Share-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation

Share-Based Compensation 

Compensation expense included in the Company’s consolidated statements of loss for all share-based compensation arrangements was as follows for the periods ended December 31, 2022 and 2021, respectively:

Share-based Compensation Expense:	2022		2021
Research and development	$	169	$	758
Selling, general and administrative	6,844		8,114
Total share-based compensation expense	$	7,013	$	8,872

As of December 31, 2022, the Company expects $9,040 of unrecognized expense related to granted, but non-vested share-based compensation arrangements to be incurred in future periods. This expense is expected to be recognized over a weighted average period of 2.54 years. 

In 2022, the Company granted options with performance conditions to employees of which 50% vest upon the achievement of certain commercial milestones related to LUMRYZ and the other 50% vest one year following achievement of those milestones (“2022 Performance Options”). At December 31, 2022, achievement of these milestones was not considered probable and the Company has not yet recognized any share-based compensation on the 2022 Performance Options. In the event the performance conditions are met, $8,027 of share-based compensation expense is expected to be recognized.

The excess tax benefit related to share-based compensation recorded by the Company was not material for the years ended December 31, 2022 and 2021.

Upon exercise of stock options, or upon the issuance of restricted share awards or performance share unit awards, the Company issues new shares. 

At December 31, 2022, there were 752 shares authorized for stock option grants, restricted share award grants, and performance share unit award grants in subsequent periods. 

Inducement Plan

In November 2021, the Board of Directors approved the Avadel Pharmaceuticals plc 2021 Inducement Plan (the “Inducement Plan”), which allows the Company to grant equity awards to induce highly-qualified prospective officers and employees who are not currently employed by the Company to accept employment and provide them with a proprietary interest in the Company. The maximum number of shares reserved and available for issuance under the Plan is 1,500 shares. As of December 31, 2022, the Company had 1,278 shares available for issuance under this Inducement Plan in subsequent periods.

Determining the Fair Value of Stock Options

The Company measures the total fair value of stock options on the grant date using the Black-Scholes option-pricing model and recognizes each grant’s fair value as compensation expense over the period that the option vests. Other than the 2022 Performance Options described above, options are granted to employees of the Company and become exercisable ratably over four years following the grant date and expire ten years after the grant date. Prior to 2021, the Company issued stock options to its Board of Directors as compensation for services rendered that are exercisable ratably over three years following the grant

date, and expire ten years after the grant date. Beginning in 2021, the Company issued stock options to its Board of Directors as compensation for services rendered and are exercisable one year following the grant date and expire ten years after the grant date.

The weighted-average assumptions under the Black-Scholes option-pricing model for stock option grants as of December 31, 2022 and 2021 are as follows:   

Stock Option Assumptions:	2022		2021
Stock option grants:
Expected term (years)	6.09		6.20
Expected volatility	93.41	%	73.91	%
Risk-free interest rate	2.73	%	1.10	%
Expected dividend yield	—		—

Expected term: The expected term of the options represents the period of time between the grant date and the time the options are either exercised or forfeited, including an estimate of future forfeitures for outstanding options. Given the limited historical data, the simplified method has been used to calculate the expected life. 

Expected volatility: The expected volatility is calculated based on an average of the historical volatility of the Company’s stock price for a period approximating the expected term. 

Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and a maturity that approximates the expected term. 

Expected dividend yield: The Company has not distributed any dividends since its inception and have no plan to distribute dividends in the foreseeable future. 

Stock Options 

A summary of the combined stock option activity and other data for the Company’s stock option plans for the year ended December 31, 2022 is as follows:   

Stock Option Activity and Other Data:	Number of Stock Options	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Stock options outstanding, January 1, 2022	8,403	$	7.39
Granted	3,268	5.29
Exercised	(450)	5.46
Forfeited	(1,496)	7.24
Expired	(421)	9.65
Stock options outstanding, December 31, 2022	9,304	$	6.67	7.78 years	$	8,710
Stock options exercisable, December 31, 2022	4,059	$	7.40	6.33 years	$	6,859

The aggregate intrinsic value of options exercised during the year ended December 31, 2022 and 2021 was $877 and $249, respectively.

The weighted average grant date fair value of options granted during the years ended December 31, 2022 and 2021 was $4.02 and $5.36 per share, respectively. 

Restricted Share Awards 

Restricted share awards represent Company shares issued free of charge to employees of the Company as compensation for services rendered. The Company measures the total fair value of restricted share awards on the grant date using the Company’s stock price at the time of the grant. Restricted share awards granted from 2017-2020 vest over a three-year period; two-thirds (2/3) vesting on the second anniversary of the grant date and the remaining one-third (1/3) vesting on the third anniversary of the grant date. In 2021, restricted share awards granted to employees vest over a four-year period; one-fourth (1/4) on each anniversary of the grant date. In 2018, the Company issued restricted share awards to its Board of Directors vesting over a

three-year period; one-third (1/3) vesting on each of the three anniversaries of the grant date. Compensation expense for such awards granted during and after 2017 is recognized over the applicable vesting period. 

A summary of the Company’s restricted share awards as of December 31, 2022, and changes during the year then ended, is reflected in the table below. 

Restricted Share Activity and Other Data:	Number of Restricted Share Awards	Weighted Average Grant Date Fair Value
Non-vested restricted share awards outstanding, January 1, 2022	274	$	7.14
Granted	—	—
Vested	(144)	6.37
Forfeited	(74)	8.04
Non-vested restricted share awards outstanding, December 31, 2022	56	$	7.95

No restricted share awards were granted during the year ended December 31, 2022. The weighted average grant date fair value of restricted share awards granted during the year ended December 31, 2021 was $8.22 per share.

Performance Share Units Awards

Performance share units awards (“PSUs”) represent Company shares issued free of charge to employees of the Company as compensation for achieving various results. The Company measures the total fair value of performance share unit awards on the grant date using the Company’s stock price at the time of the grant. In 2020, the Company granted performance share awards, of which 50% vest upon the achievement of certain regulatory milestones related to LUMRYZ and the other 50% vest one year following achievement of those milestones (“2020 PSU awards”). The regulatory milestones were not met and the 2020 PSU awards were forfeited in 2022. The Company did not recognize any share-based compensation expense related to the 2020 PSU awards as of December 31, 2022.

In 2021, the Company granted performance share awards of which 50% vest upon achievement of certain corporate objectives and the second 50% vests one year following achievement of those objectives (“2021 PSU awards”). The objectives of the 2021 PSU awards were not met and the 2021 PSU awards were forfeited in 2022. The Company did not recognize any share-based compensation expense related to the 2021 PSU awards as of December 31, 2022.

A summary of the Company’s performance share units awards as of December 31, 2022, and changes during the year then ended, is reflected in the table below.

Performance Unit Share Activity and Other Data	Number of Performance Share Awards	Weighted Average Grant Date Fair Value
Non-vested performance share awards outstanding, January 1, 2022	535	$	7.71
Granted	—	—
Vested	—	—
Forfeited	(535)	7.71
Non-vested performance share awards outstanding, December 31, 2022	—	$	—

There were no performance share awards granted during the year ended December 31, 2022. The weighted average grant date fair value of performance share awards granted during the years ended December 31, 2021 was $8.20 per share.

Employee Share Purchase Plan

In 2017, the Board of Directors approved the Avadel Pharmaceuticals plc 2017 Avadel Employee Share Purchase Plan (“ESPP”). The total number of Company ordinary shares, nominal value $0.01 per share, or ADSs representing such ordinary shares (collectively, “Shares”) which may be issued under the ESPP is 1,000. The purchase price at which a share will be issued or sold for a given offering period will be established by the Compensation Committee of the Board (“Committee”) (and may differ among participants, as determined by the Committee in its sole discretion) but will in no event be less than 85% of the lesser of: (a) the fair market value of a Share on the offering date; or (b) the fair market value of a Share on the purchase date. During the years ended December 31, 2022 and 2021, the Company issued 75 and 17 ordinary shares to employees, respectively. Expense related to the ESPP for the years ended December 31, 2022 and 2021 was immaterial.