Adamas's 15min chart triggers SMA20 Turn Downward, a bearish signal.

Based on Adamas's 15-minute chart, there has been a notable shift in market sentiment as the short-term moving average (SMA20) has turned downward. This change in direction indicates that the sellers are currently in control and are exerting downward pressure on the price in the short-term.

Avadel Pharmaceuticals (NASDAQ:AVDL) has emerged as a significant player in the sleep therapeutics market, with its lead product, Lumryz, gaining approval as the first and only once-at-bedtime Oxybate for Narcolepsy. This approval, coupled with orphan drug exclusivity from the FDA, positions Avadel as a leader in a rapidly growing market.

Lumryz, approved in May 2023, offers a unique advantage over twice-nightly alternatives, providing improved compliance and quality of life for patients. The company is also expanding its portfolio with Valiloxybate, a once-nightly formulation with a clean regulatory pathway, further enhancing its competitive edge. Avadel's strategy of differentiated Oxybate formulations that eliminate the need for redosing during the night has proven to be a major factor contributing to elevated drop-off rates in the Oxybate space.

The company's market positioning is bolstered by its addressable market of approximately 53,000 Narcolepsy patients and an estimated 40,000 Idiopathic Hypersomnia patients. Lumryz and Valiloxybate each represent opportunities of up to $2 billion, with peer economics confirming the realism of this assessment. Avadel's competitive advantage lies in its patent protection, improved compliance, and convenience, which are set to take a significant share of the market from Jazz Pharmaceuticals.

Despite these promising prospects, Avadel's stock trades like a cash-burning biotech, reflecting the market's underestimation of its potential. The company's legal overhang from its litigation with Jazz Pharmaceuticals has been sharply reduced, with Jazz being awarded a 3.85% royalty. Avadel is scheduled to return to court on November 3rd, where it could recover up to $2 billion in damages.

Industry experts have indicated that Lumryz and Valiloxybate could each represent opportunities of up to $2 billion, with peer economics from Jazz confirming the realism of this assessment. Meanwhile, the stock trades like a cash-burning biotech despite rapidly increasing operating leverage, a growing commercial base, significant tax assets, and a litigation catalyst that could unlock returns of capital. At current trading levels, the risk reward is asymmetric.

Avadel's valuation stands out as one of the most undervalued commercial-stage assets in the orphan CNS space. In the base case, Avadel reaches $2.36 billion in revenue by FY37, with Lumryz contributing ~$1.2 billion and Valiloxybate ~$1.1 billion across both Narcolepsy and Idiopathic Hypersomnia. Assumptions include base case average selling prices of $90,000 for Lumryz and $111,000 for Valiloxybate, figures that are supported by peer pricing from Jazz Pharmaceuticals' Oxybate suite. Reimbursed revenue is currently around 76%, due to Avadel’s Quickstart and Bridge programs, but normalizes to an 85% rate, and approaches $2 billion in FY35 - FY37.

The current valuation does not appear to account for a successful resolution of litigation with Jazz Pharmaceuticals. A pending decision on November 3rd could result in an award of up to $2 billion, or a settlement in the ~$700 million range. Both outcomes would eliminate significant SG&A overhang and unlock around $30 million in capital formerly allocated for legal expenses for reinvestment or, more likely, shareholder return, as management has indicated that any cash above $150 million will be returned to shareholders.

Avadel's valuation stands out next to peers operating in the sleep disorder treatment landscape. Key comparables include Jazz Pharmaceuticals (JAZZ), Harmony Biosciences (HRMY), Supernus (SUPN), Catalyst Pharmaceuticals (CPRX), Axsome Therapeutics (AXSM), and Acadia Pharmaceuticals (ACAD). Each business has a significant degree of exposure to sleep-wake neurology, CNS disorders, or orphan indications, providing relevant reference points for revenue and rNPV valuation. At 4.3x FY25 revenue, Avadel trades at a premium to the peer median of 3.1x. However, this normalizes as Lumryz ramps. Avadel forecasts 38% revenue growth into 2026, far outpacing the median of 17.4%. It also trades at just 7.0x its risk-adjusted net present value, a significant discount to the peer median of 15.1x, despite a clear path to commercialization for both of its assets.

Precedent transactions in the CNS and orphan drug space suggest that Avadel could be a compelling acquisition target for major pharmaceutical companies looking to expand into neurological and rare disease markets. The clinical superiority and convenience of Lumryz, coupled with pending competition from Valiloxybate, could completely erode Jazz’s customer base. The small- to mid-cap biotech acquisition space offers further support for Avadel's deep undervaluation, and clues to what a takeout scenario might look like.