3 Keys From Avanir's Quarterly Results

Avanir Pharmaceuticals (NASDAQ: AVNR  ) announced quarterly results yesterday after the market close. The company reported net revenue of $13.5 million with a net loss of $0.09 per share.  

Avanir is like many up-and-coming pharma companies in that the financial results aren't really as important as the other information shared by management. That's especially true for Avanir, since the company pre-released its financial information a couple of weeks ago. Here are the three key areas you need to know about from the company's quarterly results update.

1. Nuedexta news
The good news is that prescriptions continue to grow for Nuedexta, Avanir's lead drug used in treating pseudobulbar affect. This makes seven quarters in a row that the company has experienced prescription growth for the drug.

Avanir focused on increasing its penetration in the institutional market by expanding its sales force, and it saw some success from those efforts. Sales to nursing homes now comprise more than 50% of the total for Nuedexta. 

The company submitted a Marketing Authorization Application to the European Medicines Agency in October 2011. Avanir expects a decision from the EMA within a month. There are some concerns that the EMA could approve Nuedexta but limit usage to patients with multiple sclerosis or amyotrophic lateral sclerosis. Avanir's CEO, Keith Katkin, indicated that the company might appeal such a decision or withdraw its application so that it could resubmit with more supporting data. 

Regarding potential partnerships in marketing Nuedexta in Europe, Avanir has decided to hold off for now. Management thinks that waiting until the EMA reaches a decision puts it in a better position for making any partnership deal.

2. Pipeline progress
Avanir's pipeline includes four clinical studies for two drugs: AVP-923 and AVP-786. AVP-923 is in phase 2 with early enrollment for a study of the drug's usage in treating agitation in Alzheimer's patients. Another phase 2 study with the drug is also in progress for central neuropathic pain in multiple sclerosis patients. The company expects results will be available from both studies in the first half of 2014.

In October, the Michael J. Fox Foundation awarded a grant to Avanir to study the use of AVP-923 for treating levodopa-induced-dyskinesia, or LID, in Parkinson's disease. As with the other studies, the company anticipates that the first results will be available in 2014.

A phase 1 clinical trial for AVP-786 (formerly known as deuterium-modified dextromethorphan) is also under way. The results from this study should be available in early 2013. If all goes well, Avanir plans to proceed with phase 2 studies of the drug in treating neurological and psychological disorders. 

Overall, the news on Avanir's pipeline is that things continue to move along. However, Neudexta remains the most important focus for now. 

3. Cash condition
At the end of the last quarter, Avanir had cash, cash equivalents, and short-term investments totaling $72.1 million. The company projects operating expenses of more than $100 million next year, with a heavier weighting in the first half of the year.

If we consider that Avanir's revenue for the fiscal year ending in September was $43 million, the math tells us that more money is going to be needed in the not-too-distant future. The company didn't address this looming reality in any comments, though. 

The options for Avanir are the same ones that other small pharmaceutical firms typically use for generating cash. It can either borrow, issue a secondary offering, find an outside party to invest or partner, sell assets, or sell the company -- or embark on a combination of these approaches. Look for this topic to be a focal point in 2013.

Looking ahead
Two of the three areas mentioned above could involve partnering with another organization. Companies with Alzheimer's disease or ALS drugs seem to be the best fits for Avanir.

Merck (NYSE: MRK  ) has an Alzheimer's drug in a phase 2 study. Eli Lilly (NYSE: LLY  ) reported disappointing late-stage results for solanezumab but plans another phase 3 study for 2013. Both have deep pockets and could be looking for promising companies to either partner with or buy.

There's also the possibility that companies with failed Alzheimer's programs might consider some type of relationship with Avanir. That list continues to grow. Pfizer (NYSE: PFE  ) , Bristol-Myers Squibb (NYSE: BMY  ) , and Johnson & Johnson (NYSE: JNJ  ) all experienced setbacks with Alzheimer's disease drugs in the past year.

Investors probably should consider taking the same perspective with Avanir that it's taking with pursuing partnership opportunities: Wait for the EMA decision on Neudexta. If the EMA's decision is positive and doesn't limit usage for the drug, the stock could begin to rise. On the other hand, a negative decision would send shares back on the downward trend. My suggestion is to wait and see.

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