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Avanir's Q3 Loss in Line, Revenues Up on High Nuedexta Demand

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Avanir Pharmaceuticals, Inc. (AVNR) reported a loss of 8 cents per share in the third quarter of fiscal 2014, unchanged from the year-ago figure and in line with the Zacks Consensus Estimate.

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Revenues shot up 44.9% from the year-ago period to $28.6 million. However, revenues lagged the Zacks Consensus Estimate of $30 million. The increase in revenues was driven by high demand for Nuedexta.

The Quarter in Detail

Total revenue comprised Nuedexta revenues ($26.5 million), co-promotion revenues for Merck’s (MRK) Januvia ($1.8 million), royalties ($0.2 million) on Abreva sales and revenue generated from research grant services ($0.1 million).

Nuedexta revenues grew 39.4% year over year. The company reported that Nuedexta’s prescription volume increased in double digits sequentially. Avanir reported that retail sales of Nuedexta increased 14% sequentially and 42% on a year over year basis.

Avanir is working on increasing Neudexta sales.  The company has increased its institutional segment sales force by 80 long-term care reps (taking the total size to 160 reps) with the view of expanding Nuedexta’s reach in this segment. The company also intends to expand its retail team and hire 70 reps (in addition to the existing retail team of 71 reps).

Research and development (R&D) expenses jumped 103.2% to $12.3 million from the year-ago quarter. This increase was primarily due to pipeline development, medical affairs and regulatory and manufacturing expenses related to AVP-825. Selling and marketing expenses were $19.0 million, up 18.9% year over year, primarily due to increased personnel costs, marketing expenses and general corporate costs. General and administrative expenses increased 6.8% year over year to $7.5 million.

Pipeline Update

Avanir is looking to expand Nuedexta’s label. In Jul 2014, interim results from the phase IV PRISM II study on Nuedexta showed positive results in patients with Alzheimer's disease or dementia suffering from pseudobulbar affect (PBA). Currently, Nuedexta is also being studied for PBA in patients suffering from stroke and traumatic brain injury. Full data from the PRISM II study should be out in late 2014.

Meanwhile, AVP-923 is in two phase II studies − for the treatment of patients suffering from agitation due to Alzheimer's disease and levodopa-induced dyskinesia (:LID) in patients suffering from Parkinson's disease. Results from these studies are expected this year.

Additionally, Avanir intends to initiate a phase II study on AVP-786 for the adjunctive treatment of major depressive disorder by Sep 2014.

Avanir has an important regulatory event coming up - AVP-825 is currently under FDA review for the treatment of acute migraine with a response expected by Nov 26. Approval would allow Avanir to launch AVP-825 in the first half of calendar 2015. We expect investor focus to remain on this regulatory event.

2014 Guidance

Avanir narrowed its fiscal 2014 operating expense guidance and now expects total expenses in the range of $140 million − $145 million, excluding cost of sales, non-cash expenses and depreciation (previous guidance: $140 million − $150 million). This includes R&D spend of $40 million − $42 million (including all development programs and costs related to medical affairs) and SG&A spend of $100 million − $103 million.

Our Take

We are pleased with Nuedexta’s performance in the reported quarter. Avanir’s effort to expand Nuedexta’s label is encouraging. Meanwhile, the approval of AVP-825 will be an important milestone for Avanir, which is currently solely dependent on Nuedexta for growth.

Avanir carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector are Endo International plc (ENDP) and Salix Pharmaceuticals Ltd. (SLXP). Both stocks carry a Zacks Rank #1 (Strong Buy).

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