This Quarterly Report on Form 10-Q contains forward-looking statements concerning future events and performance of the Company. When used in this report, the words "intend," "estimate," "anticipate," "believe," "plan" or "expect" and similar expressions are included to identify forward-looking statements. These forward-looking statements are based on our current expectations and assumptions and many factors could cause our actual results to differ materially from those indicated in these forward-looking statements. You should review carefully the factors identified in "Risk Factors" in this report in Part II, Item 1A. and in Part I, Item 1A. in our most recent Annual Report on Form 10-K filed with the SEC. We disclaim any intent to update or announce revisions to any forward-looking statements to reflect actual events or developments. Except as otherwise indicated herein, all dates referred to in this report represent periods or dates fixed with reference to the calendar year, rather than our fiscal year ending September 30. The three months ended June 30, 2012 are also referred to as the third quarter of fiscal 2012.

EXECUTIVE OVERVIEW

Avanir is a pharmaceutical company focused on acquiring, developing and commercializing novel therapeutic products for the treatment of central nervous system disorders. In October 2010, the U.S. Food and Drug Administration ("FDA") approved NUEDEXTAŽ (referred to as AVP-923 during clinical development), a unique proprietary combination of dextromethorphan ("DM") and low-dose quinidine, for the treatment of pseudobulbar affect ("PBA"). We commenced promotion of NUEDEXTA in the United States in February 2011 and we are currently pursuing the approval of NUEDEXTA in Europe.

The table below shows dispensed prescription data for NUEDEXTA for the past four quarterly periods. In fiscal 2012, quarterly average capsules per prescription ranged between 50 and 51 capsules.

                                                                 Three Months Ended
                                       September 30,          December 31,          March 31,         June 30,
                                           2011                   2011                2012              2012
Total dispensed prescriptions                  10,210                14,626             19,823           26,428
Percentage growth over previous
quarter                                            99 %                  43 %               36 %             33 %

We are also studying AVP-923 for use in other potential indications including pain and agitation. We have initiated a large Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with multiple sclerosis. In addition, the Company has filed an IND with the FDA and plans to initiate a Phase II study evaluating AVP-923 for treatment of agitation in patients with Alzheimer's disease during the fourth quarter of fiscal 2012.

AVP-923 has also completed a Phase III trial for the treatment of patients with diabetic peripheral neuropathic pain with positive results. Additional Phase III trials would need to be completed for approval of this indication.

On February 29, 2012, we entered into a license agreement with Concert Pharmaceuticals, Inc. ("Concert") pursuant to which we licensed from Concert exclusive, worldwide rights to develop and commercialize Concert's deuterium-modified dextromethorphan ("d-DM") for the potential treatment of neurologic and psychiatric disorders, as well as certain rights to other deuterium-modified dextromethorphan compounds. We believe that d-DM compounds may provide therapeutically effective levels of DM, potentially without the need for an enzyme inhibitor such as quinidine. We intend to explore the utility of d-DM in neurological and psychiatric disorders where dual N-Methyl-D-aspartic acid ("NMDA") antagonists and sigma-1 agonists may be beneficial.

In addition to our focus on products for the central nervous system, we also have partnered programs in other therapeutic areas that may generate future revenue for us. Our first commercialized product, docosanol 10% cream

(sold in the United States and Canada as AbrevaŽ by our marketing partner GlaxoSmithKline Consumer Healthcare), is the only over-the-counter treatment for cold sores that has been approved by the FDA. In 2008, we out-licensed all of our monoclonal antibodies and we remain eligible to receive milestone payments and royalties related to the sale of these assets.

NUEDEXTA for the Treatment of PBA

NUEDEXTA is the first and only FDA-approved treatment for PBA. PBA occurs secondary to a variety of otherwise unrelated neurological conditions, and is characterized by involuntary, sudden, and frequent episodes of laughing and/or crying. PBA episodes typically occur out of proportion or incongruent to the patient's underlying emotional state.

NUEDEXTA is an innovative combination of two well-characterized components:
dextromethorphan hydrobromide (20 mg), the ingredient that is pharmacologically active in the central nervous system, and quinidine sulfate (10 mg), a metabolic inhibitor enabling dextromethorphan to reach therapeutic plasma concentrations. NUEDEXTA acts on sigma-1 and NMDA receptors in the brain, although the mechanism by which NUEDEXTA exerts therapeutic effects in patients with PBA is unknown.

Studies to support the effectiveness of NUEDEXTA were performed in patients with PBA and underlying amyotrophic lateral sclerosis, or ALS, and multiple sclerosis. The primary outcome measure, the number of laughing and crying episodes, was significantly lower in the NUEDEXTA cohort compared with placebo. The secondary outcome measure, the Center for Neurologic Studies Lability Scale (CNS-LS), demonstrated a significantly greater mean decrease in CNS-LS score from baseline for the NUEDEXTA cohort compared with placebo. NUEDEXTA has not been shown to be safe and effective in other types of emotional lability that can commonly occur, for example, in Alzheimer's disease and other dementias.

AVP-923 for the Potential Treatment of Neuropathic Pain

AVP-923 for the treatment of MS-related pain

Multiple Sclerosis ("MS") is one of the most frequent chronic neurologic diseases causing significant disability in young adults. Among the many neurological complications of MS, chronic pain has a significant impact on the daily life of patients with this disease.

Several distinct pain conditions associated with MS have been characterized in various literature, including optic neuritis, headache, musculoskeletal pain (which includes painful tonic spasms, back pain and muscle spasms) and central neuropathic pain (which includes extremity pain, trigeminal neuralgia and Lhermitte's sign). While the specific pain mechanisms associated with each condition have not been fully identified, it is believed that neuropathic pain results from neurologic damage caused by demyelinating lesions. Pain is a common symptom experienced by many MS patients and, in particular, approximately 30% of MS patients experience central neuropathic pain during the course of the disease.

In September 2009, we reported on secondary efficacy endpoints from the double-blind phase of the AVP-923 STAR trial in PBA, including an endpoint measuring reduction of MS-related pain. AVP-923 30/10 mg demonstrated statistically significant decrease in pain scores compared to placebo in the subset of MS patients with moderate-to-severe pain. Based on these results, we filed an IND application with the FDA to begin a Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with MS. The FDA accepted the proposed clinical investigational plan included in the submission and we enrolled the first patient in November 2011.

The objectives of the study, known as Pain Research In Multiple sclErosis ("PRIME"), are to evaluate the safety, tolerability, and efficacy of three dose levels of AVP-923 capsules for the treatment of central neuropathic pain in a population of patients with MS. The trial is a multicenter, randomized, double-blind, placebo-controlled, 4-arm parallel group study. Eligible patients will be randomized to receive one of the three dose levels of AVP-923 containing either 45mg DM/10mg Q, 30mg DM/10mg Q, 20mg DM/10mg Q or placebo, daily for 12 weeks. The primary efficacy endpoint is the Pain Rating Scale obtained from daily patient diaries. Secondary endpoints include

measure of fatigue, impact of MS on daily life, sleep quality, cognition and depression. Safety will be assessed by monitoring adverse events, clinical laboratory tests, electrocardiograms, physical examinations, and vital signs. We expect to enroll approximately 400 patients both in the U.S. and internationally.

AVP-923 for the treatment of diabetic neuropathic pain

Diabetic peripheral neuropathic pain ("DPN pain"), which arises from nerve injury, can result in a chronic and debilitating form of pain that has historically been poorly diagnosed and treated. It is often described as burning, tingling, stabbing, or pins and needles in the feet, legs, hands or arms. An estimated 3.5 million people in the United States experience DPN pain according to the American Diabetes Association. DPN pain currently is most commonly treated with antidepressants, anticonvulsants, opioid analgesics and local anesthetics. Most of these treatments have limited effectiveness or undesirable side effects resulting in a high degree of unmet medical need. The neuropathic pain market is continuing to grow rapidly, and in 2006, was estimated to be worth $2.6 billion in sales among the seven largest markets, consisting of the United States, Japan, France, Germany, Italy, Spain and the United Kingdom.

Avanir has completed a Phase III clinical trial for AVP-923 in the treatment of patients with DPN pain. In April 2007, we announced positive top-line data from our first Phase III clinical trial of AVP-923 for the treatment of patients with DPN pain. The most commonly reported adverse events from this Phase III study were dizziness, nausea, diarrhea, fatigue and somnolence, which were mild to moderate in nature. We are continuing to evaluate our options for this program and next steps.

Docosanol 10% Cream-Cold Sore Treatment

Docosanol 10% cream is a topical treatment for cold sores. In 2000, we received FDA approval for marketing docosanol 10% cream as an over-the-counter product. Since that time, docosanol 10% cream has been approved by regulatory agencies in Asia, North America, and Europe. In March 2000, we granted a subsidiary of GlaxoSmithKline, SB Pharmco Puerto Rico, Inc. ("GSK"), the exclusive rights under a license to market docosanol 10% cream in the United States and Canada ("GSK License Agreement"). GSK markets the product under the name AbrevaŽ in these markets. Under the terms of the GSK License Agreement, GSK is responsible for all sales and marketing activities and the manufacturing and distribution of docosanol 10% cream. Under the GSK license agreement, the Company received a total of $25 million in milestone payments from GSK and the Company was entitled to receive an 8% royalty on net sales of Abreva by GSK.

In November 2002, the Company sold to Drug Royalty USA an undivided interest in the Company's rights to receive future Abreva royalties under the GSK License Agreement for $24.1 million (the "Drug Royalty Agreement"). Under the Drug Royalty Agreement, Drug Royalty USA has the right to receive royalties from GSK on sales of Abreva until December 2013. The Company retained the right to receive 50% of all royalties (a net of 4%) under the GSK License Agreement for annual net sales of Abreva in the U.S. and Canada in excess of $62 million. From the effective date of the GSK License Agreement up to the 2002 sale of the Company's royalty rights to Drug Royalty USA, Inc., the Company received a total of approximately $5.9 million in royalty payments from GSK attributed to the 8% royalty on net sales by GSK.

General Information

Our principal executive offices are located at 20 Enterprise, Suite 200, Aliso Viejo, California 92656. Our telephone number is (949) 389-6700 and our e-mail address is info@avanir.com. Our Internet website address is www.avanir.com. We make our periodic and current reports available on our Internet website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. No portion of our website is incorporated by reference into this Quarterly Report on Form 10-Q. The public may read and copy the materials we file with the SEC at the SEC's Public Reference Room, located at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The public may also read and copy the materials we file with the SEC by visiting the SEC's website, www.sec.gov.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

To understand our financial statements, it is important to understand our critical accounting policies and estimates. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and allowances, certain royalties and returns and losses. Significant estimates and assumptions are also required in the appropriateness of amounts recognized for inventories, income taxes, contingencies, and share-based compensation. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption made by us, there may also be other estimates or assumptions that are also reasonable. Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions are made. Actual results may differ significantly from our estimates.

A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in Part II, Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2011 in the "Critical Accounting Policies and Estimates" section, as updated and amended in Note 2 of the Notes to our Condensed Consolidated Financial Statements included herein.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Revenues



                                   Three months ended
                                        June 30,
                                  2012            2011          $ Change        % Change
    REVENUES
    Net product sales         $ 10,050,573     $ 1,932,235     $ 8,118,338            420 %
    Revenues from royalties        487,423         547,900         (60,477 )          -11 %

    Total net revenues        $ 10,537,996     $ 2,480,135     $ 8,057,861            325 %

Total net revenues were approximately $10.5 million for the three months ended June 30, 2012 compared to approximately $2.5 million for the three months ended June 30, 2011. The increase in net revenues of approximately $8.1 million was primarily attributed to the product sales of NUEDEXTA which we began promoting commercially in February 2011.

Potential revenue-generating contracts that remained active as of June 30, 2012 include licensing revenue from our agreement with GSK, potential royalties from our agreement to out-license all of our monoclonal antibodies and modest potential revenue generated from various other licensing agreements. Partnering, licensing and research collaborations have been, and may continue to be, an important part of our business development strategy. We may continue to seek partnerships with pharmaceutical companies that can help fund our operations in exchange for sharing in the success of any licensed compounds or technologies.

Cost of Product Sales

Cost of product sales was approximately $564,000 for the three months ended June 30, 2012 compared to cost of product sales of approximately $119,000 in the same period of fiscal 2011. The increase in cost of product sales is attributable to the increase in sales of NUEDEXTA which we began promoting commercially in February 2011.

Operating Expenses



                                    Three months ended
                                         June 30,
                                   2012             2011          $ Change       % Change
  OPERATING EXPENSES
  Research and development     $  6,831,206     $  3,258,950     $ 3,572,256           110 %
  Selling and marketing          12,694,855       10,532,066       2,162,789            21 %
  General and administrative      5,160,414        4,617,987         542,427            12 %

  Total operating expenses     $ 24,686,475     $ 18,409,003     $ 6,277,472            34 %

Research and Development Expenses

Research and development expenses increased by approximately $3.6 million from approximately $3.3 million in the third quarter of fiscal 2011 to approximately $6.8 million for the third quarter of fiscal 2012. The increase is primarily due to costs of approximately $2.0 million associated with the Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with MS that began in the third quarter of fiscal 2011 and approximately $644,000 of increased regulatory costs primarily to support pursuing approval for NUEDEXTA in Europe. We expect the quarterly expenditures for research and development expenses over the next three months to increase over the third quarter of fiscal 2012 as we continue to execute on our regulatory filing plan for NUEDEXTA in Europe and continue our Phase II clinical trials of AVP-923 for treatment of central neuropathic pain in patients with MS and for treatment of agitation in patients with Alzheimer's disease. Medical affairs initiatives related to our marketed product, NUEDEXTA, are also included in research and development expenses.

Selling and Marketing Expenses

Selling and marketing expenses increased by approximately $2.2 million from approximately $10.5 million for the third quarter of fiscal 2011 compared to approximately $12.7 million for the third quarter of fiscal 2012. The increase is primarily attributed to costs associated with the commercial launch of NUEDEXTA, including increased personnel costs of approximately $2.3 million resulting from a sales force expansion and other key commercial headcount partially offset by decreased marketing and market research and other costs of approximately $175,000. Selling and marketing expenses are expected to remain at the same level as the third quarter of fiscal 2012 through the end of fiscal 2012.

General and Administrative Expenses

General and administrative expenses increased by approximately $542,000 from approximately $4.6 million for the third quarter of fiscal 2011 compared to approximately $5.2 million for the third quarter of fiscal 2012. The increase is primarily attributed to increased personnel costs of approximately $387,000 resulting from the hiring of key corporate headcount to support the commercialization of NUEDEXTA partially offset by a decrease in other corporate costs of approximately $153,000. General and administrative expenses are expected to increase into fiscal 2013 as we incur legal defense costs attributed to the enforcement of our intellectual property rights related to NUEDEXTA.

Share-Based Compensation

Total share-based compensation expense in the three month periods ended June 30, 2012 and 2011 was approximately $1.2 million and $957,000, respectively. Selling and marketing expense in the three month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $277,000 and $184,000, respectively. General and administrative expense in the three month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $732,000 and $608,000, respectively. Research and development expense in the three month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $209,000 and $164,000, respectively. As of June 30, 2012, approximately $11.5 million of total unrecognized compensation costs related to non-vested options and awards is expected to be recognized over a weighted average period of 2.7 years. See Note 11, "Employee Equity Incentive Plans" in the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.

Other Income (Expense)

For the three months ended June 30, 2012, other income (expense) was approximately $318,000 expense, compared to approximately $17,000 expense for the same period in the prior year. The increase is primarily due to interest expense related to our notes payable of approximately $326,000 for the three months ended June 30, 2012. There was no such expense in the same period of the prior year.

Net Loss

Net loss was approximately $15.0 million, or $0.11 per share, in the three months ended June 30, 2012 compared to a net loss of approximately $16.1 million, or $0.13 per share, for the three months ended June 30, 2011.

COMPARISON OF NINE MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Revenues



                                  Nine months ended
                                      June 30,
                                2012             2011           $ Change        % Change
   REVENUES
   Net product sales          $24,681,209     $ 2,394,249     $ 22,286,960            931 %
   Revenue from royalties       3,062,058       3,340,876         (278,818 )           -8 %

   Total revenues           $  27,743,267     $ 5,735,125     $ 22,008,142            384 %

Total net revenues were approximately $27.7 million for the nine months ended June 30, 2012 compared to approximately $5.7 million for the nine months ended June 30, 2011. The increase in net revenues of approximately $22.0 million was primarily attributed to the product sales of NUEDEXTA, which we began promoting commercially in February 2011. Included in net product sales for the nine months ended June 30, 2012 is an approximately $1.7 million one-time adjustment resulting from a change in accounting estimate. The change in accounting estimate was a change from recognizing revenue when the right of return no longer existed to recognizing revenue upon shipment to wholesalers and other customers.

Cost of Product Sales

Cost of product sales was approximately $1.4 million for the nine months ended June 30, 2012 compared to cost of product sales of approximately $234,000 in the same period of fiscal 2011. The increase in cost of product sales is attributable to the sales of NUEDEXTA which we began promoting commercially in February 2011.

Operating Expenses



                                    Nine months ended
                                        June 30,
                                  2012             2011           $ Change        % Change
 OPERATING EXPENSES
 Research and development     $ 16,970,876     $  9,622,129     $  7,348,747             76 %
 Selling and marketing          41,291,705       26,142,533       15,149,172             58 %
 General and administrative     15,799,587       12,379,731        3,419,856             28 %

 Total operating expenses     $ 74,062,168     $ 48,144,393     $ 25,917,775             54 %

Research and Development Expenses

Research and development expenses increased by approximately $7.3 million from approximately $9.6 million in the nine months ended June 30, 2011 to approximately $17.0 million for the nine months ended June 30,

2012. The increase is primarily due to costs of approximately $3.9 million associated with the Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with MS that began in the third quarter of fiscal 2011, costs of approximately $2.2 million for the d-DM development program which began in the second quarter of fiscal 2012, and approximately $707,000 of increased regulatory costs primarily to support pursuing approval for NUEDEXTA in Europe.

Selling and Marketing Expenses

Selling and marketing expenses increased by approximately $15.1 million from approximately $26.1 million for the nine months ended June 30, 2011 compared to approximately $41.3 million for the nine months ended June 30, 2012. The increase is primarily attributed to costs associated with the commercial launch of NUEDEXTA, including increased personnel costs of approximately $9.9 million resulting from a sales force expansion and other key commercial headcount; increased marketing and market research costs of approximately $4.6 million; and increased other costs of approximately $643,000.

General and Administrative Expenses

General and administrative expenses increased by approximately $3.4 million from approximately $12.4 million for the nine months ended June 30, 2011 compared to approximately $15.8 million for the nine months ended June 30, 2012. The increase is primarily attributed to increased personnel costs of approximately $1.4 million resulting from the hiring of key corporate headcount to support the commercialization of NUEDEXTA; increased legal expense of approximately $1.5 million primarily due to the enforcement of our intellectual property rights; and increased other corporate costs of approximately $485,000.

Share-Based Compensation

Total share-based compensation expense in the nine month periods ended June 30, 2012 and 2011 was approximately $3.6 million and $2.7 million, respectively. Selling and marketing expense in the nine month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $642,000 and $402,000, respectively. General and administrative expense in the nine month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $2.3 million and $1.9 million, respectively. Research and development expense in the nine month periods ended June 30, 2012 and 2011 includes share-based compensation expense of approximately $717,000 and $463,000, respectively.

Other Income (Expense)

For the nine months ended June 30, 2012, other income (expense) was approximately $292,000 expense, compared to less than $1,000 expense for the same period in the prior year. The increase is primarily due to interest expense related to our notes payable of approximately $326,000 for the nine months ended . . .