30, 2020 disposition of the Hospital Products. See~~ ~~Note 4: Disposition of the Hospital Products~~.

NOTE 9:7: Goodwill and Intangible Assets

The Company’s ~~amortizable and unamortizable intangible assets~~goodwill is $16,836 at September 30, ~~2020~~2021 and December 31, ~~2019 are as follows:~~

September 30, 2020 December 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

2020.

~~(1)~~

~~This~~The Company recorded amortization expense related to an amortizable intangible asset that was assumed by the Exela Buyer as part of the disposition of the Hospital Products on June 30, 2020 of $406 for the nine months ended September 30, 2020. ~~See~~Refer to Note ~~4: Disposition of the Hospital Products.~~

~~(2)~~ ~~In connection with the disposition of the Hospital Products (see~~ ~~Note 4:~~3: 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. There was no amortization expense recorded during the three and nine months ended September 30, 2021 and the three months ended September 30, 2020.

The Company recorded amortization expense related to amortizable intangible assets of $0 and $205 for the three months ended September 30, 2020 and 2019, respectively, and $406 and $610 for the nine months ended September 30, 2020 and 2019, respectively.

~~- 20 -~~

NOTE ~~10:~~8: Contingent Consideration Payable

~~Contingent consideration payable and related activity are reported at fair value and consist of the following at September 30, 2020 and December 31, 2019:~~

Activity during the nine months ended
September 30, 2020
Changes in Fair Value of Contingent Consideration Payable
Contingent Consideration Payable: Balance,
December 31, 2019 Payments Operating Expense Other
Expense Disposition of the Hospital Products Balance, 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 payable 17,327 $ (6,189) $ 3,327 $ 435 $ (14,900) 0
Less: current portion (5,554) 0
Long-term contingent consideration payable $ 11,773 $ 0

~~Long-term related party payable and related activity are reported at fair value and consist of the following at September 30, 2020 and June 30, 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 Payments Operating Expense Other
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 payable 1,914 $ (1,845) $ (69) $ 0 0
Less: current portion 0 0
Long-term contingent consideration payable $ 1,914 $ 0

(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,Prior to the ~~extent gross profit of the related products also continue in perpetuity. In connection with the disposition~~sale of the Hospital Products on June 30, 2020, we computed the fair value of the contingent consideration using several significant assumptions and when those assumptions changed, due to underlying market conditions, the fair value of these liabilities changed as ~~discussed~~well. Each of the underlying assumptions used to determine the fair values of these contingent liabilities could, and often did, change based on adjustments in ~~Note 4: Disposition~~current market conditions, competition and other factors. Prior to the sale of the Hospital Products,~~, the Deerfield MIPA (with respect to certain sections thereof)~~ these changes had a material impact on our unaudited condensed consolidated statements of (loss) income and ~~the Royalty Agreement were assigned to the Exela Buyer. Pursuant to the Purchase Agreement, the Exela Buyer assumed and will pay,~~

~~- 21 -~~

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

~~(b)~~balance sheets. 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 dispositionsale 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, 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~~September 30, 2021 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~~balance of ~~each~~the contingent 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 14%. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. Subsequent changes in the fair value of the acquisition-related contingent consideration payables, resulting primarily from management’s revision of key assumptions, will be recorded in the unaudited condensed consolidated statements of (loss) income in the line items entitled “Changes in fair value of contingent consideration” for items noted in (b) above and in “Other expense - changes in fair value of contingent 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 2019 Annual Report on Form 10-K for more information on key assumptions used to determine the fair value of these liabilities. is $0.

Prior to June 30, 2020, the Company chose 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 contingent consideration payable” on the unaudited condensed consolidated statements of (loss) income.

The following table summarizes changes to the contingent consideration ~~payables,~~payable, a recurring Level 3 measurement, for the nine-month ~~periods~~period ended September 30, ~~2020 and 2019, respectively:~~2020:


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—

(1) Fair value adjustments are reported as changes in fair value of contingent consideration and other expense - changes in fair value of contingent consideration payable in the unaudited condensed consolidated statements of (loss) income.

- 2216 -

NOTE ~~11:~~9: Long-Term Debt

Long-term debt is summarized as follows:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Principal amount of 4.50% exchangeable senior notes due 2023	Principal amount of 4.50% exchangeable senior notes due 2023	$	143,750	$	143,750	Principal amount of 4.50% exchangeable senior notes due 2023	$	143,750	$	143,750
Less: unamortized debt discount and issuance costs, net	Less: unamortized debt discount and issuance costs, net	(17,230)		(22,064)		Less: unamortized debt discount and issuance costs, net	(1,664)		(15,540)
Net carrying amount of liability component	Net carrying amount of liability component	126,520		121,686		Net carrying amount of liability component	142,086		128,210

Less: current maturities	Less: current maturities	0		0		Less: current maturities	—		—
Long-term debt	Long-term debt	$	126,520	$	121,686	Long-term debt	$	142,086	$	128,210

Equity component:	Equity component:					Equity component:
Equity component of exchangeable notes, net of issuance costs	Equity component of exchangeable notes, net of issuance costs	$	(26,699)	$	(26,699)	Equity component of exchangeable notes, net of issuance costs	$	—	$	(26,699)

For the three months ended September 30, 2021 and 2020, the total interest expense was $1,929 and $3,259, respectively, with coupon interest expense of $1,617 for each period and the amortization of debt issuance costs and debt discount of $312 and $1,642, respectively.

For the nine months ended September 30, 2021 and 2020, the total interest expense was $5,788 and $9,686, respectively, with coupon interest expense of $4,851 for each period and the amortization of debt issuance costs and debt discount of $937 and $4,835, respectively.

As described in Note 2: Newly Issued Accounting Standards, the Company elected to early adopt ASU 2020-06 as of January 1, 2021 using a modified retrospective method. The adoption resulted in a $12,939 increase in long-term debt and a $26,699 decrease in the equity component of the 2023 Notes.

2023 Notes

On February 16, 2018, Avadel Finance Cayman Limited, a Cayman Islands exempted company and an indirect wholly-owned subsidiary of the Company (the “Issuer”), issued $125,000 aggregate principal amount of 4.50% exchangeable senior notes due 2023 (the “2023 Notes”) in a private placement (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In connection with the Offering, the Issuer granted the initial purchasers of the 2023 Notes a 30-day option to purchase up to an additional $18,750 aggregate principal amount of the 2023 Notes, which was fully exercised on February 16, 2018. Net proceeds received by the Company, after issuance costs and discounts of $6,190, were approximately $137,560. The 2023 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness and effectively junior to any of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness.

The 2023 Notes will be exchangeable at the option of the holders at an initial exchange rate of 92.6956 ADSs per $1 principal amount of 2023 Notes, which is equivalent to an initial exchange price of approximately $10.79 per ADS. Such initial exchange price represents a premium of approximately 20% to the $8.99 per ADS closing price on The Nasdaq Global Market on February 13, 2018. Upon the exchange of any 2023 Notes, the Issuer will pay or cause to be delivered, as the case may be, cash, ADSs or a combination of cash and ADSs, at the Issuer’s election. Holders of the 2023 Notes may convert their 2023 Notes, at their option, only under the following circumstances prior to the close of business on the business day immediately preceding August 1, 2022, under the circumstances and during the periods set forth below and regardless of the conditions described below, on or after August 1, 2022 and prior to the close of business on the business day immediately preceding the maturity date:

•Prior to the close of business on the business day immediately preceding August 1, 2022, a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time during the five business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1 principal amount of 2023 Notes, as determined following a request by a holder of the 2023 Notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the ADSs and the exchange rate on each such trading day.

•If a transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs prior to the close of business on the business day immediately preceding August 1, 2022, regardless of whether a holder of the 2023 Notes has the right to require the Company to repurchase the 2023 Notes, or if Avadel is a party to a merger event that occurs prior to the close of business on the business day immediately preceding August 1, 2022, all or any

- 17 -

portion of a the holder’s 2023 Notes may be surrendered for exchange at any time from or after the date that is 95 scheduled trading days prior to the anticipated effective date of the transaction (or, if later, the earlier of (x) the business day after the Company gives notice of such transaction and (y) the actual effective date of such transaction) until 35 trading days after the actual effective date of such transaction or, if such transaction also constitutes a fundamental change, until the related fundamental change repurchase date.

•Prior to the close of business on the business day immediately preceding August 1, 2022, a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time during any calendar quarter commencing after the calendar quarter ending on June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the ADSs for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day.

•If the Company calls the 2023 Notes for redemption pursuant to Article 16 to the Indenture prior to the close of business on the business day immediately preceding August 1, 2022, then a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time prior to the close of business on the second business day prior to the redemption date, even if the 2023 Notes are not otherwise exchangeable at such time. After that time, the right to exchange shall expire, unless the Company defaults in the payment of the redemption price, in which case a holder of the 2023 Notes may exchange its 2023 Notes until the redemption price has been paid or duly provided for.

We considered the guidance in ASC 815-15, Embedded Derivatives, to determine if this instrument contains an embedded feature that should be separately accounted for as a derivative. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. We determined that this exception applies due, in part, to our ability to settle the 2023 Notes in cash, ADSs or a combination of cash and ADSs, at our option. We have therefore applied the guidance provided by ASC 470-20, Debt with Conversion and Other Options, as amended by ASU 2020-06.

NOTE ~~12:~~10: Income ~~Taxe~~sTaxes

The Coronavirus 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 the CARES Act, NOL carryforwards and carrybacks may offset 100% of taxable income for taxable years beginning before 2021. In addition, NOLs arising in 2018, 2019 and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. During the nine months ended September 30, 2020, the income tax benefit ~~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 U.S. Federal tax rate~~ 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$5,101 for the three months ended September 30, ~~2020 the Company filed refund claims for $18,753 associated with the carryback~~2021 resulting in an effective tax rate of ~~2019 tax losses.~~

18.8%. The income tax benefit 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 resulting in an effective tax rate of (33.6)%. The net increase~~decrease in the effective ~~income~~ tax rate for the three months ended September 30, ~~2020, as~~2021, when compared to the same period in ~~2019, was~~2020, is primarily ~~due~~attributable to ~~decreased income~~a change in the ~~U.S. due to the sale~~mix of ~~the Hospital Products.~~losses in our foreign entities.

The income tax benefit was $11,473 for the nine months ended September 30, 2021 resulting in an effective tax rate of 17.3%. The income tax benefit was $9,258 for the nine months ended September 30, 2020 resulting in an effective tax rate of (102.3)%. The ~~income tax provision was $3,641 for the nine months ended September 30, 2019 resulting in an effective tax rate of (13.7)%. The~~ net ~~decrease~~increase in the effective income tax rate for the nine months ended September 30, ~~2020,~~2021 as compared to the ~~same~~prior period in ~~2019,~~2020 is primarily due to the discrete tax benefits recognized during the nine months ended September 30, 2020 under the Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, ~~as described above, favorable income tax benefits from the U.S. Orphan Drug and Research & Development Tax Credit,~~ which did not occur during the nine months ended September 30, ~~2019, partially offset by increased income in the U.S. due to the sale of the Hospital Products during the 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.2021.

~~- 23 -~~

NOTE ~~13:~~11: Other Assets and Liabilities

Various other assets and liabilities are summarized as follows:

Prepaid Expenses and Other Current Assets: September 30, 2020 December 31, 2019
Valued-added tax recoverable $ 353 $ 1,051
Prepaid and other expenses 1,426 2,116
Short-term deposit 1,477 0
Guarantee from Armistice 364 454
Income tax receivable 18,593 536
Short term note receivable from Exela (see Note 4)
24,750 0
Other 91 107
Total
$ 47,054 $ 4,264

Other Non-Current Assets: September 30, 2020 December 31, 2019
Deferred tax assets, net $ 15,479 $ 29,427
Long-term deposits 0 1,477
Guarantee from Armistice 1,117 1,367
Right of use assets at contract manufacturing organizations 5,201 6,428
Other 467 575
Total
$ 22,264 $ 39,274

Accrued Expenses September 30, 2020 December 31, 2019
Accrued compensation $ 1,897 $ 3,944
Accrued social charges 394 592
Accrued restructuring (see Note 15)
728 2,949
Customer allowances 6,588 6,470
Accrued transaction fees related to the disposition of the Hospital Products 2,500 —
Accrued contract research organization charges 361 2,098
Accrued contract manufacturing organization costs 1,009 735
Other 2,921 3,022
Total
$ 16,398 $ 19,810

Other Current Liabilities: September 30, 2020 December 31, 2019
Accrued interest $ 1,078 $ 2,695
Due to Exela 1,817 0
Guarantee to Deerfield 365 455
Other 171 725
Total
$ 3,431 $ 3,875

Other Non-Current Liabilities: September 30, 2020 December 31, 2019
Customer allowances $ 659 $ 981
Unrecognized tax benefits 3,143 6,465
Guarantee to Deerfield 1,121 1,372
Other 15 55
Total
$ 4,938 $ 8,873


Prepaid Expenses and Other Current Assets:	September 30, 2021		December 31, 2020

Income tax receivable	$	18,789	$	18,615
Prepaid and other expenses	2,787		1,018
Other	382		798
Guarantee from Armistice	276		318
Short-term deposit	—		1,477
Receivable from Exela (see Note 3)	—		16,500
Total	$	22,234	$	38,726

- 2418 -

~~NOTE 14: Equity Transactions~~


Other Non-Current Assets:	September 30, 2021		December 31, 2020

Deferred tax assets	$	29,798	$	18,256
Right of use assets at contract manufacturing organizations	7,071		5,201
Guarantee from Armistice	841		1,050
Other	388		432
Total	$	38,098	$	24,939


Accrued Expenses	September 30, 2021		December 31, 2020

Accrued professional fees	$	4,661	$	2,781
Accrued compensation	2,403		1,697
Accrued outsource contract costs	909		473
Customer allowances	722		1,030
Accrued restructuring (see Note 12)	43		520
Total	$	8,738	$	6,501


Other Current Liabilities:	September 30, 2021		December 31, 2020

Accrued interest	$	1,078	$	2,695
Guarantee to Deerfield	277		319
Other	116		160
Due to Exela	—		2,026
Total	$	1,471	$	5,200

~~Shelf Registration Statement on Form S-3~~


Other Non-Current Liabilities:	September 30, 2021		December 31, 2020

Tax liabilities and other	$	3,155	$	3,159
Guarantee to Deerfield	844		1,053
Total	$	3,999	$	4,212

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 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

~~(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 Agreement~~SM, 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 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 ADSs and 488 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.

~~Issuance costs of $4,430 have been recorded as a reduction of additional paid-in capital.~~

~~May 2020 Public Offering~~

In connection with the shelf registration statement described above, on April 28, 2020, we announced the 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 retired all of our 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 three and nine months ended September 30, 2020. The portion allocated to additional paid-in capital is determined pro rata by applying a percentage, determined by dividing the number of shares to be retired by the number of shares issued and outstanding as of the retirement date, to the balance of 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.

~~- 25 -~~

NOTE ~~15:~~12: 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 was part of an effort to align the Company’s cost structure with our ongoing and future planned projects. The reduction in workforce was completed during ~~the three months ended June 30,~~ 2020. Restructuring (income) charges associated with this plan recognized during the three and nine months ended September 30, 2021 and 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 restructuring 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 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 nine months ended~~as of September 30, ~~2020 and 2019:~~2021:

2019 French Restructuring Obligation: 2020 2019
Balance of restructuring accrual at January 1, $ 1,922 $ 0
Charges for employee severance, benefits and other costs 173 2,774
Payments (1,813) (1,837)
Foreign currency impact (45) (42)
Balance of restructuring accrual at September 30, $ 237 $ 895


2019 French Restructuring Obligation:	2021

Balance of restructuring accrual at January 1,	$	248
Income for employee severance, benefits and other costs	(122)
Payments	(76)
Foreign currency impact	(7)
Balance of restructuring accrual at September 30,	$	43

The 2019 French Restructuring liabilities of ~~$237~~$43 are included in the unaudited condensed consolidated balance sheet in accrued expenses at September 30, ~~2020.~~2021.

- 19 -

2019 Corporate Restructuring

During the first quarter of 2019, the Company announced a plan to reduce its ~~Corporate~~corporate workforce by more than 50% (“2019 Corporate Restructuring”). The reduction in workforce iswas 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 was completed during ~~the three months ended September 30,~~ 2020. The restructuring charges associated with this plan recognized during the three and nine months ended September 30, 2021 and 2020 were ~~immaterial, compared to~~immaterial.

During 2021, the ~~restructuring charges of $607~~Company paid $272 for its cost reduction plan obligations and ~~$1,570 recognized during the three and nine months ended September 30, 2019, respectively. Included in~~has no remaining obligation for 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: 2020 2019
Balance of restructuring accrual at January 1, $ 1,080 $ 0
Charges for employee severance, benefits and other costs 206 2,966
Payments (794) (2,113)
Balance of restructuring accrual at September 30, $ 492 $ 853

~~The 2019 Corporate Restructuring liabilities of $492 are included in the unaudited condensed consolidated balance sheet in accrued expenses at September 30, 2020.~~

~~- 26 -~~

~~NOTE 16: Share-Based Compensation~~

~~2020 Performance Share Units (“PSUs”)~~

At the Annual Meeting of 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 for the PSUs outstanding as of September 30, ~~2020.~~

~~On October 20, 2020, we granted 105 of PSUs to current employees, with the weighted-average grant date fair value of the PSUs of $5.36 per share.~~2021.

NOTE ~~17:~~13: Net (Loss) Income Per Share

Basic net (loss) income per share is calculated by dividing net (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) income, diluted net (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”).

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, restricted stock units, preferred shares and ordinary shares expected to be issued under orour ESPP has been calculated using the treasury stock method. The dilutive effect of the ~~PSUs~~performance share units (“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) income per share, together with the related shares outstanding in thousands is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Net (Loss) Income Per Share:	Net (Loss) Income Per Share:	2020		2019		2020		2019		Net (Loss) Income Per Share:	2021		2020		2021		2020

Net (loss) income	Net (loss) income	$	(11,703)	$	(8,864)	$	18,306	$	(30,487)	Net (loss) income	$	(22,002)	$	(11,703)	$	(55,028)	$	18,306

Weighted average shares:	Weighted average shares:									Weighted average shares:
Basic shares	Basic shares	58,213		37,436		51,206		37,382		Basic shares	58,585		58,213		58,506		51,206
Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes	Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes	0		0		1,643		0		Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes	—		—		—		1,643

Diluted shares	Diluted shares	58,213		37,436		52,849		37,382		Diluted shares	58,585		58,213		58,506		52,849

Net (loss) income per share - basic	Net (loss) income per share - basic	$	(0.20)	$	(0.24)	$	0.36	$	(0.82)	Net (loss) income per share - basic	$	(0.38)	$	(0.20)	$	(0.94)	$	0.36
Net (loss) income per share - diluted	Net (loss) income per share - diluted	$	(0.20)	$	(0.24)	$	0.35	$	(0.82)	Net (loss) income per share - diluted	$	(0.38)	$	(0.20)	$	(0.94)	$	0.35

Potential ~~common~~ordinary shares of ~~15,969~~15,684 and ~~19,544~~15,969 were excluded from the calculation of weighted average shares for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and potential ~~common~~ordinary shares of ~~15,789~~15,497 and ~~20,512~~15,789 were excluded from the calculation of weighted average shares for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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 for the three~~ and nine months ended September 30, ~~2019,~~2021 and for the three months ended September 30, 2020, 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.~~ these periods.

- 2720 -

NOTE ~~18:~~14: Comprehensive Loss

The following table shows the components of accumulated other comprehensive loss for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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:	Accumulated Other Comprehensive Loss:	2020		2019		2020		2019		Accumulated Other Comprehensive Loss:	2021		2020		2021		2020

Foreign currency translation adjustment:	Foreign currency translation adjustment:									Foreign currency translation adjustment:
Beginning balance	Beginning balance	$	(23,733)	$	(23,720)	$	(23,738)	$	(23,621)	Beginning balance	$	(23,229)	$	(23,733)	$	(22,627)	$	(23,738)
Net other comprehensive income (loss)		534		(210)		539		(309)
Net other comprehensive (loss) income										Net other comprehensive (loss) income	(237)		534		(839)		539
Balance at September 30,	Balance at September 30,	$	(23,199)	$	(23,930)	$	(23,199)	$	(23,930)	Balance at September 30,	$	(23,466)	$	(23,199)	$	(23,466)	$	(23,199)

Unrealized gain on marketable debt securities, net	Unrealized gain on marketable debt securities, net									Unrealized gain on marketable debt securities, net
Beginning balance	Beginning balance	$	1,215	$	872	$	932	$	205	Beginning balance	$	879	$	1,215	$	1,576	$	932
Net other comprehensive income, net of $(1), $(5), $(131) and $(46) tax, respectively		66		86		349		753
Net other comprehensive (loss) income, net of income tax (benefit) provision of $(59), $1 $(220) and $131, respectively										Net other comprehensive (loss) income, net of income tax (benefit) provision of $(59), $1 $(220) and $131, respectively	(157)		66		(854)		349
Balance at September 30,	Balance at September 30,	$	1,281	$	958	$	1,281	$	958	Balance at September 30,	$	722	$	1,281	$	722	$	1,281
Accumulated other comprehensive loss at September 30,	Accumulated other comprehensive loss at September 30,	$	(21,918)	$	(22,972)	$	(21,918)	$	(22,972)	Accumulated other comprehensive loss at September 30,	$	(22,744)	$	(21,918)	$	(22,744)	$	(21,918)

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 ~~19:~~15: Revenue by Product

The Company has determined that it operates in 1 segment, the development and commercialization of pharmaceutical products, including controlled-release therapeutic products based on ~~its~~our proprietary polymer based technology. The Company’s Chief Operating Decision Maker is the 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~~were included in ~~one~~1 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 product sales by these products:~~

Three Months Ended September 30, Nine Months Ended September 30,
Product Sales by Product: 2020 2019 2020 2019
Bloxiverz $ 0 $ 1,466 $ 2,201 $ 6,392
Vazculep 0 8,786 10,429 27,669
Akovaz 0 4,208 9,545 13,946
Other 0 (231) 159 213
Total product sales $ 0 $ 14,229 $ 22,334 $ 48,220

On June 30, 2020, we sold the Hospital Products. See Note 4:3: Disposition of the Hospital Products. The following table presents a summary of total product sales by these products for the nine months ended September 30, 2020. The Company had no revenue during the three and nine months ended September 30, 2021 and the three months ended September 30, 2020:


	Nine Months Ended September 30,
Product Sales by Product:	2020

Bloxiverz	$	2,201
Vazculep	10,429
Akovaz	9,545

Other	159
Total product sales	$	22,334

NOTE ~~20:~~16: 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, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no contingent liabilities with respect to any litigation, arbitration or administrative or

- 2821 -

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~~First Complaint

On May 12, 2021, Jazz Pharmaceuticals, Inc. (“Jazz”) filed a formal complaint (the “First Complaint”) initiating a lawsuit in the United States District Court for the District of Delaware (the “Court”) against Avadel Pharmaceuticals plc, Avadel US Holdings, Inc., Avadel Management Corporation, Avadel Legacy Pharmaceuticals, LLC, Avadel Specialty Pharmaceuticals, LLC, and Avadel CNS Pharmaceuticals, LLC (collectively, the “Avadel Parties”). In the First Complaint, Jazz alleges the sodium oxybate product (“Proposed Product”) described in the NDA owned by Avadel CNS Pharmaceuticals, LLC will infringe at least one claim of US Patent No. 8731963, 10758488, 10813885, 10959956 and/or 10966931 (collectively, the “patents-in-suit”). The First Complaint further includes typical relief requests such as preliminary and permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses.

On June 3, 2021, the Avadel Parties timely filed their Answer and Counterclaims (the “Avadel Answer”) with the Court in response to ~~Noctiva~~the First Complaint. The Avadel Answer generally denies the allegations set forth in the First Complaint, includes numerous affirmative defenses (including, but not limited to, non-infringement and invalidity of the patents-in-suit), and asserts a number of counterclaims seeking i) a declaratory judgment of non-infringement of each patent-in-suit, and ii) a declaratory judgment of invalidity of each patent-in-suit.

On June 18, 2021, Jazz filed its Answer (“Jazz Answer”) with the Court in response to the Avadel Answer. The Jazz Answer generally denies the allegations set forth in the Avadel Answer and sets forth a single affirmative defense asserting that Avadel has failed to state a claim for which relief can be granted.

On June 21, 2021, the Court issued an oral order requiring the parties to i) confer regarding proposed dates to be included in the Court’s scheduling order for the case, and ii) submit a proposed order, including a proposal for the length and timing of trial, to the Court by no later than July 21, 2021.

On July 30, 2021, the Court issued a scheduling order establishing timing for litigation events including i) a claim construction hearing date of August 2, 2022, and ii) a trial date of October 30, 2023.

~~Note 3: Subsidiary Bankruptcy and Deconsolidation~~On October 18, 2021, consistent with the scheduling order, Jazz filed a status update with the Court indicating that Jazz did not intend to file a preliminary injunction with the Court at this time. ~~briefly describes~~Jazz further indicated that it would provide the ~~Chapter 11 bankruptcy case which our subsidiary Specialty Pharma commenced~~Court with an update regarding whether preliminary injunction proceedings may be necessary after receiving further information regarding the FDA’s action on ~~February 6, 2019, and which on April 26, 2019 resulted~~Avadel’s NDA.

Second Complaint

On August 4, 2021, Jazz filed another formal complaint (the “Second Complaint”) initiating a lawsuit in the ~~bankruptcy court-approved sale~~Court against the Avadel Parties. In the Second Complaint, Jazz alleges the Proposed Product described in the NDA owned by Avadel CNS Pharmaceuticals, LLC will infringe at least one claim of ~~all of Specialty Pharma’s intangible assets~~US Patent No. 11077079. The Second Complaint further includes typical relief requests such as preliminary and ~~inventory to~~permanent injunctive relief, monetary damages and attorneys’ fees, costs and expenses.

On October 22, 2021, the Court issued an ~~unaffiliated third party. As a result of such sale, Specialty Pharma has completed its divestment of~~oral order stating that this case should proceed on the ~~assets of~~same schedule as 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. There is currently no pending or threatened litigation or disputes to which Specialty Pharma is or would be a party. All prior litigation and disputes involving Specialty Pharma have been dismissed or resolved.filed on May 12, 2021.

Material Commitments

~~We have been relieved of all purchase~~Other than commitments disclosed in Note ~~16:~~17: Contingent Liabilities and Commitments to the ~~Company’s audited~~Company's consolidated financial statements included in ~~Part II, Item 8 of~~ the ~~Company’s 2019~~2020 Annual Report on Form 10-K, ~~due to the sale~~there were no other material commitments outside of the ~~Hospital Products described in~~ ~~Note 4: Disposition~~normal course of ~~the Hospital Products~~.business.

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.

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~~Material commitments in the normal course of business include long-term debt obligations which are disclosed in~~ ~~Note 11: Long-Term Debt~~ ~~to the Company’s unaudited condensed consolidated financial statements. Our long-term contingent consideration payable as disclosed in~~ ~~Note 10: Contingent Consideration Payable~~ ~~has also been relieved due to the sale 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 an 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 guarantee liability was ~~$1,486~~$1,121 at September 30, ~~2020.~~2021. 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~~$1,117 at September 30, ~~2020.~~2021. 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,~~2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

NOTE 17: Subsequent Events

On October 15, 2021, we announced that the FDA informed us that the review of our NDA for FT218 was ongoing beyond its previously assigned target action date.

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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~~Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this ~~quarterly report~~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 ~~16, 2020~~9, 2021 and Part II, Item 1A in this ~~quarterly report~~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.~~Quarterly Report.

Overview

General Overview

Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is ~~an emerging~~a biopharmaceutical company. Our lead product candidate, FT218, is an investigational once-nightly, extended-release 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.~~

Outside of our lead product candidate, we continue to evaluate opportunities to expand our product portfolio.

~~Recent Developments~~

~~Disposition~~ As of ~~the Hospital Products~~

On June 30, 2020 (“Closing Date”), we announced the sale of our 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 is approved 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 ten equal monthly installments which began in September 2020 for total aggregate consideration of $42,000. During the three months ended September 30, ~~2020,~~2021, we ~~received the first installment payment of $2,750. For more information, see~~do not have any approved or commercialized products in our ~~Current Report on Form 8-K filed with the SEC on July 2, 2020.~~

~~Subsidiary Bankruptcy~~

FT218 ~~(Micropump sodium oxybate)~~

FT218 is a once-nightly formulation of sodium oxybate that uses our Micropump controlled release drug-delivery technology for the treatment of EDS and cataplexy in ~~patients~~adults suffering from narcolepsy. Sodium oxybate is the 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 and is approved in Europe for the treatment of cataplexy in patients with narcolepsy.

~~- 30 -~~

Since 2002, sodium oxybate has only been available as a formulation that must be taken twice nightly, first at bedtime, and then again 2.5 to 4 hours later.

~~The~~On December 16, 2020, we announced the submission of our NDA to the FDA for FT218. On February 26, 2021, the FDA notified us of formal acceptance of the NDA and assigned PDUFA target action date of October 15, 2021. On October 15, 2021, we announced that the FDA informed us that the review of our NDA for FT218 was ongoing beyond its previously assigned target action date.

We conducted a Phase 3 clinical trial of FT218, the REST-ON trial, which was a randomized, double-blind, placebo-controlled study that enrolled 212 patients who received at least one dose of FT218 or placebo, and was conducted in clinical sites in the U.S., Canada, Western Europe and Australia. The last patient, last visit was completed at the end of the first quarter of 2020 and positive top line data from the REST-ON trial was announced on April 27, 2020. Patients who received 9g9 g of once-nightly FT218, the highest dose administered in the trial, 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. The lower doses assessed, 6 g and 7.5 g also demonstrated a statistically significant and clinically meaningful improvement on all three co-primary endpoints compared to

- 24 -

placebo. We observed the 9g9 g 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%, and enuresis 9%), and 3.9% of the patients who received 9g9 g 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 years. Additionally, ~~in April 2019, our first FT218 patent was issued, providing intellectual property protection into mid-2037. One or more~~several FT218-related U.S. patents have been 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 first patient was dosed initiating an open-label extension (“OLE”)/switch study of FT218 as a potential treatment for ~~excessive daytime sleepiness~~EDS and cataplexy in patients with narcolepsy. The OLE/switch study ~~will examine~~is examining the long-term safety and maintenance of efficacy of FT218 in patients with narcolepsy who participated in the REST-ON study, as well as dosing and preference data for patients switching from twice-nightly sodium oxybate to once-nightly FT218, regardless ifof whether they participated in REST-ON.

New secondary endpoints from the REST-ON trial were presented at the American Academy of Neurology, beginning April 17, 2021. The first poster described FT218 improvements in disturbed nocturnal sleep (“DNS”), defined in REST-ON as the number of shifts from stages N1, N2, N3, and rapid eye movement (“REM”) sleep to wake and from stages N2, N3, and REM sleep to stage N1. FT218 also decreased the number of nocturnal arousals as measured on polysomnography. Improvements in DNS were further supported by post-hoc analyses demonstrating increased time in deep sleep (N3, also known as slow wave sleep), and less time in N1. A second poster described the statistically significant improvements in the Epworth Sleepiness Scale, both the quality of sleep and the refreshing nature of sleep, and a decrease in sleep paralysis. These clinically relevant improvements were observed for all doses, beginning at Week 3, for the lowest 6 g dose, compared to placebo. FT218 did not demonstrate significant improvement for hypnagogic hallucinations compared to placebo.

Additional data supportive of the efficacy findings in REST-ON were presented at the annual meeting of the 35th Annual Meeting of the Associated Professional Sleep Societies, a joint meeting of the American Academy of Sleep Medicine and the Sleep Research Society, also known as SLEEP 2021, beginning June 10, 2021. New data included post-hoc analyses demonstrating endpoints improvements, regardless of concomitant stimulant use, in both narcolepsy Type 1 or ~~not. We anticipate~~Type 2. Additionally, a post-hoc analysis showed that FT218 was associated with decreased body mass index compared to placebo, which may be relevant as people with narcolepsy often have co-morbid obesity. In August, the primary results from the REST-ON trial were published by Kushida et al. in the journal SLEEP.New data was presented at the American College of Chest Physicians annual meeting, beginning October 17, 2021, including additional post-hoc analyses from the REST-ON trial, demonstrating a greater proportion of patients receiving FT218 experienced reductions in weekly cataplexy attacks and improvement in mean sleep latency compared to placebo, as well as the results of a discrete choice experiment, indicating that the ~~study will enroll about 250 patients at most~~overall driver of ~~the North American clinical trial sites that participated in the REST-ON study.~~patient preference between sodium oxybate treatments is a once-nightly, versus twice-nightly, formulation.

We believe FT218 has the potential to demonstrate improved dosing compliance, safety and patient satisfaction over the current ~~standard~~standards of care for EDS and cataplexy in patients with narcolepsy, which ~~is a~~are twice-nightly ~~sodium~~ oxybate ~~formulation.~~formulations. If approved, we believe FT218 has the potential to take a significant share of the ~~sodium~~ oxybate market. The current market size for the twice-nightly administration of ~~sodium~~ oxybate products is an estimated ~~at an annualized revenue run rate of $1.6 billion.~~$1.8 billion annually.

Micropump Drug-Delivery Technology

Our Micropump drug-delivery technology allows for the ~~delayed~~controlled delivery of small 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 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.

Previously Approved FDA Products

•Bloxiverz (neostigmine methylsulfate injection) - Bloxiverz ~~was approved by the FDA in 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.

- 25 -

•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. ~~There are approximately 7,400 vials of~~ ~~Vazculep~~ ~~sold annually in the U.S.~~

•Akovaz (ephedrine sulfate 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- adrenergic agonist and

~~- 31 -~~

a norepinephrine-releasing agent that is indicated for 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 in December 2019. Nouress~~ is a sterile injectable product for use in the hospital setting ~~and two issued U.S. patents currently cover that product. Several additional patent applications for Nouress are pending with the U.S. Patent and Trademark Office (“USPTO”).~~to provide parenteral nutrition to neonates.

Corporate Information

We ~~were incorporated on December 1, 2015 as an Irish private limited company, and re-registered as~~are an Irish public limited ~~company (“plc”), on November 21, 2016.~~company. Our registered address is at 10 Earlsfort Terrace, Dublin 2, Ireland and our phone number is +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”)~~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 SEC. These filings are also available to the public at www.sec.gov.

We currently have five direct wholly-owned subsidiaries: (a) Avadel US Holdings, Inc., (b) Flamel Ireland Limited is an Irish limited company, 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),~~ (ii) Avadel Legacy Pharmaceuticals, LLC, (iii) Avadel Management Corporation, ~~(iv) FSC Holding Company, (v) Avadel Operations Company, Inc.~~ and ~~(vi)~~(iv) 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.~~ 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.~~SAS. 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.~~9, 2021.

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:~~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 products, product candidates, or 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~~pharmaceutical 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,~~As such, we ~~have seen, or likely will~~expect to see ~~additional~~ generic competition tofor our ~~current and future~~ products ~~and we continue to expect generic competition~~ in the future.

~~- 32 -~~

•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, expensive and/or ~~expensive~~dilutive and, as a result, could create liquidity challenges for the Company.

- 26 -

•Net Loss from Operations in ~~2020:~~2021 ~~Since we~~: We sold our Hospital Products at June 30, 2020 and ~~will~~ no longer generate ~~revenue from sales and we~~revenue. We will incur substantial expenses to further the clinical development of and continue our preparations for the commercial launch of FT218, ~~we expect to incur a net loss in 2020, which we are unable to estimate at this time.~~if approved.

Impact of COVID-19

Since early 2020, we have seen the profound impact that the ~~novel~~ongoing coronavirus (“COVID-19”) pandemic is having on human health, the global economy and society at large. We have ~~been~~continued to actively ~~monitoring~~monitor the COVID-19 ~~situation~~pandemic and have taken measures to mitigate the potential impacts to our employees and business, such as ~~implementing~~continuing to offer 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~~parties; iii) requiring our employees to work from home for an extended period of ~~time.~~time; and iv) hindering sales efforts for FT218, if approved. 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. Despite progress in vaccination efforts, future developments and impact on our operations remain uncertain and cannot be predicted with confidence, including the duration of the COVID-19 pandemic, new strains of the virus, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in extending continued business disruptions.

Financial Highlights

Highlights of our consolidated results for the three and nine months ended September 30, ~~2020~~2021 are as follows:

•Revenue was $0 ~~and $22,334~~ for the three and nine months ended September 30, ~~2020, respectively,~~2021, compared to ~~$14,229~~$0 and ~~$48,220~~$22,334 in the same periods last year, respectively. The ~~quarter over quarter and~~ year over year ~~decreases were primarily~~decrease for the comparative nine month periods was the result of the sale of the Hospital Products on June 30, 2020.

•Operating loss was $25,663 and $62,410 for the three and nine months ended September 30, 2021, respectively, compared to operating loss of $13,697 for the three months ended September 30, 2020 and operating income ~~was~~of $20,075 and for the nine months ended September 30, 2020, respectively, compared to an operating loss of $4,147 and $16,765 and for the same period last year, respectively. The increase in operating loss for the three months ended September 30, 2020 was driven by a 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 expense of $3,107. The increase in operating~~2020. Operating income for the nine months ended September 30, 2020 was driven by the ~~gain on the disposition of Hospital Products of $45,760, lower R&D expense of $10,004, lower restructuring costs of $4,643, partially offset by lower gross margin of $21,917.~~

•~~Gain on the disposition~~sale of the Hospital Products ~~was $45,760 for the nine months ended September~~on June 30, 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~~$22,002 and $55,028 for the three ~~months ended September 30, 2020~~ and ~~net income was $18,306 for the~~ nine months ended September 30, ~~2020,~~2021, respectively, compared to net loss of ~~$8,864~~$11,703 and ~~$30,487~~net income of $18,306 in the same ~~periods~~period last year, respectively. ~~Included in the net income during the nine months ended September 30, 2020 was a gain on the disposition of the Hospital Products of $45,760.~~

•Diluted net loss per share was ~~$0.20~~$(0.38) and $(0.94) for the three ~~months ended September 30, 2020~~ and ~~diluted net income was $0.35 for the~~ nine months ended September 30, ~~2020,~~2021, respectively, compared to diluted net loss per share of ~~$0.24~~$(0.20) and ~~$0.82~~diluted net income per share of $0.35 in the same ~~periods~~period last year, respectively.

•Cash and marketable securities ~~increased $167,418~~decreased $40,309 to ~~$231,576~~$181,093 at September 30, ~~2020,~~2021, from ~~$64,158~~$221,402 at December 31, ~~2019. This increase~~2020. The decrease in cash was driven primarily by ~~the February private placement which resulted in proceeds, net of placement fees~~cash used for operating expenses of approximately ~~$61,000,~~$50,000, approximately $6,470 of interest payments, and approximately $2,850 for the ~~May public offering, which resulted in proceeds, net~~purchase of ~~placement fees of approximately $117,000, cash proceeds from the disposition of the Hospital Products of $17,250, partially~~raw materials used for FT218 pre-NDA approval activities. Cash spend was offset by ~~$29,609 use~~$14,500 of net cash ~~in operations during the nine months ended September 30, 2020.~~received from Exela and approximately $4,500 related to research and development tax credits and other refunds.

- 3327 -

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, ~~2019~~2020 (the ~~“2019~~“2020 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~~Management’s Discussion & Analysis in our ~~2019~~2020 Form 10-K.

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, ~~2020~~2021 and ~~2019,~~2020, respectively:


								Three Months Ended
		Three Months Ended September 30,						Increase / (Decrease)						Three Months Ended September 30,					Change
							2020 vs. 2019											2021 vs. 2020
Comparative Statements of (Loss) Income				2020			2019			$			%

Product sales		$	—		$	14,229		$	(14,229)		(100.0)	%

Comparative Statements of Loss													Comparative Statements of Loss	2021		2020			$		%

Operating expenses:	Operating expenses:												Operating expenses:
Cost of products		—			2,823			(2,823)			(100.0)	%

Research and development expenses	Research and development expenses	5,569			7,539			(1,970)			(26.1)	%	Research and development expenses	4,380		5,569			(1,189)		(21.4)	%
Selling, general and administrative expenses	Selling, general and administrative expenses	8,423			5,316			3,107			58.4	%	Selling, general and administrative expenses	21,283		8,423			12,860		152.7	%
Intangible asset amortization		—			205			(205)			(100.0)	%

Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(69)			627			(696)			(111.0)	%	Changes in fair value of contingent consideration	—		(69)			69		100.0	%

Restructuring (income) costs		(226)			1,866			(2,092)			(112.1)	%
Restructuring income													Restructuring income	—		(226)			226		100.0	%
Total operating expense	Total operating expense	13,697			18,376			(4,679)			(25.5)	%	Total operating expense	25,663		13,697			11,966		87.4	%
Operating loss	Operating loss	(13,697)			(4,147)			(9,550)			(230.3)	%	Operating loss	(25,663)		(13,697)			(11,966)		(87.4)	%
Investment and other income, net		213			781			(568)			(72.7)	%
Investment and other income (expense), net													Investment and other income (expense), net	489		213			276		129.6	%
Interest expense	Interest expense	(3,259)			(3,125)			(134)			(4.3)	%	Interest expense	(1,929)		(3,259)			1,330		40.8	%

Other expense - changes in fair value of contingent consideration payable		—			(139)			139			100.0	%

Loss before income taxes	Loss before income taxes	(16,743)			(6,630)			(10,113)			(152.5)	%	Loss before income taxes	(27,103)		(16,743)			(10,360)		(61.9)	%
Income tax (benefit) provision		(5,040)			2,234			(7,274)			(325.6)	%
Income tax benefit													Income tax benefit	(5,101)		(5,040)			(61)		(1.2)	%
Net loss	Net loss	$	(11,703)		$	(8,864)		$	(2,839)		(32.0)	%	Net loss	$	(22,002)	$	(11,703)		$	(10,299)	(88.0)	%
Net loss per share - diluted	Net loss per share - diluted	$	(0.20)		$	(0.24)		$	0.04		16.7	%	Net loss per share - diluted	$	(0.38)	$	(0.20)		$	(0.18)	(90.0)	%

- 3428 -

The following is a summary of our financial results (in thousands, except per share amounts) for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively:


								Nine Months Ended
		Nine Months Ended September 30,						Increase / (Decrease)						Nine Months Ended September 30,					Change
							2020 vs. 2019											2021 vs. 2020
Comparative Statements of Income (Loss)				2020			2019			$			%
Comparative Statements of (Loss) Income													Comparative Statements of (Loss) Income	2021		2020			$		%

Product sales	Product sales	$	22,334		$	48,220		$	(25,886)		(53.7)	%	Product sales	$	—	$	22,334		$	(22,334)	(100.0)	%

Operating expenses:	Operating expenses:												Operating expenses:
Cost of products	Cost of products	5,742			9,711			(3,969)			(40.9)	%	Cost of products	—		5,742			(5,742)		(100.0)	%
Research and development expenses	Research and development expenses	15,156			25,160			(10,004)			(39.8)	%	Research and development expenses	14,994		15,156			(162)		(1.1)	%
Selling, general and administrative expenses	Selling, general and administrative expenses	23,431			22,520			911			4.0	%	Selling, general and administrative expenses	47,469		23,431			24,038		102.6	%
Intangible asset amortization	Intangible asset amortization	406			610			(204)			(33.4)	%	Intangible asset amortization	—		406			(406)		(100.0)	%
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	3,327			2,384			943			39.6	%	Changes in fair value of contingent consideration	—		3,327			(3,327)		(100.0)	%
Gain on sale of Hospital Products	Gain on sale of Hospital Products	(45,760)			—			(45,760)			(100.0)	%	Gain on sale of Hospital Products	—		(45,760)			45,760		100.0	%
Restructuring (income) costs		(43)			4,600			(4,643)			(100.9)	%
Restructuring income													Restructuring income	(53)		(43)			(10)		(23.3)	%
Total operating expense	Total operating expense	2,259			64,985			(62,726)			(96.5)	%	Total operating expense	62,410		2,259			60,151		2,662.7	%
Operating income (loss)		20,075			(16,765)			36,840			219.7	%
Investment and other (expense) income, net		(906)			2,548			(3,454)			(135.6)	%
Operating (loss) income													Operating (loss) income	(62,410)		20,075			(82,485)		(410.9)	%
Investment and other income (expense), net													Investment and other income (expense), net	1,531		(906)			2,437		269.0	%
Interest expense	Interest expense	(9,686)			(9,293)			(393)			(4.2)	%	Interest expense	(5,788)		(9,686)			3,898		40.2	%
Loss on deconsolidation of subsidiary		—			(2,840)			2,840			100.0	%
Gain from release of certain liabilities													Gain from release of certain liabilities	166		—			166		100.0	%
Other expense - changes in fair value of contingent consideration payable	Other expense - changes in fair value of contingent consideration payable	(435)			(496)			61			12.3	%	Other expense - changes in fair value of contingent consideration payable	—		(435)			435		100.0	%

Income (loss) before income taxes		9,048			(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	%
(Loss) income before income taxes													(Loss) income before income taxes	(66,501)		9,048			(75,549)		(835.0)	%
Income tax benefit													Income tax benefit	(11,473)		(9,258)			(2,215)		(23.9)	%
Net (loss) income													Net (loss) income	$	(55,028)	$	18,306		$	(73,334)	(400.6)	%
Net (loss) income per share - diluted													Net (loss) income per share - diluted	$	(0.94)	$	0.35		$	(1.29)	(368.6)	%

~~Product sales for each~~

On June 30, 2020, we announced the sale of the ~~Company’s significant~~Hospital Products, including our three commercial products, ~~for~~Akovaz, Bloxiverz and Vazculep, as well as Nouress, to the Exela Buyer. As a result of the sale, the Company no longer recorded revenue, cost of products, intangible amortization and changes to the fair value of the contingent consideration related to these products subsequent to the Closing Date.



	Three Months Ended September 30,				Change
					2021 vs. 2020
Research and Development Expenses:	2021		2020		$		%

Research and development expenses	$	4,380	$	5,569	$	(1,189)	(21.4)	%

Research and development expenses decreased $1,189 or 21.4% during the three months ended September 30, ~~2020~~2021 as compared to the same period in 2020. This decrease was driven by lower clinical studies expense as well as lower purchases of active pharmaceutical ingredients used in the research and ~~2019 were as follows:~~ development of FT218 during the current period when compared to the prior comparable period.

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Product sales: 2020 2019 $ %
Bloxiverz $ — $ 1,466 (1,466) (100.0) %
Vazculep — 8,786 (8,786) (100.0) %
Akovaz — 4,208 (4,208) (100.0) %
Other — (231) 231 100.0 %
Product sales $ — $ 14,229 $ (14,229) (100.0) %

~~Product sales were $0 for~~



	Nine Months Ended September 30,				Change
					2021 vs. 2020
Research and Development Expenses:	2021		2020		$		%

Research and development expenses	$	14,994	$	15,156	$	(162)	(1.1)	%

Research and development expenses decreased $162 or 1.1% during the ~~three~~nine months ended September 30, ~~2020,~~2021 as compared to ~~$14,229 for~~ the same ~~prior year period. The~~period in 2020. This decrease ~~in product sales~~ was driven by lower clinical studies expense due to the ~~sale~~completion of the ~~Hospital Products on June 30, 2020.~~

~~- 35 -~~

~~Product sales for each of the Company’s significant products for~~FT218 clinical study during the nine months ended September 30, 2020, ~~and 2019 were as follows:~~ offset by higher pre-NDA approval activities.

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Product sales: 2020 2019 $ %
Bloxiverz $ 2,201 $ 6,392 $ (4,191) (65.6) %
Vazculep 10,429 27,669 (17,240) (62.3) %
Akovaz 9,545 13,946 (4,401) (31.6) %
Other 159 213 (54) (25.4) %
Product sales $ 22,334 $ 48,220 $ (25,886) (53.7) %

- 29 -

Product sales were $22,334 for the nine months ended September 30, 2020, compared to $48,220 for the same prior year period. The decline in product sales is driven by the sale of the Hospital Products on June 30, 2020 as well as lower units volumes and net selling prices for 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.



	Three Months Ended September 30,				Change
					2021 vs. 2020
Selling, General and Administrative Expenses:	2021		2020		$		%

Selling, general and administrative expenses	$	21,283	$	8,423	$	12,860	152.7	%

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Cost of Products: 2020 2019 $ %
Cost of products $ — $ 2,823 $ (2,823) (100.0) %
Percentage of total revenues n/a 19.8 %

~~Cost of products decreased $2,823~~Selling, general and administrative (“SG&A”) expenses increased $12,860 or ~~100.0%~~152.7% during the three months ended September 30, ~~2020~~2021 as compared to the same prior year period, driven by ~~June 30, 2020 sale~~the Company’s continued commercial preparations and launch readiness activities for potential approval of ~~the Hospital Products.~~FT218. These activities included an increase in marketing and market research costs of approximately $4,400, an increase in other launch planning and preparation activities totaling $1,400 and an increase in patient education costs of approximately $400. Compensation costs increased by approximately $3,600 due to an increase in headcount, primarily in commercial and medical affairs. Legal, other professional fees and insurance costs increased by approximately $2,700.

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Cost of Products: 2020 2019 $ %
Cost of products $ 5,742 $ 9,711 $ (3,969) (40.9) %
Percentage of total revenues 25.7 % 20.1 %

~~Cost of products decreased $3,969~~



	Nine Months Ended September 30,				Change
					2021 vs. 2020
Selling, General and Administrative Expenses:	2021		2020		$		%

Selling, general and administrative expenses	$	47,469	$	23,431	$	24,038	102.6	%

SG&A expenses increased $24,038 or ~~40.9%~~102.6% during the nine months ended September 30, ~~2020~~2021 as compared to the same prior year period, driven by ~~lower sold units due to~~ the ~~June 30, 2020 sale~~Company’s continued commercial preparations and launch readiness activities for potential approval of ~~the Hospital Products.~~

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Research and Development Expenses: 2020 2019 $ %
Research and development expenses 5,569 7,539 $ (1,970) (26.1) %

~~Research~~FT218. These activities included an increase in marketing and development (“R&D”) expenses decreased $1,970 or 26.1% during the three months ended September 30, 2020 as compared to the same period in 2019. This decline was driven by the completion of the FT218 clinical study during the three months ending March 31, 2020, as well as lower payroll, benefits and share-based compensation of $400 related to the 2019 Corporate and French restructuring plans partially offset by higher API purchases of $1,700 in the current quarter. The Company continues to invest a substantial portion of R&D in its FT218 development program.

~~- 36 -~~

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Research and Development Expenses: 2020 2019 $ %
Research and development expenses $ 15,156 $ 25,160 $ (10,004) (39.8) %

R&D expenses decreased $10,004 or 39.8% during the nine months ended September 30, 2020 as compared to the same period in 2019. This decline was driven by the completion of the FT218 clinical study during the three months ending March 31, 2020 and lower payroll, benefits and share-based compensationmarket research activities of approximately ~~$3,300 related to the 2019 Corporate~~$8,300, and ~~French restructuring plans. The Company continues to invest a substantial portion of R&D~~an increase in ~~its FT218 development program.~~

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Selling, General and Administrative Expenses: 2020 2019 $ %
Selling, general and administrative expenses $ 8,423 $ 5,316 $ 3,107 58.4 %

~~Selling, general~~other launch planning and ~~administrative (“SG&A) expenses~~preparation activities totaling approximately $3,600. Compensation costs increased ~~$3,107 or 58.4% during the three months ended September 30, 2020 as compared to the same prior year period. This increase was~~by approximately $6,800 due to an increase in ~~consulting~~headcount, primarily in commercial and ~~professional fees of approximately $900, an increase in market research costs of $900, higher share-based compensation costs of $800 and higher legal fees of $800.~~

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Selling, General and Administrative Expenses: 2020 2019 $ %
Selling, general and administrative expenses $ 23,431 $ 22,520 $ 911 4.0 %

SG&A expenses increased $911 or 4.0% during the nine months ended September 30, 2020 as compared to the same prior year period. This increase was primarily due to an increase in market research costs, consulting andmedical affairs. Legal, other professional fees and ~~legal~~insurance costs ofincreased by approximately ~~$1,300, $1,200 and $900 respectively, partially offset by a decrease of $2,200 of sales and marketing costs related to the exit of Noctiva during the first quarter 2019.~~$4,800.

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



	Three Months Ended September 30,				Change
					2021 vs. 2020
Investment and Other Income (Expense), net	2021		2020		$		%

Investment and other income (expense), net	$	489	$	213	$	276	129.6	%

~~Intangible asset amortization expense~~Investment and other income (expense), net increased for the three months ended September 30, 2019 related to the amortization of our acquired developed technology - Vazculep. This intangible asset was transferred to Exela Sterile Medicines LLC on June 30, 2020 as part of the 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: 2020 2019 $ %
Intangible asset amortization $ 406 $ 610 $ (204) (33.4) %

~~- 37 -~~

Intangible asset amortization expense for the nine months ended September 30, 2020 and 2019 relates to the amortization of our acquired developed technology - Vazculep. This intangible asset was transferred to Exela Sterile Medicines LLC on June 30, 2020 as part of the disposition 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: 2020 2019 $ %
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 such 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, 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, 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: 2020 2019 $ %
Changes in fair value of contingent consideration $ 3,327 $ 2,384 $ 943 39.6 %

We compute 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 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) 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 $3,327 and $2,384 and increased the fair value of the acquisition-related contingent consideration earn-out payments - Éclat for the nine 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 such products and an appropriate discount rate to use when present valuing the related cash flows.

~~- 38 -~~

For the nine months ended September 30, 2020, as a result of changes to these estimates when compared to the same estimates at 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 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, 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
Gain on Sale of Hospital Products 2020 2019 $ %
Gain on sale of Hospital Products $ 45,760 $ — $ 45,760 100.0 %

On June 30, 2020, we sold our assets, rights and interests related to Bloxiverz, Vazculep, Akovaz and Nouress to the Exela 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 the Hospital Products~~.

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

Restructuring income of $226 and restructuring costs of $1,866 were recognized during the three months ended September 30, 2020 and 2019, respectively. Restructuring income during the three months ended September 30, 2020, was related to share-based compensation forfeitures related to the 2019 Corporate Restructuring actions. Restructuring costs during the three months ended September 30, 2019 were primarily related to the 2019 French and Corporate Restructuring 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) Costs 2020 2019 $ %
Restructuring (income) costs $ (43) $ 4,600 $ (4,643) (100.9) %

Restructuring income of $43 and costs of $4,600 were recognized during the nine months ended September 30, 2020 and 2019, respectively. Restructuring (income) costs were primarily related to the 2019 French and Corporate Restructuring actions and mainly included severance and legal costs, see ~~Note 15: Restructuring Costs~~ ~~for further details.~~

~~- 39 -~~

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Investment and Other (Expense) Income, net 2020 2019 $ %
Investment and other (expense) income, net $ 213 $ 781 $ (568) (72.7) %

~~Investment and other (expense) income, net decreased for the three months ended September 30, 2020~~2021 when compared to the same period in the prior year driven by ~~lower realized gains on our marketable securities during the current period when compared to the prior period.~~higher foreign currency gains.

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Investment and Other (Expense) Income, net 2020 2019 $ %
Investment and other (expense) income, net $ (906) $ 2,548 $ (3,454) (135.6) %



	Nine Months Ended September 30,				Change
					2021 vs. 2020
Investment and Other Income (Expense), net	2021		2020		$		%

Investment and other income (expense), net	$	1,531	$	(906)	$	2,437	269.0	%

Investment and other ~~(expense)~~ income (expense), net ~~decreased~~increased for the nine months ended September 30, ~~2020~~2021 when compared to the same period in the prior year driven by aan $800 legal settlement related to a bankruptcy claim ~~an increase~~recognized in ~~net unrealized losses on our marketable equity securities~~the prior period, higher foreign currency gains of approximately $700, higher interest income of approximately $600 and ~~net~~lower realized losses on our marketable securities ~~during the current period when compared to net unrealized gains on our marketable securities during the prior period.~~of approximately $400.

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Interest Expense 2020 2019 $ %
Interest expense $ 3,259 $ 3,125 $ 134 4.3 %

- 30 -



	Three Months Ended September 30,				Change
					2021 vs. 2020
Interest Expense	2021		2020		$		%

Interest expense	$	1,929	$	3,259	$	(1,330)	(40.8)	%

Interest expense of ~~$3,259~~$1,929 and ~~$3,125~~$3,259 for the three months ~~end~~ended September 30, 2021 and 2020, ~~and 2019~~respectively, is related to interest on the 2023 ~~Notes that were issued~~Notes. Included in ~~February 2018.~~these amounts are coupon interest expense of $1,617 for each period and the amortization of debt issuance costs of $312 and $250 for the three months ended September 30, 2021 and 2020, respectively. Prior period interest expense also included amortization of a debt discount of $1,392, which is no longer recognized upon our adoption of ASU 2020-06. See Note 9: Long Term Debt to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further details for further details.


								Nine Months Ended
		Nine Months Ended September 30,						Increase / (Decrease)							Nine Months Ended September 30,						Change
							2020 vs. 2019													2021 vs. 2020
Interest Expense	Interest Expense			2020			2019			$			%	Interest Expense			2021			2020			$			%

Interest expense	Interest expense	$	9,686		$	9,293		$	393		4.2	%	Interest expense		$	5,788		$	9,686		$	(3,898)		(40.2)	%

Interest expense of ~~$9,686~~$5,788 and ~~$9,293~~$9,686 for the nine months ~~end~~ended September 30, 2021 and 2020, ~~and 2019~~respectively, is related to interest on the 2023 ~~Notes that were issued~~Notes. Included in ~~February 2018.~~

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

~~As a result~~these amounts are coupon interest expense of ~~Specialty Pharma’s bankruptcy filing on February 6, 2019,~~$4,851 for each period and the ~~Company concluded that it no longer controls its operations~~amortization of debt issuance costs of $937 and ~~accordingly deconsolidated this subsidiary. The Company recorded a loss on the deconsolidation during~~$744 for the nine months ended September 30, ~~2019 as~~2021 and 2020, respectively. Prior period interest expense also included amortization of a ~~result~~debt discount of ~~removing the net assets and certain liabilities~~$4,091, which is no longer recognized upon our adoption of ~~this subsidiary from~~ASU 2020-06. See Note 9: Long Term Debt to our unaudited condensed consolidated financial ~~statements. See~~ ~~Note 3: Subsidiary Bankruptcy and Deconsolidation~~ statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for ~~more discussion.~~further details for further details.

~~- 40 -~~

Three Months Ended
Three Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Other Expense - Changes in Fair Value of Contingent Consideration Payable 2020 2019 $ %
Other expense - changes in fair value of contingent consideration payable $ — $ (139) $ 139 100.0 %

We recorded expense of $139 to increase of the fair value of these liabilities during the three months ended September 30, 2019, 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 our 2019 Form 10-K, there are a number of assumptions and estimates we use when determining the fair value of the contingent 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 September 30,						Change
							2021 vs. 2020
Income Tax Benefit:	2021			2020			$		%

Income tax benefit	$	(5,101)		$	(5,040)		$	(61)	(1.2)	%
Percentage of (loss) income before income taxes	18.8		%	30.1		%

The ~~items accounting for the difference between the~~ income tax benefit ~~computed at the statutory rate and the Company’s effective tax rate~~was $5,101 for the three months ended September 30, ~~2020 and 2019, are as follows:~~

Nine Months Ended
Nine Months Ended September 30, Increase / (Decrease)
2020 vs. 2019
Other Expense - Changes in Fair Value of Contingent Consideration Payable 2020 2019 $ %
Other expense - changes in fair value of contingent consideration payable $ (435) $ (496) $ 61 12.3 %

~~We recorded expense~~2021 resulting in an effective tax rate of $435 and $496 to increase the fair value of these liabilities during the nine months ended September 30, 2020 and 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 our 2019 Form 10-K, there are a number of assumptions and estimates we use when determining the fair value of the contingent 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: 2020 2019 $ %
Income tax (benefit) provision $ (5,040) $ 2,234 $ (7,274) (325.6) %
Percentage of loss before income taxes (30.1) % 33.6 %

18.8%. The income tax benefit 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 resulting in an effective tax rate of (33.6%). The net increase~~decrease in the effective ~~income~~ tax rate for the three months ended September 30, ~~2020, as~~2021, when compared to the same period in ~~2019, was~~2020, is primarily ~~due~~attributable to ~~decreased income~~a change in the ~~U.S. due to the sale~~mix of ~~the Hospital Products.~~losses in our foreign entities.

~~- 41 -~~

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



	Nine Months Ended September 30,						Change
							2021 vs. 2020
Income Tax Benefit:	2021			2020			$		%

Income tax benefit	$	(11,473)		$	(9,258)		$	(2,215)	(23.9)	%
Percentage of (loss) income before income taxes	17.3		%	(102.3)		%

The income tax benefit was $11,473 for the nine months ended September 30, 2021 resulting in an effective tax rate of 17.3%. The income tax benefit was $9,258 for the nine months ended September 30, 2020 resulting in an effective tax rate of ~~(102.3%). The income tax provision was $3,641 for the nine months ended September 30, 2019 resulting in an effective tax rate of (13.7%)~~(102.3)%. The net ~~decrease~~increase in the effective income tax rate for the nine months ended September 30, ~~2020,~~2021 as compared to the ~~same~~prior period in ~~2019,~~2020 is primarily due to the discrete tax benefits recognized during the nine months ended September 30, 2020 under the Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, ~~as described above, favorable income tax benefits from the U.S. Orphan Drug and Research & Development Tax Credit,~~ which did not occur during the nine months ended September 30, ~~2019, partially offset by increased income in the U.S. due to the sale of the Hospital Products during the nine months ended September 30, 2020.~~2021.

- 31 -

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 September 30,						Increase / (Decrease)							Nine Months Ended September 30,						Change
							2020 vs. 2019													2021 vs. 2020
Net cash (used in) provided by:	Net cash (used in) provided by:			2020			2019			$			%	Net cash (used in) provided by:			2021			2020			$			%

Operating activities	Operating activities	$	(29,609)		$	(30,072)		$	463		1.5	%	Operating activities		$	(54,804)		$	(29,609)		$	(25,195)		(85.1)	%
Investing activities	Investing activities	(76,962)			33,553			(110,515)			(329.4)	%	Investing activities		41,609			(76,962)			118,571			154.1	%
Financing activities	Financing activities	179,500			14			179,486			1,282,042.9	%	Financing activities		263			179,500			(179,237)			(99.9)	%

Operating Activities

Net cash used in operating activities ofwas $54,804 and $29,609 for the nine months ended September 30, 2021 and 2020, ~~decreased $463 compared to the same prior year period. This decrease in~~respectively. Net cash used in operating ~~cash flow is~~activities for the nine months ended September 30, 2021 was driven by net loss of $55,028 and non-cash adjustments of $2,793, offset by favorable changes in working capital of $3,017. For the nine months ended September 30, 2020, net cash ~~collection on all outstanding accounts receivable subsequent to~~used in operating activities was driven by net income of $18,306 and favorable non-cash adjustments of $7,323, offset by the $45,760 gain recorded for the sale of the ~~hospital products,~~Hospital Products and a $9,478 unfavorable change in working capital. The year over year change in working capital is driven by the sale of the Hospital Products on June 30, 2020, as well as increased accrued expenses in 2021 as a result of the ~~$2,750 installment payment received from Exela during~~Company’s commercial preparations and launch readiness activities for potential approval of FT218.

Investing Activities

Net cash provided by investing activities was $41,609 for the ~~three~~nine months ended September 30, ~~2020.~~

~~Investing Activities~~

~~Cash~~2021 and net cash used in investing activities was $76,962 for the nine months ended September 30, ~~2020 compared to~~2020. Net cash provided by investing activities ~~of $33,553~~ for the nine months ended September 30, ~~2019. Cash~~2021 was driven by proceeds from the disposition of the Hospital Products of $16,500, as well as net proceeds received from the excess of sales over purchases of marketable securities of $25,135. Net cash used in investing activities for the nine months ended September 30, 2020 was driven by ~~higher~~ net purchases of marketable securities ~~during the current quarter,~~of $94,179, partially offset by the proceeds ~~received~~ from the disposition of the Hospital ~~Products. Cash~~Products of $17,250.

Financing Activities

Net cash provided by ~~investing~~financing activities for the nine months ended September 30, ~~2019~~2021 was ~~due~~$263 related to ~~net~~ proceeds from ~~the sales of marketable securities.~~

~~Financing Activities~~

~~Cash~~stock option exercises and employee stock purchase plan (“ESPP”) issuances. Net cash provided by financing activities for the nine months ended September 30, 2020 ~~was~~of $179,500 ~~and was~~is driven by the February 2020 private placement and May 2020 public offering that resulted in net proceeds of ~~$116,924, the February private placement that resulted in net proceeds of~~ $60,570 and $116,924, respectively, as well as stock option exercises and ESPP issuances of ~~$1,829.~~$2,006.

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 Products revenue stream~~ and other factors set forth in “Risk Factors” within Part I, Item 1A of the ~~2019~~2020 Form ~~10-K and within Part II, Item 1A of this quarterly report on Form 10-Q.~~10-K. To complete the FT218 clinical development ~~plan~~ and ~~to ensure an adequate and robust NDA for filing with the FDA~~commercialization plan 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

~~- 42 -~~

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~~of 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 Agreement~~SM (“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.

- 32 -

Cash, cash equivalent and marketable security balances as of September 30, ~~2020~~2021 and unused financing sources are expected to provide ~~the Company~~us with the flexibility to meet ~~its~~our liquidity needs in ~~2020,~~2021, including its operating requirements related to the development of FT218.

Other Matters

Litigation

~~Litigation Related~~

First Complaint

Second Complaint

- 4333 -

~~which Specialty Pharma is or would be a party. All prior litigation and disputes involving Specialty Pharma have been dismissed or resolved.~~

Material Commitments

~~We have been relieved of all purchase commitments disclosed in~~ ~~Note 16: Contingent Liabilities~~ and ~~Commitments~~ ~~to the Company’s audited consolidated financial statements included in Part II, Item 8 of the Company’s 2019 Annual Report on Form 10-K due to the sale of the Hospital Products described in~~ ~~Note 4: Disposition of the Hospital Products~~.

Contractual Obligations

Disclosures regarding material commitments and contractual obligations are included in Part II, Item 7 of the Company’s ~~2019 Annual Report on~~ Form 10-K and updated in Note ~~10: Contingent Consideration Payable~~16: Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this ~~Report.~~Quarterly Report is incorporated by reference herein.

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, ~~2020,~~2021, 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, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting

There were no changes 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 three months ended September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~We continue~~

~~- 44 -~~

~~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.

The information contained in Note ~~20:~~16: Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly 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~~Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on March ~~16, 2020.~~9, 2021.

~~COVID-19~~Our product candidate and future product candidates, if approved by the FDA, may ~~materially and adversely affect our business and our financial results.~~not obtain desired regulatory exclusivities, including orphan drug exclusivity.

~~The recent COVID-19 pandemic~~Under the Orphan Drug Act, as amended, the FDA may designate a drug as an orphan drug if it is ~~understood~~intended to ~~have originated~~treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in ~~Wuhan, China in December 2019 and has since spread globally, including to~~ the United States, or a patient population greater than 200,000 where there is no reasonable expectation that the cost of developing the drug for the rare

- 34 -

disease or condition will be recovered from sales of the drug in the United States. Generally, if a drug with orphan drug designation subsequently receives the first marketing approval for the disease or condition for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same disease or condition for seven years, except in limited circumstances, such as if the FDA concludes that a subsequent same drug is clinically superior through greater safety, greater effectiveness, or a major contribution to patient care. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.

Although our lead product candidate, FT218, obtained orphan drug designation for the treatment of narcolepsy from the FDA in January 2018, there is no guarantee that we will obtain approval or orphan drug exclusivity for FT218. Orphan drug designation does not give a product candidate any advantage in, or shorten the timeline for, the FDA regulatory review and ~~European countries.~~approval process. In addition, because FT218 would not be the first sodium oxybate product to be approved for the treatment of narcolepsy, we must demonstrate that FT218 is clinically superior to any previously approved same drug in order to obtain orphan drug exclusivity for FT218, and we may be required to demonstrate clinical superiority for the approval and exclusivity of other product candidates in the future. Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Moreover, any orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantity of the drug to meet the needs of patients with the particular rare disease or condition. The ~~continued spread of COVID-19~~FDA may reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely ~~impact~~impacted.

Our product candidate and future product candidates will generally be subject to regulatory approval. If we or our ~~operations, including~~pharmaceutical and biotechnology company partners do not obtain such approvals, or if such approvals are delayed, our ability to ~~initiate or complete clinical trials, manufacture sufficient supply of our~~generate future revenues may be adversely affected.

Our lead product candidate, FT218, as well as product candidates ~~file our New Drug Application, or~~we may wish to market in the future, may not gain regulatory approval and reach the commercial market for a variety of reasons. We submitted a 505(b)(2) NDA, for FT218 in December 2020. In February 2021, the FDA assigned the NDA a PDUFA target action date of October 15, 2021 and in October 2021, the FDA notified us that its review of the FT218 NDA was still ongoing.

In the U.S., federal, state and local government agencies, primarily the FDA, regulate all pharmaceutical products, including existing products and those under development. Neither we nor our pharmaceutical and biotechnology partners can control whether we obtain regulatory approval for any of these products or, ~~to manufacture FT218 at sufficient scale for commercialization,~~ if ~~approved. Any delay~~obtained, the timing thereof. There may be significant delays in ~~submission of our NDA could adversely affect our ability~~expected product releases while attempting to obtain regulatory approval for products incorporating our technologies. If we or our partners are not successful in timely obtaining such approvals, our revenues and ~~to commercialize FT218, particularly on our current projected timelines, increase our operating expenses and have a material adverse effect on our business and financial results.~~profitability may decline.

~~In addition, COVID-19 has resulted in significant governmental measures being implemented~~Applicants for FDA approval often must submit to ~~control~~ the ~~spread~~FDA extensive clinical and pre-clinical data, as well as information about product manufacturing processes and facilities and other supporting information. Varying interpretations of the ~~virus, including quarantines, travel restrictions, social distancing~~data obtained from pre-clinical and ~~business shutdowns. We~~clinical testing could delay, limit or prevent regulatory approval of a drug product. The FDA also may require us, or our partners to conduct additional pre-clinical studies or clinical trials.

Similarly, although we have ~~taken temporary precautionary measures intended~~submitted a 505(b)(2) NDA for our sodium oxybate candidate and anticipate submitting applications for approval for our development products that rely on existing data to ~~help minimize~~demonstrate safety and effectiveness, the ~~risk of the virus~~FDA may determine that additional studies particular to our ~~employees, including temporarily requiring all employees~~product candidate and future product candidates are necessary. If the FDA requires such additional studies, it would impact development plans for those products.

Changes in law or FDA’s policies during the development period or regulatory review of each submitted new product application, also may delay an approval, result in a narrower approved use or result in rejection of an application. For instance, under the Food and Drug Administration Amendments Act (“FDAAA”), we or our partners may be required to ~~work remotely. We have already suspended non-essential travel worldwide~~develop Risk Evaluation and Mitigation Strategies (“REMS”) to ensure the safe use of our lead product candidate. If the FDA disagrees with such REMS proposals, it may be more difficult and costly to obtain regulatory approval for our ~~employees~~lead product candidate. Similarly, FDAAA provisions may make it more likely that the FDA will refer a marketing application for a new product to an advisory committee for review, evaluation and ~~are discouraging employee attendance at other gatherings. These measures could negatively affect our business. For instance, temporarily requiring all employees~~recommendation as to ~~work remotely~~whether the application should be approved. This review may ~~induce absenteeism, disrupt our operations~~add to the time for approval, and, although the FDA is not bound by the recommendation of an advisory committee, objections or ~~increase~~concerns expressed by an advisory committee may cause the ~~risk of a cybersecurity incident. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability~~FDA to ~~raise additional capital on attractive terms~~delay or ~~at all.~~deny approval.

The ~~extent~~FDA has substantial discretion in the approval process and may disagree with our or our partners’ interpretations of data and information submitted in an application, which also could cause delays of an approval or rejection of an application. Even if the FDA approves a product, the approval may limit the uses or indications for which the product may be marketed, restrict distribution of the product or require further studies.

- 35 -

The FDA may also withdraw product approvals for failure to comply with regulatory requirements or if problems follow initial marketing. In the same way, medicinal products for supply on the EU market are subject to marketing authorization by either the European Commission, following an opinion by the European Medicines Agency (“EMA”), or by the competent authorities of EU Member States. Applicants for marketing authorization must submit extensive technical and clinical data essentially in the form of the ICH Common Technical Document. The data is subject to extensive review by the competent authorities, and after such review the data may be considered inappropriate or insufficient. If applications for marketing authorization by pharmaceutical and biotechnology company partners are delayed or rejected, if the therapeutic indications for which ~~COVID-19~~the product is approved are limited, or if conditional marketing authorization imposing post-marketing clinical trials or surveillance is imposed, our revenues, operating results and liquidity may ~~impact our business~~decline and earnings may be negatively impacted.

Our product candidate and future product candidates may not reach the commercial market for a number of reasons.

Drug development is an inherently uncertain process with a high risk of failure at every stage of development. Successful R&D of pharmaceutical products is difficult, expensive and time consuming. Many product candidates fail to reach the market. Our success will depend on ~~future developments, which are highly uncertain~~the development and ~~cannot~~the successful commercialization of new drugs and products that utilize our drug delivery technologies.

Even if our product candidates and current drug delivery technologies appear promising during development, there may not be ~~predicted with confidence, such as~~ successful commercial applications developed for them for a number of reasons, including:

•the ~~duration~~FDA, the EMA, the competent authority of ~~the pandemic, the severity of COVID-19~~an EU Member State or ~~the effectiveness of actions~~an Institutional Review Board (“IRB”), or an Ethics Committee (EU equivalent to ~~contain and treat COVID-19, particularly in the geographies where~~ IRB), or our partners may delay or halt applicable clinical trials;

•we or our ~~third party suppliers~~partners may face slower than expected rate of patient recruitment and ~~contract manufacturers,~~enrollment in clinical trials, or ~~contract research organizations operate. We cannot presently predict~~may devote insufficient funding to the ~~scope~~clinical trials;

•our drug delivery technologies and ~~severity~~drug products may be found to be ineffective or to cause harmful side effects, or may fail during any stage of ~~any potential business shutdowns~~pre-clinical testing or ~~disruptions. If~~ clinical trials;

•we or our partners may find that certain products cannot be manufactured on a commercial scale and, therefore, may not be economical or feasible to produce;

•we or our partners may face delays in completing our clinical trials due to circumstances outside of our control, including natural disasters, labor or civil unrest, global health concerns or pandemics or acts of war or terrorism;

•the FDA may determine that we have identified the wrong listed drug or drugs or that approval of our 505(b)(2) application for our sodium oxybate candidate or future product candidates is blocked by patent or non-patent exclusivity of the listed drug or drugs or of other previously approved drugs with the same conditions of approval as any of our product candidates (as applicable); or

•our product candidate and future product candidates could fail to obtain regulatory approval or, if approved, could fail to achieve market acceptance, could fail to be included within the ~~third parties with whom we engage, however, were to experience shutdowns~~pricing and reimbursement schemes of the U.S. or ~~other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned~~EU Member States, or could be ~~materially and negatively affected, which could have a material adverse impact on our business and our results~~precluded from commercialization by proprietary rights of ~~operations and financial condition.~~third parties.

Disruptions at the FDA, the ~~SEC~~U.S. Drug Enforcement Administration 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,~~May 26, 2021, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the ongoing COVID-19 pandemic in line with its user fee performance goals and conducting mission critical ~~domestic~~U.S. and ~~foreign~~non-U.S. inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to maintain ~~this~~its current pace and delays or setbacks are possible in the future. On July 10, 2020, the FDA announced its 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~~timelines could be ~~completed during the review cycle~~extended due to ~~restrictions on travel, FDA has stated that it generally intends to issue~~the ongoing COVID-19 pandemic. In 2020 and 2021, a number of companies announced receipt of complete response ~~letter.Further, if there is inadequate information~~letters due to ~~make a determination on~~ the ~~acceptability of a facility, FDA may defer action on the application until an inspection can be completed.~~FDA’s inability to complete required inspections for their applications. 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

- 4536 -

that the FDA will be able to complete any required inspections or take other necessary actions in respect to our product candidate or future product candidates.

Third parties may claim that our product candidate or future product candidates infringe their rights, and we may incur significant costs resolving these claims. Additionally, legal proceedings related to such claims could materially delay or otherwise adversely affect commercialization plans related to our product candidate, if approved.

Third parties may claim infringement of their patents and other intellectual property rights by the manufacture, use, import, offer for sale or sale of our drug delivery technologies or our other products. For example, in connection with us seeking regulatory approval for a product candidate, a third party may allege that our product candidate infringes its patents or other intellectual property rights and file suit to delay/prevent regulatory approval and/or commercialization of such product.

In May 2021, Jazz Pharmaceuticals filed a complaint against us and certain of our subsidiaries in the United States District Court for the District of Delaware alleging infringement of certain of its patents.

In response to any claim of infringement, we may choose or be forced to seek licenses, defend infringement actions or challenge the validity or enforceability of those patent rights in court or administrative proceedings. If we cannot obtain required licenses on commercially reasonably terms, or at all, are found liable for infringement or are not able to have such patent rights declared invalid or unenforceable, our business could be materially harmed. We may be subject to claims (and even held liable) for significant monetary damages (including enhanced damages and/or attorneys’ fees), encounter significant delays in bringing products to market or be precluded from the manufacture, use, import, offer for sale or sale of products or methods of drug delivery covered by the patents of others. Even if a license is available, it may not be available on commercially reasonable terms or may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. We may not have identified, or be able to identify in the future, U.S. or non-U.S. patents that pose a risk of potential infringement claims.

In addition to the possibility of intellectual property infringement claims, a third party could submit a citizen petition to the FDA requesting relief that, if granted, could materially adversely affect the NDA and/or underlying product candidate. For example, such a third-party petition could, if granted, materially adversely affect the likelihood and/or timing of NDA approval, content of final product labeling, and/or resulting regulatory exclusivity (if any) for such product.

Parties making claims against us may be able to sustain the costs of patent litigation more effectively than we can because they have substantially greater resources. In addition, any claims, with or without merit, that our product candidate, future product candidates or drug delivery technologies infringe proprietary rights of third parties could be time-consuming, result in costly litigation or divert the efforts of our technical and management personnel, any of which could disrupt our relationships with our partners and could significantly harm our financial positions and operating results.

We currently depend on a single third party manufacturer and a single third party supplier of raw materials related to the development of our product candidate and any interruption of operations of either such provider could significantly delay or have a material adverse effect on our business.

Currently, we use a single supplier of raw materials and a single manufacturer of clinical materials. If FT218 is approved, we anticipate using the same third party manufacturer for commercial supply of FT218. If the supplies or manufacture of these products or materials were interrupted for any reason, including but not limited to, quality issues, natural disasters, labor or civil unrest, global health concerns or pandemics or acts of war or terrorism, the manufacturing and supply of FT218 could be delayed. If the supplies of these materials were interrupted for any reason, our manufacturing of our lead product candidate could be delayed. These delays could be extensive and expensive, especially in situations where a substitution was not readily available or required variations of existing regulatory approvals and certifications or additional regulatory approval. For example, an alternative supplier may be required to pass an inspection by the FDA, EMA or the competent authorities of EU Member States for compliance with current cGMP, requirements before supplying us with product or before we may incorporate that supplier’s ingredients into the manufacturing of our product candidate by our contract, development, and manufacturing organizations (“CDMOs”). Additionally, as a result of any such delays in either the supply or manufacturing, we may be unable to meet our projected needs for clinical supplies to support our activities through commercial manufacturing, if approved, and we may not be able to market or distribute FT218, if approved, on our expected timeline, or at all. Failure to obtain adequate supplies in a timely manner could have a material adverse effect on our business, financial condition and results of operations. While we plan to engage with additional suppliers and manufacturers for the supply of commercial batches for FT218, if approved, there can be no guarantee we will establish appropriate arrangements on acceptable terms, if at all.

- 37 -

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~Securities Purchase Agreement~~None.

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 private placement was exempt from registration pursuant to Section 4(a)(2) of the 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.

~~- 46 -~~

ITEM 6. EXHIBITS.


Exhibit No.						Description

31.1*						Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) promulgated under the Exchange Act
31.2*						Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) promulgated under the Exchange Act
32.1**						Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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
104						Cover 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.

- 4738 -

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 ~~9, 2020~~8, 2021	By:	/s/ Gregory J. Divis
		Gregory J. Divis
		Chief Executive Officer
		(Duly Authorized Officer and Principal Executive Officer)





Date: November ~~9, 2020~~8, 2021	By:	/s/ Thomas S. McHugh
		Thomas S. McHugh
		Senior Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

- 4839 -


		Page #
Cautionary Note Regarding Forward Looking Statements		3

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3024
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4434
Item 4.	Controls and Procedures	4434

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	4534
Item 1A.	Risk Factors	4534
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4638
Item 3.	Defaults Upon Senior Securities	4638
Item 4.	Mine Safety Disclosures	4638
Item 5.	Other Information	4638
Item 6.	Exhibits	4738


	Unaudited Pro Forma Condensed Combined Statement of Loss
	Nine Months Ended September 30, 2019
	As Reported		Pro Forma Adjustments		Notes	Pro Forma


Product sales	$	48,220	$	(48,007)	(j)	$	213









Total operating expense	64,985		(14,398)		(m)	50,587
Operating loss	(16,765)		(33,609)			(50,374)





Loss before income taxes	$	(26,846)	$	(33,113)	(n)	$	(59,959)


Inventory:	September 30, 2020		December 31, 2019

Finished goods	$	0	$	3,020
Raw materials	0		550
Total	$	0	$	3,570


	September 30, 2020						December 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


			Activity during the nine months ended September 30, 2020
					Changes in Fair Value of Contingent Consideration Payable
Contingent Consideration Payable:	Balance, December 31, 2019		Payments		Operating Expense		Other Expense		Disposition of the Hospital Products		Balance, 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 payable	17,327		$	(6,189)	$	3,327	$	435	$	(14,900)	0
Less: current portion	(5,554)										0
Long-term contingent consideration payable	$	11,773									$	0