3. BUSINESS COMBINATION

Acquisition of Avadel Pharmaceuticals plc

On February 12, 2026, the Company successfully completed the Avadel Acquisition, adding both LUMRYZ to the Company’s proprietary commercial products and a commercial organization with experience in narcolepsy. Pursuant to the Transaction Agreement, the Company acquired all of the issued and outstanding Avadel Shares for $21.00 per share in cash and a non-transferable CVR entitling holders of Avadel Shares to a potential additional cash payment of $1.50 per Avadel Share, contingent upon achievement of a certain specified milestone (the “CVR Milestone”).

Contingent payments of up to $165.7 million may become due to former Avadel shareholders upon the achievement of the CVR Milestone. In connection therewith, the Company recorded a contingent consideration liability of $107.7 million as of the Closing Date to reflect the estimated fair value of such contingent consideration. The estimated fair value of the contingent consideration was determined under an income approach using a Probability-Weighted Discounted Cash Flow Model (“DCF”). The key assumptions considered include probability of milestone achievement and estimated discount rates. At each reporting period after the Avadel Acquisition, the Company will revalue the contingent consideration liability and will record increases or decreases in the fair value of the liability in its condensed consolidated statements of operations and comprehensive (loss) income. Changes in fair value will result from changes in actual and projected achievement of the CVR Milestone, as well as changes to the discount rate. The change in the fair value of the contingent consideration from the Closing Date through March 31, 2026 was not material.

In connection with the Avadel Acquisition, the vesting of certain outstanding Avadel equity awards was accelerated as of the Closing Date and each vested Avadel equity award became entitled to receive cash consideration and the right to receive one CVR per Avadel Share. The purchase price for the Avadel Acquisition includes $134.9 million related to Avadel Shares for which vesting was accelerated in connection with the acquisition and is attributable to pre-combination service. The Company recognized share-based compensation expense of $20.2 million during the three months ended March 31, 2026 related to the acceleration of unvested share-based compensation awards attributable to post-combination service and the fair value related to the contingent CVR payment that could be made to former Avadel employees as of the Closing Date.

The Avadel Acquisition has been accounted for as a business combination, using the acquisition method of accounting in accordance with Topic 805. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.

The Company’s purchase price allocation is preliminary and based on the information available as of the reporting date. The Company’s estimates and assumptions are subject to refinement as the Company continues to review information related to the Avadel Acquisition. The Company remains in the process of reviewing and finalizing the measurement of certain assets acquired and liabilities assumed, including but not limited to: tax positions, and other tax-related matters, and the estimated fair values of acquired intangible assets and inventory. Adjustments to the valuation of assets acquired and liabilities assumed will result in a corresponding adjustment to goodwill. The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the Closing Date.

Acquired Inventory

The fair value of the acquired inventory was estimated using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or to dispose of the inventory, as well as a market-participant profit allowance.

Acquired Intangible Assets

The fair value of LUMRYZ was estimated based on a multi-period excess earnings method which calculates the present value of the estimated revenues and net cash flows derived from LUMRYZ. Amortization of LUMRYZ is calculated using the percentage of excess earnings over the economic useful life method. The IPR&D relates to the product candidate acquired in the Avadel Acquisition, valiloxybate. Due to the early stage of development of this asset, and given the proximity to the Closing Date of a license agreement entered into by Avadel related to valiloxybate and the lack of suitable market comparables, the valuation was prepared utilizing a cost approach consisting of the upfront payment under the license agreement, together with additional development costs incurred by Avadel through prior to the Closing Date in respect of valiloxybate.

Deferred Tax Liabilities

The deferred tax liability of $183.1 million relates to the tax effect of the difference between the fair value and tax basis of acquired intangible assets owned by an Irish subsidiary of the Company. The deferred tax asset of $1.2 million relates to the tax effect of acquired net operating losses and temporary differences, partially offset by the difference between the fair value and tax basis of acquired intangible assets and inventory owned by a U.S. subsidiary of the Company.

Goodwill

The excess of the estimated fair value of the purchase price consideration over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the Avadel Acquisition. The factors that contributed to the recognition of goodwill included the synergies that are specific to the Company’s business and not available to market participants, including the acquisition of a commercial organization with experience in narcolepsy which accelerates the Company’s commercial entry into the sleep medicine market and provides a strong foundation for the potential launch of alixorexton, the Company’s lead orexin development candidate. Goodwill is not deductible for tax purposes.

Revenues and Net (Loss) Income of Avadel

The operations of Avadel for the period of the Closing Date through March 31, 2026 have been included in the Company’s condensed consolidated statements of operations and comprehensive (loss) income for the quarter ended March 31, 2026. Total revenues of $39.5 million and net income of $16.2 million were recorded for this period.

Transaction Costs

In conjunction with the Avadel Acquisition, the Company incurred approximately $34.8 million of transaction costs during the three months ended March 31, 2026, all of which were recognized as selling, general and administrative in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. There were no transaction costs for the Avadel Acquisition incurred during the three months ended March 31, 2025.

Pro forma financial information (unaudited)

The following unaudited pro forma information presents the combined results of operations for the three months ended March 31, 2026 and 2025 as if the Avadel Acquisition had been completed on January 1, 2025. The unaudited pro forma financial information is based on the historical financial information for the Company and Avadel, along with certain pro forma adjustments described below. The unaudited pro forma information for the three months ended March 31, 2026 reflects revenues and net loss of Avadel from January 1, 2026 through the Closing Date, and excludes approximately $77.7 million of direct one-time transaction costs incurred by Avadel. The following unaudited pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations had the Avadel Acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results.

The unaudited pro forma financial information includes, where applicable, adjustments primarily for:

The unaudited pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the Avadel Acquisition or revenue growth that may be anticipated.