• Avanir pre-announced fiscal 2012 results reporting $15.4 million in Gross Nuedexta sales. Our gross to net calculation suggests net Nuedexta sales just ahead of our $12 million estimate (consensus $11.6M, $11.1M-$12M). The company also indicated that operating expenses excluding costs of product sales and non-cash items should come in at the low end of previous guidance of $94 to $96 million, suggesting on a quarterly basis fiscal Q4 expenses of ~$20 million compared to. Q3
expenses of $25 million.
• We anticipate that Hurricane Sandy will impact AVNR’s sales in the short term but remain optimistic about NUEDEXTA’s longer-term potential noting that despite recent headwinds, repeat scripts have remained steady suggesting patients and prescribers are benefiting from ongoing treatment. We also remind investors AVNR’s NUEDEXTA launch is currently being refined to focus on the institutional setting, which we believe is a targeted approach that will lead to deeper market penetration at lower cost. Recall, AVNR estimates that they have only scratched the surface of the
PBA market and that they are currently realizing about 1% penetration.
• The company also announced that they initiated their first-in-human trials of AVP-786 (deuterateddextromethorphan), data is expected in calendar Q1:13. We note that AVP-786 may eliminate the need for combination quinidine/dextromethorphan dosing facilitating fewer safety issues and potentially higher efficacy in several disease settings (Figure 1). Recall, to achieve sufficient levels of dextromethorphan for the treatment of PBA, Nuedexta incorporates 10 mg quinidine sulfate. In past studies AVNR has utilized higher doses of quinidine sulfate in combination with dextromethorphan however as was noted by FDA reviewers and the literature, that quinidine, while
enhancing dextromethorphan’s bioavailability, also prolongs cardiac action potential, resulting in potentially undesirable safety issues at higher dosing levels.
• We anticipate that AVP-786 (deuterated-dextromethorphan) will overcome limitations of current quinidine combinations and open additional therapeutic potential for indications amenable to targeting by the sigma-1 and NMDA receptors, while offering extended patent protection (Figure 2). Specifically AVNR noted that deuterateddextromethorphan provides long patent life, including new chemical entity protection out until 2030+. Deuterateddextromethorphan incorporates deuterium at O-methyl and N-methyl positions on dextromethorphan, slowing metabolism by CYP2D6 and CYP3A4, increasing bioavailability. Deuteration of dextromethorphan does not alter activity at the sigma-1 and
• We maintain our OUTPERFORM rating and our $6/share 12-month price target. We derive our $6 price target by applying a 6x multiple to our 2015 sales estimates in the US only, discounted annually 20%. We currently do not include the EU opportunity in our estimates.
• Risks to the attainment of our price target include the depth of penetration and timing of market adoption of NUEDEXTA for the treatment of PBA in the various settings in which it is indicated.