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AVNR > SEC Filings for AVNR > Form 10-Q on 7-May-2014All Recent SEC Filings




Quarterly Report


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 March 31, 2014 are also referred to as the second quarter of fiscal 2014.


We are a biopharmaceutical company focused on acquiring, developing and commercializing novel therapeutic products for the treatment of central nervous system disorders. Our lead product NUEDEXTA® (referred to as AVP-923 during clinical development) is a first-in-class dual NMDA receptor antagonist and sigma-1 agonist. NUEDEXTA, 20/10 mg, is approved in the United States for the treatment of pseudobulbar affect ("PBA"). It is also approved for PBA in the European Union in two dose strengths, NUEDEXTA 20/10 mg and NUEDEXTA 30/10 mg. We commercially launched NUEDEXTA in the United States in February 2011 and we are currently assessing plans regarding the potential commercialization of NUEDEXTA in the European Union.

We are studying the clinical utility of AVP-923 in other mood/behavior disorders and movement disorders. We have two ongoing Phase II clinical trials exploring the potential treatment of agitation in patients with Alzheimer's disease and potential treatment of levodopa-induced dyskinesia in Parkinson's disease (the "LID study"). The LID study is supported by a grant from the Michael J. Fox Foundation.

We are also developing AVP-786, a next generation drug product containing deuterium-modified dextromethorphan and quinidine for the treatment of neurologic and psychiatric disorders. We completed a pharmacokinetic study with AVP-786, and based on this data, we believe that we have identified a formulation of AVP-786 with a comparable pharmacokinetic profile, and likely a comparable, safety and tolerability profile to AVP-923. This AVP-786 formulation contains significantly less quinidine than used in AVP-923.

We are also developing a novel Breath Powered™ intranasal delivery system containing low-dose sumatriptan powder to treat acute migraine, AVP-825. If approved, this product would be the first and only fast-acting dry-powder nasal delivery form of sumatriptan. AVP-825 is licensed from OptiNose AS ("OptiNose"). Under the terms of the agreement, we assumed responsibility for regulatory, manufacturing, supply-chain and commercialization activities for the investigational product. We filed a New Drug Application ("NDA") with the U.S. Food and Drug Administration ("FDA") in January 2014. The Prescription Drug User Fee Act (PDUFA) date is scheduled for November 26, 2014.

We entered into a multi-year agreement with Merck Sharp & Dohme Corp. ("Merck") to co-promote Merck's type 2 diabetes therapies JANUVIA® (sitagliptin) and the sitagliptin family of products in the long-term care institutional setting in the United States beginning October 1, 2013. The term of the agreement will continue for three years following the launch date of the co-promotion activities. Under the terms of the agreement, we will be compensated via a
(i) fixed monthly fee and (ii) performance fee based on the amount of the products sold by us above a predetermined baseline. A significant majority of the fee is performance based. Over the three years of the agreement, Avanir could receive up to a maximum of $60.0 million in compensation.

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.

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We have developed and licensed certain intellectual property rights relating to NUEDEXTA and our existing drug candidates (AVP-923, AVP-786 and AVP-825) and we continue to seek to acquire rights to other complementary products and technologies, particularly following our successful defense of the patents underlying NUEDEXTA. As a result, we may seek to in-license or acquire through other means, such as mergers, stock purchases or asset purchases, complementary products and technologies, as well as sales and marketing infrastructure and other assets or resources. There can be no assurance, however, that we will be successful in acquiring any additional assets or that we will receive the anticipated benefits of any such acquisitions.

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

The following chart illustrates the status of research and development activities for our products and product candidates that are commercialized or under development.

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In addition to the research and development programs identified above, Avanir has provided unrestricted research grants to support several investigator initiated studies with AVP-923. Current studies planned or ongoing include potential treatment of behavioral symptoms of adults with autism spectrum disorder, treatment of bulbar function (impaired speech, swallowing, and saliva control) associated with amyotrophic lateral sclerosis (ALS), and treatment of refractory depression. For additional information regarding these studies please see

NUEDEXTA for the Treatment of Pseudobulbar Affect

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 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 studied in other types of emotional lability that can commonly occur, for example, in Alzheimer's disease and other dementias.

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, 2013. For additional information regarding PBA or NUEDEXTA see or

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We launched NUEDEXTA in the United States in February 2011 with a specialty sales force calling primarily on physicians that care for patients where PBA is most commonly observed. This includes patients with underlying MS, ALS, Parkinson's disease ("PD"), Alzheimer's disease, traumatic brain injury and stroke. Our commercial efforts focus on the outpatient setting where patients typically receive prescription medications through retail and mail-order pharmacies and the institutional setting where patients typically receive prescription medications through an institutional pharmacy.

The table below shows total net product sales and dispensed units (capsules) for NUEDEXTA during the past four quarterly periods.

                                                               Three Months Ended
                                    June 30,           September 30,         December 31,          March 31,
                                      2013                 2013                  2013                 2014
Net product sales                 $ 19,044,288        $    20,233,418        $  23,299,027        $ 24,379,159
Percentage growth over
previous quarter                          15.2 %                  6.2 %               15.2 %               4.6 %
Total dispensed units
(capsules)                           2,301,794              2,568,626            2,798,569           2,868,468
Percentage growth over
previous quarter                          26.9 %                 11.6 %                9.0 %               2.5 %

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 approximately 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 approximately 16 PD patients across three study centers in the U.S. 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.

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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 global neuropathic pain market was approximately $2.4 billion in 2010 and is expected to grow to $3.6 billion by 2020 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. Given the recent results of our Phase II study (PRIME) for the treatment of central neuropathic pain in multiple sclerosis, we are continuing to evaluate our options for this program, including the use of AVP-786 in the advancement of this program.

AVP-786 for the Treatment of Neurologic and Psychiatric Disorders

AVP-786 is a novel investigational drug product consisting of a combination of deuterium-modified dextromethorphan (a new chemical entity or NCE) and the metabolic inhibitor quinidine. The compound was developed through incorporation of deuterium into molecular positions of dextromethorphan, resulting in strengthened molecular bonds which reduce susceptibility to enzyme cleavage. Based on interim data, we believe that we have identified a formulation of AVP-786 with a comparable pharmacokinetic profile, and likely a comparable safety and tolerability profile to AVP-923. This AVP-786 formulation contains significantly less quinidine than used in AVP-923. In June 2013, the FDA agreed to an expedited development pathway for AVP-786, requiring only a limited non-clinical package as part of the Investigational New Drug application. Upon completion of these non-clinical studies, we intend to proceed directly into human clinical trials. We currently intend to study AVP-786 in neuropathic pain, agitation in patients with Alzheimer's disease and treatment resistant depression.

AVP-825 for the Treatment of Acute Migraine

AVP-825 is an investigational drug-device combination product consisting of low-dose sumatriptan powder to treat acute migraine. The powder is delivered intranasally utilizing a novel Breath Powered delivery technology. If approved, AVP-825 would be the first and only fast-acting dry-powder intranasal form of sumatriptan. We have filed an NDA with the FDA in January 2014. The Prescription Drug User Fee Act (PDUFA) is scheduled for November 26, 2014.

Migraine represents an area of significant unmet medical need. According to the Centers for Disease Control and Prevention, over 37 million Americans suffer from migraine headaches. The triptan class of medications is generally considered the standard of care with over 13 million prescriptions written annually. Sumatriptan is the class leader with a market share of over 50%, making it the most commonly prescribed migraine drug in the U.S. An online survey of over 2,500 frequent migraine sufferers revealed that 66% were dissatisfied with their treatments. As a result, many migraine sufferers are seeking fast-acting, well tolerated treatment options.

Partnered Programs

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.

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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 had the right to receive royalties from GSK on sales of Abreva until the expiration of the patent for Abreva on April 28, 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 $62.0 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.

Under the terms of our docosanol license agreements, our partners are generally responsible for all regulatory approvals, sales and marketing activities, and manufacturing and distribution of the product in the licensed territories. The terms of the license agreements typically provide for us to receive a data transfer fee, potential milestone payments and royalties on product sales. We purchase the active pharmaceutical ingredient ("API"), docosanol, from a large supplier in Western Europe and have, on occasion, sold material to our licensees. We currently store our API in the United States. Any material disruption in manufacturing could cause a delay in shipments and possible loss of sales.

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 Our Internet website address is 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,


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, 2013 in the "Critical Accounting Policies and Estimates" section. The following represents an update for the six months ended March 31, 2014 to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013.

Revenue recognition

Product Sales - NUEDEXTA. NUEDEXTA is sold primarily to third-party wholesalers who, in turn, sell this product to retail pharmacies, hospitals, and other dispensing organizations. We have entered into agreements with wholesale customers, group purchasing organizations 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. We recognize revenue upon shipment of NUEDEXTA to our wholesalers and other customers.

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

We offer discounts to certain of our customers, including discounts to wholesalers for certain services, cash discounts to customers for the early payment of trade receivables and patient discounts in the form of co-pay assistance for the purchase of NUEDEXTA through the use of coupons. We accrue for discounts based on the contractual terms of agreements with customers and historical experience. The estimated redemption cost of the coupons accrued is based on the historical experience for NUEDEXTA and sell-through data purchased from third parties. Cash discount accruals for early payment of trade receivables are recorded as a contra asset to trade receivables in our condensed consolidated balance sheets. All other discount accruals are recorded in accrued expenses in our condensed consolidated balance sheets.

We participate in various managed care access rebate programs, the largest of which relate to Medicaid, Medicare and commercial insurers. We also incur chargebacks, which are contractual discounts given primarily to federal government agencies and group purchasing organizations. We estimate rebate and chargeback accruals using quantitative factors such as contractual terms of agreements with our customers, historical experience, estimated percentages of product sold to qualified patients and estimated levels of inventory in the distribution channel. These quantitative factors are supplemented by additional factors such as our judgment with respect to many factors, including but not limited to, current market dynamics, changes in sales trends, an evaluation of current laws and regulations and product pricing. We evaluate percentages of NUEDEXTA sold to qualified patients primarily through analysis of wholesaler and other third party sell-through and research data. Additionally, there is a significant time lag between the date we estimate the accrual and when we actually pay the accrual. Due to this time lag, we record adjustments to estimated accruals over several periods, which can result in a net increase to net loss or a decrease to net loss in those periods. The rebate and chargeback accruals are recorded in accrued expenses in our condensed consolidated balance sheets.

We estimate future returns and record a returns reserve as a reduction to revenue. The returns reserve represents a reserve for NUEDEXTA that may be returned primarily due to product expiration and is estimated based on contractual terms with customers and historical return trends as a percentage of gross sales. The returns reserve is recorded as a contra asset to trade receivables in our condensed consolidated balance sheets. We have experienced annual returns of approximately 1% of gross product sales over the past two years.

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The following table provides a summary of activity with respect to our sales allowances and accruals as of March 31, 2014.

                                     Balance at                                                  Balance at
                                      9/30/2013         Accruals         Payments/Credits         3/31/2014
Accrued discounts                    $   890,569      $  3,816,522      $       (3,707,538 )     $   999,553
Accrued rebates and chargebacks        3,596,332        10,033,419              (9,739,799 )       3,889,952
Other accrued discounts                   26,135           303,908                (287,885 )          42,158

Subtotal                               4,513,036        14,153,849             (13,735,222 )       4,931,663
Reserve for doubtful accounts            207,828                -                 (207,828 )              -
Reserve for product returns                   -            701,268                (340,233 )         361,035
Reserve for cash discounts               264,138         1,182,419              (1,173,556 )         273,001

Total                                $ 4,985,002      $ 16,037,536      $      (15,456,839 )     $ 5,565,699

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