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 December 31, 2012 are also referred to as the first quarter of fiscal 2013.

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 NUEDEXTA ® (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 gross product sales and dispensed prescription data for NUEDEXTA for the past four quarterly periods. Over the past four quarters, quarterly average capsules per prescription ranged between 50 and 51 capsules.

                                                               Three Months Ended
                                   March 31,            June 30,           September 30,         December 31,
                                    2012 (1)              2012                 2012                  2012
Gross product sales               $ 11,185,298        $ 12,205,811        $    15,431,249        $  18,373,831
Total dispensed prescriptions           19,823              26,428                 31,018               34,102
Percentage growth over
previous quarter                            36 %                33 %                   17 %                 10 %

(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, agitation and dyskinesia. We have initiated a 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.

We are also developing AVP-786, a drug product containing deuterium-modified dextromethorphan, ("d-DM") for the potential treatment of neurologic and psychiatric disorders. In February 2013, we completed the first of a two-stage pharmacokinetic study with AVP-786. Based on interim data, we believe that we have identified a formulation of AVP-786 with a comparable pharmacokinetic, safety and tolerability profile to AVP-923. We have requested a meeting with the FDA to discuss the full development path for AVP-786.

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.

AVP-923 has also successfully completed a Phase III trial for the treatment of patients with diabetic peripheral neuropathic pain with positive results. Additional Phase III trials using either AVP-923 or AVP-786 would need to be completed for approval of this indication.

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 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.

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 ("ALS") and multiple sclerosis ("MS"). 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.

NUEDEXTA safety information

A copy of the NUEDEXTA safety information has been filed as Exhibit 99.1 on our Annual Report on Form 10-K for the period ended September 30, 2012.

AVP-923 for the Potential Treatment of Neuropathic Pain

AVP-923 for the treatment of MS-related pain

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. In February 2013, based on the successful interim Phase I results from the AVP-786 study, we modified enrollment from approximately 400 to 200 patients both in the U.S. and internationally. This will accelerate completion of the study and we plan to use the data from the PRIME study to guide the further development of AVP-786.

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, including the use of AVP-786 in the advancement of this program.

Other Programs

AVP-923 for the treatment of agitation in patients with Alzheimer's disease

Alzheimer's disease is generally characterized by cognitive decline, impaired performance of daily activities, and behavioral disturbances. Behavioral and psychiatric symptoms develop in as many as 60% of community-dwelling dementia patients and in more than 80% of patients with dementia living in nursing homes; as the disease progresses the risk of such complications approaches 100%. Dementia-related behavioral symptoms, including agitation, can be extremely distressing to the individual, the family, and caregivers. These behavioral disturbances have been associated with more rapid cognitive decline, institutionalization, and increased caregiver burden.

The objectives of this proof-of-concept study are to evaluate the safety, tolerability, and efficacy of AVP-923 for the treatment of agitation in Alzheimer's patients. The trial is a multicenter, randomized, double-blind, placebo-controlled study that is expected to enroll up to 200 Alzheimer's patients in the United States. Eligible patients will be randomized to receive either AVP-923 or placebo for 10 weeks. The primary efficacy measure is the agitation/aggression domain of the Neuropsychiatric Inventory or NPI. Secondary outcome measures include assessments of disease severity, behavioral abnormalities, cognition, activities of daily living, quality of life and caregiver strain. Standard safety assessments will also be conducted.

AVP-923 for the treatment of levodopa-induced-dyskinesia

Levodopa-induced-dyskinesia ("LID") occurs in most patients with Parkinson's disease ("PD") after several years of treatment, generally in association with other motor response complications, such as wearing-off or "on-off" fluctuations. Dyskinesia may be as disabling as the parkinsonism itself, and current treatment options are limited and are not always effective.

This proof-of-concept, double blind, randomized, crossover study will compare AVP-923 (45mg DM/10mg Q) with placebo for treatment of LID. The study will enroll PD patients across three study centers in the US and Canada. Study participants will receive, in a random order, a 2-week treatment with AVP-923 and a 2-week placebo treatment, separated by a 2-week break. At the end of each 2-week treatment period, patients will receive a 2-hour levodopa infusion to test the drug effect on dyskinesia. Patients will be carefully monitored throughout the 6-week study for side effects, Parkinson's symptoms and general health status. The results of this study will help inform future development of AVP-923 for LID. This study is being funded through a grant awarded by the Michael J. Fox Foundation.

AVP-786

AVP-786 is a novel compound developed through incorporation of deuterium into specific molecular positions of dextromethorphan. The compound maintains similar pharmacology to that of dextromethorphan, but is less susceptible to metabolism by the CYP2D6 enzyme. Avanir licensed exclusive worldwide right to AVP-786 from Concert Pharmaceuticals, Inc. ("Concert").

In February 2013, we completed the first stage of a two-stage pharmacokinetic study with AVP-786. Based on interim data, we believe that we have identified a formulation of AVP-786 with a comparable pharmacokinetic, safety and tolerability profile to AVP-923. We have requested a meeting with the FDA to discuss the full development path for AVP-786.

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 Abreva® 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, we received a total of $25 million in milestone payments from GSK and we were entitled to receive an 8% royalty on net sales of Abreva by GSK.

In November 2002, we sold to Drug Royalty USA an undivided interest in our right 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 the later of December 2013, or until the expiration of the patent for Abreva on April 14, 2014. We 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 our royalty rights to Drug Royalty USA, Inc., we 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, 2012 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 DECEMBER 31, 2012 AND 2011

Revenues



                                              Three months ended
                                                 December 31,
                                             2012             2011            $ Change         % Change
REVENUES
Gross product sales                      $ 18,373,831      $ 6,285,631      $ 12,088,200             192 %
Less: discounts and allowances              3,494,569          796,868         2,697,701             339 %

Net product sales                          14,879,262        5,488,763         9,390,499             171 %
Revenues from royalties                     1,626,010        1,676,120           (50,110 )            -3 %
Revenues from research grant services          15,000               -             15,000              -

Total revenues                           $ 16,520,272      $ 7,164,883      $  9,355,389             131 %

Total revenues were approximately $16.5 million for the three months ended December 31, 2012 compared to approximately $7.2 million for the three months ended December 31, 2011. The increase in net revenues of approximately $9.4 million was primarily attributed to an increase in volume for NUEDEXTA net product sales which we began promoting commercially in February 2011.

Discounts and allowances increased approximately $2.7 million for the three months ended December 31, 2012 when compared to the three months ended December 31, 2011. Discounts and allowances were 19.0% for the three months ended December 31, 2012 compared to 12.7% for the three months ended December 31, 2011. The increase in the discount and allowances percentages is primarily due to new contracts entered into with managed care entities during fiscal 2012. We expect discounts and allowances to increase in the next twelve months as we enter into additional contracts with additional managed care entities.

Potential revenue-generating contracts that remained active as of December 31, 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.

Operating Expenses



                                             Three months ended
                                                December 31,
                                           2012              2011           $ Change         % Change
OPERATING EXPENSES
Cost of product sales                  $    838,129      $    309,803      $   528,326             171 %
Cost of research grant services               9,398                -             9,398              -
Research and development                  6,648,091         3,744,515        2,903,576              78 %
Selling and marketing                    13,522,419        13,782,837         (260,418 )            -2 %
General and administrative                6,538,403         5,292,182        1,246,221              24 %

Total operating expenses               $ 27,556,440      $ 23,129,337      $ 4,427,103              19 %

Cost of Product Sales

Cost of product sales was approximately $838,000 for the three months ended December 31, 2012 compared to cost of product sales of approximately $310,000 in the same period of fiscal 2012. The increase in cost of product sales is attributable to an increase in the volume of NUEDEXTA net product sales which we began promoting commercially in February 2011.

Research and Development Expenses

Research and development expenses increased by approximately $2.9 million from approximately $3.7 million in the first quarter of fiscal 2012 to approximately $6.6 million for the first quarter of fiscal 2013. The increase is primarily due to costs of approximately $1.3 million for the AVP-786 Phase I study which began in the second quarter of fiscal 2012, increased costs of approximately $733,000 for a Phase II clinical trial investigating the use of AVP-923 for the treatment of agitation in patients with Alzheimer's disease, and increased costs of approximately $673,000 associated with PRIME, a Phase II clinical trial of AVP-923 for the treatment of central neuropathic pain in patients with MS, for which we enrolled our first patient in November 2011. We expect the quarterly expenditures for research and development expenses to increase over the first quarter of fiscal 2013 level 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 and our AVP-786 development program. 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 decreased by approximately $260,000 from approximately $13.8 million for the first quarter of fiscal 2012 compared to approximately $13.5 million for the first quarter of fiscal 2013. The decrease is primarily attributed to lower costs associated with marketing and market research and other marketing costs of approximately $1.4 million partially offset by increased personnel costs of approximately $1.1 million resulting from sales force expansions. Selling and marketing expenses are expected to increase over the first quarter of fiscal 2013 level as we continue promotion efforts for NUEDEXTA.

General and Administrative Expenses

General and administrative expenses increased by approximately $1.2 million from approximately $5.3 million for the first quarter of fiscal 2012 compared to approximately $6.5 million for the first quarter of fiscal 2013. The increase is primarily attributed to increased legal costs associated with the enforcement of our intellectual property rights related to NUEDEXTA.

Share-Based Compensation

Total share-based compensation expense in the three month periods ended December 31, 2012 and 2011 was approximately $1.4 million and $1.2 million, respectively. Selling and marketing expense in the three month

periods ended December 31, 2012 and 2011 includes share-based compensation expense of approximately $316,000 and $130,000, respectively. General and administrative expense in the three month periods ended December 31, 2012 and 2011 includes share-based compensation expense of approximately $823,000 and $791,000, respectively. Research and development expense in the three month periods ended December 31, 2012 and 2011 includes share-based compensation expense of approximately $268,000 and $241,000, respectively. As of December 31, 2012, approximately $14.8 million of total unrecognized compensation costs related to non-vested options and awards is expected to be recognized over a weighted average period of 3.1 years. See Note 11, "Employee Equity Incentive Plans" in the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.

Interest Income

For the three months ended December 31, 2012, interest income was approximately $19,000, compared to approximately $14,000 for the same period in the prior year.

Interest Expense

For the three months ended December 31, 2012, interest expense was approximately $1.1 million. There was no interest expense for the same period in the prior year. Interest expense in the first quarter of fiscal 2013 is related to the financing arrangement we entered into in June 2012.

Net Loss

Net loss was approximately $12.1 million, or $0.09 per share, for the three months ended December 31, 2012 compared to a net loss of approximately $15.9 million, or $0.12 per share, for the three months ended December 31, 2011. The decrease in net loss is primarily attributed to increased NUEDEXTA net product . . .