Except for the historical information contained herein, the matters set forth in this Annual Report on Form 10-K, including statements regarding the Company's plans, potential opportunities, financial or other expectations, projections, goals objectives, milestones, strategies, market growth, timelines, legal matters, product pipeline, clinical studies, product development and the potential benefits of its commercialized products and products under development are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the anticipated or estimated future results, including the risks and uncertainties associated with Avanir's future operating performance and financial position, developments in Avanir's ongoing NUEDEXTA patent litigation, the market demand for and acceptance of Avanir's

products domestically and internationally, research, development and commercialization of new products domestically and internationally, obtaining and maintaining regulatory approvals domestically and internationally, including, but not limited to potential regulatory delays or rejections in the filing or acceptance of the Marketing Authorization Application, uncertainty regarding use of the data package which served as the basis for the U.S. FDA approval, risks associated with meeting the objectives of clinical studies, including, but not limited to, delays or failures in enrollment, and the occurrence of adverse safety events, and other risks set forth below under Item 1A, "Risk Factors" and other documents subsequently filed with or furnished to the Securities and Exchange Commission. These forward-looking statements are based on current information that may change and you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update any forward-looking statement to reflect events or circumstances after the date hereof. 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.

Executive Overview

We are 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 NUEDEXTA (referred to as AVP-923 during clinical development), a unique proprietary combination of dextromethorphan and low-dose quinidine, for the treatment of pseudobulbar affect ("PBA"). We commenced promotion of NUEDEXTA in the United States in February 2011 and are currently pursuing approval of NUEDEXTA in Europe.

The table below shows gross product sales and dispensed prescription data for NUEDEXTA since we began promotion in February 2011. Quarterly average capsules per prescription has ranged between 49 and 52 capsules.

                                                                                      Three Months Ended
                              March 31,        June 30,          September 30,         December 31,         March 31,           June 30,          September 30,
                                 2011            2011                2011                  2011              2012(1)              2012                2012
Gross product sales           $  504,966      $ 2,187,124       $     4,322,688       $    6,285,631       $ 11,185,298       $ 12,205,811       $    15,431,249
Total dispensed
prescriptions                      1,219            5,136                10,210               14,626             19,823             26,428                31,018
Percentage growth over
previous quarter                     N/A              321 %                  99 %                 43 %               36 %               33 %                  17 %

(1) Includes a one-time adjustment to gross product sales of approximately $1.9 million as a result of a change in accounting estimate.

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, we have initiated 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 ("DPN pain") with positive results. Additional Phase III trials would need to be completed for approval of this indication.

In February 2012, we entered into a license agreement with Concert pursuant to which we licensed from Concert exclusive, worldwide rights to develop and commercialize Concert's 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 with the reduced need or elimination of 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 antagonists and sigma-1 agonists may be beneficial.

In August 2012, we enrolled the first patient in study AVR-131, a Phase II clinical trial investigating the use of AVP-923 for the treatment of agitation in patients with Alzheimer's disease.

In October 2012, we were awarded a grant from the Michael J. Fox Foundation to evaluate the safety and efficacy of AVP-923 for the treatment of levodopa-induced-dyskinesia in Parkinson's disease.

In November 2012, we initiated the first-in-human Phase I clinical trial of AVP-786 (formally known as d-DM). The trial is designed to access the single and multiple dose pharmacokinetics, safety and tolerability of AVP-786 administered to healthy subjects.

In addition to our focus on products for the central nervous system, we also have partnered programs in other therapeutic areas which may generate future revenue for us. Our first commercialized product, docosanol 10% cream, (sold in the United States and Canada as Abreva® 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.

Avanir was incorporated in California in August 1988 and was reincorporated in Delaware in March 2009.

In addition to the summary above, additional significant accomplishments in fiscal 2012 and subsequent to the end of fiscal 2012 through the date of this filing that have materially affected our operations, financial condition and prospects are:

• In the first quarter of fiscal 2012, we initiated the first of two sales force expansions. The initial expansion involved adding approximately 30 representatives to focus on the institutional care setting. Subsequently, in the fourth quarter of fiscal 2012, we further expanded this institutional sales force and currently have approximately 55 representatives.

• In November 2011, we enrolled the first patient in PRIME, our Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with multiple sclerosis.

• In November 2011, the European Medicines Agency ("EMA") accepted the filing of the Marketing Authorization Application (MAA) for NUEDEXTA for the treatment of PBA. The MAA acceptance triggers the initiation of the EMA's scientific assessment and opinion review period which will take a minimum of 210 calendar days.

• In May 2012, we secured a $30.0 million term loan from Oxford Finance LLC and Silicon Valley Bank.

• In July 2012, an additional patent covering NUEDEXTA was issued and listed in the FDA Orange Book, further expanding our intellectual property portfolio.

• In August 2012, we achieved the milestone of surpassing 10,000 total monthly prescriptions.

Our principal focus is on the commercialization of NUEDEXTA for the PBA indication. We believe that cash and cash equivalents and restricted investments of approximately $72.1 million at September 30, 2012, together with funds generated from sales of NUEDEXTA, will be sufficient to fund our operations for at least the next 12 months. For additional information about the risks and uncertainties that may affect our business and prospects, please see Item 1A, "Risk Factors."

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of assumptions and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Significant estimates and assumptions made by management include, among others, realizability of inventories, sales returns, discounts and allowances, provisions for uncollectible receivables, valuation of investments, recoverability of long-lived assets, recognition of deferred revenue, contingencies and

share-based compensation, determination of expenses in outsourced contracts, and realization of deferred tax assets. We base our estimates on historical experience and various other assumptions that are available at that time and that we believe to be reasonable under the circumstances. Some of these judgments can be subjective and complex. For any given individual estimate or assumption made by us, there may also be other estimates or assumptions that are reasonable. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

Revenue Recognition

We have historically generated revenues from product sales, collaborative research and development arrangements, and other commercial arrangements such as royalties, the sale of royalty rights and sales of technology rights. Payments received under such arrangements may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements designated in the agreements, royalties on sales of products resulting from collaborative arrangements, and payments for the sale of rights to future royalties.

We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) our price to the buyer is fixed or determinable; and
(4) collectability is reasonably assured. In addition, certain product sales are subject to rights of return. For products sold where the buyer has the right to return the product, we recognize revenue at the time of sale only if (1) our price to the buyer is substantially fixed or determinable at the date of sale,
(2) the buyer has paid us, or is obligated to pay us and the obligation is not contingent on resale of the product, (3) the buyer's obligation to us would not be changed in the event of theft or physical destruction or damage of the product, (4) the buyer acquiring the product for resale has economic substance apart from that provided by us, (5) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (6) the amount of future returns can be reasonably estimated. We recognize such product revenues when we have met all the above criteria, including the ability to reasonably estimate future returns, or when we can reasonably estimate that the return privilege has substantially expired, whichever occurs first.

Product Sales - NUEDEXTA. NUEDEXTA is sold primarily to third-party wholesalers that, in turn, sell this product to retail pharmacies, hospitals, and other dispensing organizations. We have entered into agreements with wholesale customers, certain medical institutions and third-party payers throughout the United States. These agreements frequently contain commercial terms, which may include favorable product pricing and discounts and rebates payable upon dispensing the product to patients. Additionally, these agreements customarily provide the customer with rights to return the product, subject to the terms of each contract. Consistent with pharmaceutical industry practice, wholesale customers can return purchased product during an 18-month period that begins six months prior to the product's expiration date and ends 12 months after the expiration date.

Our net product sales represent gross product sales less allowances for customer credits, including estimated discounts, rebates, chargebacks and co-pay assistance. These allowances provided by us to a customer are presumed to be a reduction of the selling prices of our products or services and, therefore, are characterized as a reduction of revenue when recognized in our statement of operations. Allowances for discounts, rebates, chargebacks and co-pay assistance are estimated based on contractual terms with customers and sell-through data purchased from third parties. We believe the assumptions used to estimate these allowances are reasonable considering known facts and circumstances. However, actual rebates and chargebacks could differ materially from estimated amounts because of, among other factors, unanticipated changes in prescription trends and any change in assumptions affecting sell-through data purchased from third parties. Product shipping and handling costs are included in cost of product sales.

Prior to the second quarter of fiscal 2012, we were unable to reasonably estimate future returns due to the lack of sufficient historical return data for NUEDEXTA. Accordingly, we invoiced the wholesaler, recorded deferred revenue at gross invoice sales price less estimated cash discounts and distribution fees, and classified the inventory shipped as finished goods. We deferred recognition of revenue and the related cost of product sales on shipments of NUEDEXTA until the right of return no longer existed, i.e. when we received evidence that the products had been dispensed to patients. We estimated patient prescriptions dispensed using an analysis of third-party information.

Change in Accounting Estimate

Based on historical data gathered from January 2011 through the end of the second quarter of fiscal 2012, we developed a methodology to reasonably estimate product returns and provide a basis for recognizing revenue on sales to customers at the time of product shipment. Historically, NUEDEXTA product returns have been immaterial and we are not accruing for product returns. We analyzed many factors including the sell-down of launch inventory, actual experience of returned NUEDEXTA product, taking into account expiration dating at the time of shipment, levels of inventory in the wholesaler channel in relation to prescription units dispensed, and retail pharmacy reorder activity. Accordingly, beginning in the quarter ended March 31, 2012, we began to recognize revenue upon shipment of NUEDEXTA to its wholesalers and other customers to provide a more accurate estimate of product sales activity.

As a result of recognizing revenue upon shipment of NUEDEXTA to its wholesalers and other customers, we recognized as a one-time adjustment to net product revenue of approximately $1.7 million in fiscal 2012, which was recorded as deferred revenue at September 30, 2011. This increase in net product revenue resulted in a reduction to net loss for fiscal 2012, of approximately $1.6 million, or a reduction to net loss per share of $0.01.

Product Sales - Active Pharmaceutical Ingredient docosanol ("docosanol"). Revenue from our sales of docosanol is recorded when title and risk of loss have passed to the buyer provided the criteria for revenue recognition has been met. We sell docosanol to various licensees upon receipt of a written order for the materials. Shipments generally occur fewer than three times a year. Our contracts for sales of docosanol include buyer acceptance provisions that give buyers the right of replacement if the delivered product does not meet specified criteria. That right requires that they give us notice within 30 days after receipt of the product. We have the option to refund or replace any such defective materials; however, we have historically demonstrated that the materials shipped from the same pre-inspected lot have consistently met the specified criteria and no buyer has rejected any of our shipments from the same pre-inspected lot to date. Therefore, we recognize revenue at the time of delivery without providing any returns reserve.

Multiple Element Arrangements. We have, in the past, entered into arrangements whereby we deliver to the customer multiple elements including technology and/or services. Such arrangements have included some combination of the following:
antibody generation services; licensed rights to technology, patented products, compounds, data and other intellectual property; and research and development services. At the inception of the arrangement, we analyze the multiple element arrangements to determine whether the elements can be separated. If a product or service is not separable, the combined deliverables will be accounted for as a single unit of accounting.

A delivered element can be separated from other elements when it meets both of the following criteria: (1) the delivered item has value to the customer on a standalone basis; and (2) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control. If an element can be separated, we allocate amounts based upon the selling price of each element. We determine the selling price of a separate deliverable using the price we charge other customers when we sell that product or service separately; however, if we do not sell the product or service separately, we use third-party evidence of selling price of a similar product or service to a similarly situated customer. We consider licensed rights or technology to have standalone value to our customers if we or others have sold such rights or technology separately or our customers can sell such rights or technology separately without the need for our continuing involvement. We have not entered into any multiple element arrangements during fiscal 2012, 2011 or 2010, that require us to estimate selling prices.

License Arrangements. License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements are often multiple element arrangements.

Non-refundable, up-front fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compound is delivered. Such deliverables may include physical quantities of

compounds, design of the compounds and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounds. We defer recognition of non-refundable upfront fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have required continuing involvement through research and development services that are related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement.

Payments related to substantive, performance-based milestones in a research and development arrangement are recognized as revenues upon the achievement of the milestones as specified in the underlying agreements when they represent the culmination of the earnings process.

Royalty Arrangements. We recognize royalty revenues from licensed products when earned in accordance with the terms of the license agreements. Net sales amounts generally required to be used for calculating royalties include deductions for returned product, pricing allowances, cash discounts, freight and warehousing. These arrangements are often multiple element arrangements.

Certain royalty arrangements provide that royalties are earned only if a sales threshold is exceeded. Under these types of arrangements, the threshold is typically based on annual sales. For royalty revenue generated from the license agreement with GSK, we recognize royalty revenue in the period in which the threshold is exceeded.

When we sell our rights to future royalties under license agreements and also maintain continuing involvement in earning such royalties, we defer recognition of any upfront payments and recognize them as revenues over the life of the license agreement. We recognize revenues for the sale of an undivided interest of our Abreva® license agreement to Drug Royalty USA under the "units-of-revenue method." Under this method, the amount of deferred revenues to be recognized in each period is calculated by multiplying the ratio of the royalty payments due to Drug Royalty USA by GSK for the period to the total remaining royalties we expect GSK will pay Drug Royalty USA over the remaining term of the agreement by the unamortized deferred revenues.

Cost of Product Sales

Cost of product sales includes third-party royalties and direct and indirect costs to manufacture product sold, including packaging, storage, shipping and handling costs and the write-off of obsolete inventory.

Recognition of Expenses in Outsourced Contracts

Pursuant to our assessment of the services that have been performed on clinical trials and other contracts, we recognize expense as the services are provided. Our assessments include, but are not limited to: (1) an evaluation by the project manager of the work that has been completed during the period,
(2) measurement of progress prepared internally and/or provided by the third-party service provider, (3) analyses of data that justify the progress, and (4) management's judgment. Several of our contracts extend across multiple reporting periods, including our largest contract, representing a $13.8 million Phase II clinical trial contract that was entered into during fiscal 2011.

Research and Development Expenses

Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, facilities and other overhead expenses, clinical trials, contract services and outsource contracts. Research and development expenses are charged to operations as they are incurred. Up-front payments to collaborators made in exchange for the avoidance of potential future milestone and royalty payments on licensed technology are also charged to research and development expense when the drug is still in the development stage, has not been approved by the FDA for commercialization and currently has no alternative uses.

We assess our obligations to make milestone payments that may become due under licensed or acquired technology to determine whether the payments should be expensed or capitalized. We charge milestone payments to research and development expense when:

• The technology is in the early stage of development and has no alternative uses;

• There is substantial uncertainty regarding the future success of the technology or product;

• There will be difficulty in completing the remaining development; and

• There is substantial cost to complete the work.

Acquired contractual rights. Payments to acquire contractual rights to a licensed technology or drug candidate are expensed as incurred when there is uncertainty in receiving future economic benefits from the acquired contractual rights. We consider the future economic benefits from the acquired contractual rights to a drug candidate to be uncertain until such drug candidate is approved by the FDA or when other significant risk factors are abated.

Share-Based Compensation

We grant options, restricted stock units and restricted stock awards to purchase our common stock to our employees, directors and consultants under our stock option plans. The benefits provided under these plans are share-based payments that we account for using the fair value method.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model ("Black-Scholes model") that uses assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Expected volatilities are based on historical volatility of our common stock and other factors. The expected terms of options granted are based on analyses of historical employee termination rates and option exercises. The expected risk-free interest rates are based on the U.S. Treasury yield in effect at the time of the grant. Since we do not expect to pay dividends on our common stock in the foreseeable future, we estimated the dividend yield to be 0%.

If factors change and we employ different assumptions in calculating the fair value in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation. Because changes in the subjective input assumptions can materially affect our estimates of fair values of our share-based compensation, in our opinion, existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our share-based compensation. Consequently, there is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon . . .