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1 LAIDLAW & COMPANY London New York San Francisco Boston EQUITY RESEARCH Company Report Avadel Pharmaceuticals (AVDL - $6.27) Nocdurna s Approval Could Help Increase Nocturia Awareness As a result of the FDA s recent approval of Ferring s Nocdurna (desmopressin acetate) for nocturia, shares of AVDL have dropped ~15%. Although we concede that Nocdurna s approval comes slightly ahead of expectations, we see the recent pullback as having created an interesting buying opportunity. As previously noted, Noctiva launch priorities consist of 1) recognition by patients and physicians of nocturia as a disease of its own; and 2) understanding that Noctiva isn t your father s demospressin. We view the competitor s recent approval as helping build awareness and understanding of nocturia. As only ~0.08% of patients are currently treated for nocturia, increased buzz around the disease could significantly help AVDL penetrate this drastically under-recognized market, in our opinion. Additionally, while old desmopressin was plagued by safety concerns (increased risk of hyponatremia), we are particularly encouraged by the fact that Noctiva has ~1/100 th the old desmopressin content. Although Nocdurna s dosage options are ~25μg and ~50μg (inferior to the older version of ~100μg and ~200μg), they remain much higher than Noctiva s ~0.8μg and ~1.6μg doses. Another distinct advantage of Noctiva vs. Nocdurna is that with Nocdurna, fluid intake must be limited from 1 hour prior and until 8 hours after administration vs. no such restrictions for Noctiva. After speaking with management, we see as a real positive their confidence in their previously established guidance of $10M-$20M in Noctiva sales in We look forward to clear and unchanging guidance from AVDL regarding last patient enrollment in their REST-ON trial for FT- 218 (sodium oxybate, Xyrem-like formulation) in 2H18. With potentially increased awareness, ease of use, and safety advantages, we see the recent pullback as unwarranted and reiterate our Buy rating and $14 price target. Noctiva could benefit from Nocdurna s upcoming launch. As physician and patient education is critical to Noctiva s launch success and only ~0.08% of patients are currently treated for nocturia, we see any additional awareness as a net positive for AVDL. Noctiva s competitive edge, dosage and precautions. With significantly lower dosing options for Noctiva vs. Nocdurna, as well as no liquid intake precautions, we see Noctiva as the leading treatment option for nocturia. Reiterate BUY rating and $14 price target. Our price target is based on a sum-of-the-parts analysis with the FT-218 at $3.5/share, Eclat at $4.5/share, Noctiva at $3.5/share and cash (end 18) and tech value at $2.5/share. Earnings Estimates: (per share) (Dec) 1Q 2Q 3Q 4Q FY P/E FY-18E (0.34)A (0.34) (0.39) (0.48) (1.54) NA FY-17A (0.28) x FY-16A 0.03 (0.02) (0.08) 0.02 (0.06) NA FY-15A x Healthcare/Biotechnology Ticker: AVDL Rating: Buy Price Target: $14 Trading Data: Last Price (06/22/2018) $ Week High (01/25/2018) $ Week Low (06/22/2018) $6.08 Market Cap. (MM) $230.4 Shares Out. (MM) 36.8 Analyst Francois Brisebois, MSc (857) Source: Company data and estimates FOR ANALYST CERTIFICATION AND DISCLOSURES, PLEASE SEE DISCLOSURES SECTION AT THE END OF THIS REPORT. This report has been prepared by Laidlaw & Co (UK), Ltd. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices and consensus estimates are sourced from a reliable market source

2 Figure 1: Valuation Sum-of-the-parts valuation Segment Valuation Per share (000's) value Sodium Oxybate (FT 218) $158,061 $3.50 Eclat products $206,227 $4.50 Noctiva $163,645 $3.50 Cash (end of '18E) & tech value $100,151 $2.50 $628,084 $ fully diluted shares out 45,759 Source: estimates. Avadel Pharmaceuticals Page 2 of 9 Francois Brisebois

3 Figure 2: Clinical trials timeline Avadel Pharmaceuticals Potential clinical trial timeline estimates 2015A 2016A 2017A 2018E 2019E 2020E 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE Akovaz (Eclat #3) - ephedrine sulfate injection for hypotenstion in surgery Submitted NDA 2Q15 NDA FDA approved, 4/30/16 Launch AV001 (Eclat #4) Submit NDA FDA approval, 10-month review Launch FDA LAUNCH NDA FDA FT218 - Micropump oral controlled release sodium oxybate (eliminate middle of the night dosing) Additional PK studies FDA meeting 2Q15, SPA granted 3Q16 met SPA REST-ON, p3 registration trial, SPA 3Q16; enroll to complete yr end 2017 phase 3 data NDA 505(b)2 filing FDA approval & self-launch FDA LiquiTime - oral controlled delivery formulations in pain & respiratory Guaifenesin cough/cold compound data Partnered with Perrigo 10/5/15 Pivitol trial pivitol data prtnr NDA filing NDA FDA NDA Ibuprofen suspension - DROPPED 3Q16 Partnered with Perrigo 10/5/15 Drop compound prtnr drop Trigger Lock abuse resistant opioids - hydromorphone & 1 other compound (FT227) FDA meeting Phase 1 trials, compound #1 - data 6/29/15 p1 data FDA meeting Alcohol interaction study alc. Study data 12-month stability trial NDA 505(b)2 filing, FDA approval & launch Medusa - Exenatide GLP-1 agonist for Type 2 diabetes (FT228) Preclinical trials Phase 1b trials phase 1b data No additional spend on Medusa - to partner meet stability seek to partner out seek to partner out Source: Company reports; estimates. Avadel Pharmaceuticals Page 3 of 9 Francois Brisebois

4 Figure 3: Quarterly Income Statement Avadel Pharmaceuticals Quarterly income statement 2017A 2017A 2018E 2018E ($000's except per share) 1QA 2QA 3QA 4QA Year 1QA 2QE 3QE 4QE Year Revenues Bloxiverz (neostigmine) $13,902 $13,719 $9,920 $7,763 $45,304 $7,491 $5,419 $4,918 $4,918 $22,747 Vazculep (phenylephrine hci) 10,179 10,154 9,573 8,140 38,046 12,961 8,500 8,000 8,000 37,461 FSC products 2,038 2,320 1,093 2,989 8,441 1, ,826 Akovaz & Eclat #4 25,638 20,912 18,561 15,436 80,547 10,217 10,000 10,000 7,500 37,717 Sodium oxybate (Xyrem) Noctiva 666 2,909 3,637 4,364 10,910 License & research Product sales & service 1x, other, (licenses deals) , Total Revenues $52,507 $47,411 $39,675 $34,590 $173,434 $33,293 $26,828 $26,555 $24,782 $110,660 Expenses Cost of Goods Sold 3,856 4,561 3,790 4,048 16,301 6,592 3,283 3,461 3,502 16,838 Gross Margin 48,651 42,850 35,885 30, ,133 26,701 23,545 23,094 21,281 94,621 R&D 7,206 6,792 8,095 12,125 34,218 9,951 11,000 12,500 14,000 47,451 SG&A 11,812 12,429 11,563 23,058 58,862 24,487 20,750 21,250 21,750 88,237 Total Operating Expenses 19,018 19,221 19,658 35,183 93,080 34,438 31,750 33,750 35, ,688 Income (loss) from Ops 29,633 23,629 16,227 (4,641) 64,848 (7,737) (8,205) (10,656) (14,469) (41,067) Royalty payments - Eclat (9,616) (8,516) (7,264) (5,966) (31,362) (5,790) (4,923) (4,718) (4,203) (19,634) Interest income/(exp) (102) 1,798 (756) (1,750) (1,750) (1,750) (6,006) FOREX gain/(loss) 0 0 1x milestones Other income/(loss) (1,299) (1,166) (963) (818) (4,246) (797) (497) Pretax Income (Loss) 18,984 14,211 8,847 (11,527) 30,515 (15,080) (14,778) (17,024) (20,322) (67,204) Income tax exp/(benefit) 7,692 6,046 5,100 (556) 18,296 (2,082) (1,750) (1,750) (1,500) (7,082) Adj Net income/(loss) 11,292 8,165 3,747 (10,971) 12,233 (12,998) (13,028) (15,274) (18,822) (60,122) EPS - adjusted $0.24 $0.17 $0.08 ($0.28) $0.26 ($0.34) ($0.34) ($0.39) ($0.48) ($1.54) EPS as reported ($0.07) ($0.30) ($0.34) ($0.32) ($1.01) ($0.36) Shares out (000) 42,810 42,487 41,339 39,350 41,765 38,559 38,859 39,159 39,459 39,009 Fully diluted shares (000) 47,709 48,987 47,839 45,850 47,596 45,309 45,609 45,909 46,209 45,759 Source: Bloomberg LP; Company reports; estimates. Avadel Pharmaceuticals Page 4 of 9 Francois Brisebois

5 Figure 4: Annual Income Statement Avadel Pharmaceuticals Annual income statement ($000's except per share) 2016A 2017A 2018E 2019E 2020E Comments Revenues Bloxiverz (neostigmine) $82,896 $45,304 $22,747 $17,204 $16,461 WestWard entry 1Q16 Vazculep (phenylephrine hci) 39,796 38,046 37,461 25,000 22,500 Generics 2H16 FSC products 7,699 8,441 1, FSC underperforming Akovaz & Eclat #4 16,831 80,547 37,717 35,000 60,000 AKRX & ENDP in market 1Q17 LiquiTime royalty Licensed to Perrigo Noctiva 10,910 30,268 62,982 Noctiva launch 2Q18 Sodium Oxybate (Xyrem-like) 0 Eliminates middle night dosing 1x milestones (license deals) 2,161 1, Total Revenues $150,246 $173,434 $110,660 $107,472 $162, Guide: $165M-$175M Expenses 2018 Guide: $105M-$125M Cost of Goods Sold 12,742 16,301 16,838 18,148 22,448 Gross Margin 137, ,133 94,621 89, , RD Guide: $40M-$50M R&D 34,611 34,218 47,451 55,000 60, Guide: $30M-$35M SG&A 44,179 58,862 88, , , Guide: $60M-$65M Total Operating Expenses 78,790 93, , , , SG&A Guide: $$80M-$90M Income (loss) from Ops 58,714 64,848 (41,067) (70,676) (34,755) Royalty payments - Eclat (26,966) (31,362) (19,634) (15,892) (20,370) Deerfield & Broadfin payments Interest income 672 1,798 (6,006) (6,000) (6,000) Other income/(loss) (3,636) (4,246) (497) Pretax Income (Loss) 28,784 30,515 (67,204) (92,167) (60,725) Domicile structure drives tax rate Taxes 31,373 18,296 (7,082) (10,000) 29, Guide: 55%-65% tax rate Adj Net income/(loss) (2,589) 12,233 (60,122) (82,167) (90,222) Non cash & 1x-items 38,687 Net inc/(loss) as reported (41,276) EPS - adjusted ($0.06) $0.26 ($1.54) ($2.07) ($2.24) 2017 Guide: $0.25-$0.35 EPS as reported ($1.00) +15% CAGR Shares out (000) 41,248 41,765 39,009 39,761 40,363 Fully diluted shares (000) 48,181 47,596 45,759 46,511 47,113 Source: Bloomberg LP; Company reports; estimates. Avadel Pharmaceuticals Page 5 of 9 Francois Brisebois

6 Major risks Exogenous events could impact our outlook. We believe pharmaceutical companies have the least control over competitive, political, and regulatory risks. Although we have incorporated competitive assumptions into our forecasts, there may be other risks beyond the scope of our analysis. Changes in the drug reimbursement system, as well as any political or regulatory amendments, may significantly influence the earnings power of these companies. Actual clinical results and the FDA s conclusions may deviate from expectations. Many of our assumptions are based on a review of incomplete clinical trial data available in the public domain. Often, our conclusions are drawn from early stage data, which may not be reflected by pivotal studies. Furthermore, the FDA s conclusions may not coincide with our own, materially changing our revenue and earnings assumptions. Compliance issues, product recalls, and other mandates by regulatory authorities could materially change our expectations. Regulatory compliance issues, ranging from accounting irregularities to defective manufacturing practices, could materially change our assumptions and earnings outlook. Unanticipated product recalls and labeling changes could also have adverse consequences on our earnings assumptions. Legal risks could lead to additional liabilities and revenue loss. In addition to the expenses incurred by patent challenges, product liability and other legal suits could occur and lead to additional liabilities and revenue loss, which could substantially change our financial assumptions. Avadel Pharmaceuticals Page 6 of 9 Francois Brisebois

7 DISCLOSURES: ANALYST CERTIFICATION The analyst responsible for the content of this report hereby certifies that the views expressed regarding the company or companies and their securities accurately represent his personal views and that no direct or indirect compensation is to be received by the analyst for any specific recommendation or views contained in this report. Neither the author of this report nor any member of his immediate family or household maintains a position in the securities mentioned in this report. EQUITY DISCLOSURES For the purpose of ratings distributions, regulatory rules require the firm to assign ratings to one of three rating categories (i.e. Strong Buy/Buy-Overweight, Hold, or Underweight/Sell) regardless of a firm's own rating categories. Although the firm s ratings of Buy/Overweight, Hold, or Underweight/Sell most closely correspond to Buy, Hold and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis against the analyst sector universe of stocks. An analyst's coverage sector is comprised of companies that are engaged in similar business or share similar operating characteristics as the subject company. The analysis sector universe is a sub-sector to the analyst's coverage sector, and is compiled to assist the analyst in determining relative valuations of subject companies. The composition of an analyst's sector universe is subject to change over time as various factors, including changing market conditions occur. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12- months relative to the analyst's sector universe. Additional information available upon request. # Laidlaw & Co (UK) Ltd. has not provided any investment banking services for the company (ies) mentioned in this report over the last 12 months. RATINGS INFORMATION Rating and Price Target Change History 3 Year Rating Change History 3 Year Price Change History Source: Rating System* Strong Buy (SB) Expected to significantly outperform the sector over 12 months. Created by: Blue-Compass.net % of Companies Under Coverage With This Rating % of Companies for which Laidlaw & Company has performed services for in the last 12 months Investment Banking Brokerage 0.00% 0.00% 0.00% Buy (B) Expected to outperform the sector average over 12 months % 25.93% 3.70% Hold (H) Sell (S) Expected returns to be in line with the sector average over 12 months. Returns expected to significantly underperform the sector average over 12 months. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ADDITIONAL COMPANIES MENTIONED ADDITIONAL DISCLOSURES As of the date of this report, neither the author of this report nor any member of his immediate family or household maintains an ownership position in the securities of the company (ies) mentioned in this report. This report does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Laidlaw & Co (UK), Ltd. recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in this report may not be suitable for all investors, and certain investors may not be eligible to Avadel Pharmaceuticals Page 7 of 9 Francois Brisebois

8 purchase or participate in some or all of them. This report is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. Associated persons of Laidlaw & Co (UK), Ltd not involved in the preparation of this report may have investments in securities/instruments or derivatives of securities/instruments of companies mentioned herein and may trade them in ways different from those discussed in this report. While Laidlaw & Co (UK), Ltd., prohibits analysts from receiving any compensation. Bonus or incentive based on specific recommendations for, or view of, a particular company, investors should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. With the exception of information regarding Laidlaw & Co (UK), Ltd. this report is based on public information. Laidlaw & Co (UK), Ltd makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete and it should not be relied upon as such. Any opinions expressed are subject to change and Laidlaw & Co (UK), Ltd disclaims any obligation to advise you of changes in opinions or information or any discontinuation of coverage of a subject company. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Laidlaw & Co (UK), Ltd business areas. Laidlaw & Co (UK), Ltd associated persons conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices. market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject company's securities/instruments. Any trademarks and service marks contained in this report are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This report or any portion thereof may not be reprinted, sold or redistributed without the written consent of Laidlaw & Co (UK), Ltd. This report is disseminated and available primarily electronically, and, in some cases, in printed form. The information and opinions in this report were prepared by Laidlaw & Co (UK), Ltd. For important disclosures, please see Laidlaw & Co (UK), Ltd. s disclosure website at or contact your investment representative or Laidlaw & Co (UK), Ltd at 546 Fifth Ave, 5th Floor, New York, NY USA Laidlaw & Co. (UK), Ltd. Avadel Pharmaceuticals Page 8 of 9 Francois Brisebois

9 NOTES: Avadel Pharmaceuticals Page 9 of 9 Francois Brisebois