Avanir Pharmaceuticals (AVNR - OUTPERFORM): Markman Hearing Favors Avanir -
Memorandum of Opinion Issued by Courts - Reiterate OUTPERFORM
Price: $2.56 12-Month Price Target: $6
• Judge Stark issued a memorandum of opinion following the October 5, 2012 Markman hearing. The memorandum of opinion commented on claim construction of various disputed terms found in US patents held by Avanir including RE38115 and 7659282. Recall, AVNR has filed a patent infringement action against five companies seeking to make a generic form of NUEDEXTA for PBA and other neurological disorders.
• Judge Starks opinion sided with AVNR’s term construction upholding all the terms in the 7659282 patent and making positive adjustments to terms of patent RE38115. The judge modified terminology utilized in a claim in patent RE38115 regarding a CYP2D6 inhibitor that is synonymous with AVNR’s definitions and importantly include the words “excluding cimetidine” that the defendants (generic manufactures) sought to remove from terms in RE38115. We note that this is positive
for AVNR, as not including terms “excluding cimetidine” could have lead the defendants to argue favorably for invalidity of RE38115 due to prior art. Prior art describes the use of cimetidine in combination with dextromethorphan.
• There are four patents listed in the FDA Orange Book for methods of use and formulation. The patents have expirationdates ranging from June 17, 2011, through August 13, 2026, as listed below:
A method for treating pseudobulbar affect or emotional lability, the method comprising administering to a patient in need thereof dextromethorphan in combination with quinidine, wherein the amount of dextromethorphan administered comprises from about 20 mg/day to about 60 mg/day and wherein the amount of quinidine administered comprises from about 10 mg/day to about 30 mg/day with the proviso that the weight-to-weight ratio of dextromethorphan to quinidine is 1:0.75 or less of
Expires Jul 17,
Sentiment: Strong Buy
Expires Jul 17, 2023
Method for reducing emotional lability.
Expires Mar 27, 2012
Pharmaceutical compositions comprising dextromethorphan and quinidine for the treatment of neurological disorders
Expires Aug 13, 2026
Dextromethorphan and an oxidase inhibitor for treating intractable conditions
Expires Jan 26, 2016
• We are confident the USPTO was fully apprised of existing prior art referenced in NUEDEXTA patents and that AVNR will maintain marketing exclusivity through 2023 to 2026. Recall that following the suit AVNR filed against generic manufactures in September 2012 an automatic stay (suspension) of the ANDA applications was instated for up to thirty months. Additionally, NUEDEXTA’s Hatch-Waxman’s exclusivity period runs through Oct 29, 2013. The thirty-month stay will
expire in March 2015, or if a court issues a final order determining that AVNR’s patents covering NUEDEXTA are invalid, unenforceable or not infringed.
• AVNR will report their fiscal 2012 on Wednesday, December 12, 2012 at 4:30pm ET. 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 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.
Sentiment: Strong Buy