Investing to Wealth

Avanir Pharmaceuticals Inc. (NASDAQ: AVNR)

Avanir Pharmaceuticals Inc. (AVNR) is a pharmaceutical company focused on developing, acquiring and commercializing therapeutic products for the treatment of chronic diseases. The Company’s product candidates address therapeutic markets that include the central nervous system and inflammatory diseases. Its principal product candidate, Zenviatm (dextromethorphan hydrobromide/quinidine sulfate), is in phase III clinical development for the treatment of pseudobulbar affect and diabetic peripheral neuropathic pain. The Company’s first commercialized product, docosanol 10% cream, (sold as Abreva by its marketing partner GlaxoSmithKline Consumer Healthcare in North America) is an over-the-counter treatment for cold sores that has been approved by the United States Food and Drug Administration. Zenvi, AVNR’s lead product candidate for the treatment of pseudobulbar affect, also known as involuntary emotional expression disorder, is the subject of an approvable letter from the FDA and future development plans for this product candidate are under consideration.

Avanir Pharmaceuticals was founded in 1988 and is headquartered in Aliso Viejo, California.

Source: http://www.avanir.com/ http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=AVNR.W https://research.scottrade.com/research/common/pdf.asp?sym=AVNR&reportType=SNPReport

Financial Summary

The fundamental outlook for the pharmaceuticals sub-industry for the next 12 months is neutral. Several analysts forecast a modest sales decline in 2009, with volume restricted by less favorable foreign exchange, generic erosion in patent-expired drugs, slow new product flow, and weakness in the overall economy. Many also think the sector faces tougher political and regulatory environments, including proposed drug price discounting in both the Medicare and Medicaid programs. However, sector EPS should show low single digit growth helped by cost restructurings and common share buybacks. Despite the lackluster prospects that are seen in the sector overall, many think shares of companies with well defined growth prospects and generous dividend yields will hold up relatively well over the coming quarters.

AVNR reported a net loss from continuing operations of $5.0 million, or $0.06 per share, compared with a net loss from continuing operations of $957,000, or $0.01 per share, for the third quarter of fiscal 2008. Total net Revenue was $591,000, compared with $2.6 million for the same quarter in fiscal 2008. Cash used in continuing operations during the third quarter of fiscal 2009 was $4.4 million. For the first nine months, the company reported a net loss from continuing operations of $15.0 million, or $0.19 per share, compared with a net loss from continuing operations of $10.7 million, or $0.20 per share for the comparable period of fiscal 2008. Total net revenues for the first nine months of fiscal 2009 were $3.2 million compared with $5.8 million for the first nine months of fiscal 2008. In addition, cash used in continuing operations during the first nine months of fiscal 2009 was $15.6 million compared to $12.2 million in the first nine months of fiscal 2008.

There were no revenues from product sales to report for the three-month period ended June 30, 2009. Net product revenues for the three months ended June 30, 2008, include sales of docosanol 10% cream of $4,000. In the third quarter of fiscal 2009, revenues from research services and other were comprised of royalty and license revenue of $591,000, of which $171,000 was earned pursuant to the termination of the Kobayashi license agreement and $420,000 was primarily related to the recognition of deferred revenue. In the third quarter of fiscal 2008, revenues from research services and other were comprised of royalty and license revenue of $2.6 million, of which $1.5 million was related to a milestone payment received from Health Brands International “HBI,” $580,000 was related to the recognition of deferred revenue, $57,000 was related to the Kobayashi license agreement and $7,000 arose from other sources. Revenues from research services and other also included $528,000 in government grant revenue.
Revenues from research services decreased by $2.1 million for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. The decrease is attributable to the $1.5 million milestone payment received from HBI in fiscal 2008 and the termination of the anthrax antibody program which provided $528,000 of government research grant services revenue in fiscal 2008 for which there are no comparable fiscal 2009 revenues.

Potential revenue-generating contracts that remained active as of June 30, 2009 include several docosanol 10% cream license agreements, including the license agreement with GSK, potential royalties from our agreement with Azur Pharma and our license agreement with Novartis for our MIF technology. We may continue to seek partnerships with pharmaceutical companies that can help fund our operations in exchange for sharing in the success of any licensed compounds or technologies.

Cost associated with research services and grants declined by $513,000 for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. The decline in cost of revenues is primarily attributable to the completion of the remaining work under the NIH grant and the termination of all future research and development work related to other infectious diseases on June 30, 2008.

Source: http://www.b2i.us/profiles/investor/secxml.asp?f=1&BzID=958&to=sc&Nav=0&LangID=1&s=0

Analyst Consensus

Chart not available.

Source: Financial Times.com

No consensus analysis data available.

Source: http://www.reuters.com/finance/stocks/estimates?symbol=AVNR.W

Investment Highlights

AVNR announced last month that it has received a “Notice of Allowance” from the United States Patent and Trademark Office (USPTO) announcing that it intends to grant the Company a new patent, extending the period of commercial exclusivity for its lead drug candidate Zenvia^TM well into 2025. Upon issuance, U.S. patent application number 11/035,213 titled “Pharmaceutical Compositions Comprising Dextromethorphan and Quinidine for the Treatment of Neurological Disorders” will provide AVNR with patent protection for low-dose quinidine formulations of Zenvia used to treat pseudobulbar affect (PBA).

AVNR’s low-dose quinidine formulation of Zenvia met its primary efficacy endpoint in the recently announced confirmatory phase III STAR trial in PBA. There are currently no FDA-approved treatments for PBA. In addition to this newly allowed U.S. patent, the company has exclusive rights to a family of patents and patent applications that claim methods of treating PBA, chronic pain, as well as other neurologic conditions, using combinations of dextromethorphan and quinidine, the two active agents in Zenvia.

AVNR announced recently that the investigational drug Zenvia (dextromethorphan/quinidine) met its primary efficacy endpoint in the treatment of pseudobulbar affect in the confirmatory phase III STAR trial. The Company says both Zenvia 30/10 mg and 20/10 mg provided a statistically significant reduction in episode rates over the course of the study when compared to placebo. Also in this study, Zenvia was generally safe and well tolerated.

AVNR also recently announced that a reformulated version of its Zenvia drug reduced emotional outbursts tied to a neurological disorder, meeting the main goal of a late-stage study and nearly doubling the tiny company’s stock price. The results in the STAR clinical trial come nearly three years after the FDA dealt the Company a blow by expressing safety concerns and asked the company to perform new trials with a reformulated version of Zenvia.

AVNR in mid-October announced detailed results from the confirmatory double-blind phase III STAR trial evaluating two doses of the investigational drug Zenvia^TM (dextromethorphan/quinidine) compared to placebo in the treatment of pseudobulbar affect (PBA) in patients with underlying multiple sclerosis (MS) or amyotrophic lateral sclerosis (ALS). Over the course of the 12-week study, Zenvia 30/10 mg and 20/10 mg met the primary efficacy endpoint by reducing PBA episode rates by an incremental 47.2% and 47.8% respectively, beyond placebo (p<0.0001). In an additional analysis of the primary endpoint pre-specified in the protocol, the percentage of patients that achieved and maintained complete episode remission during the last 14 days of the study was 76% in the Zenvia 30/10 mg group, 80% in the 20/10 mg group and 61% in the placebo group (p=0.0024 and p=0.0001).

AVNR announced it had raised gross proceeds of approximately $10.6 million via the sale of approximately 4.5 million shares of common stock at a weighted average price of $2.34 per share.

For fiscal year 2009, analysts estimate that AVNR will earn $-0.25. For the third quarter of fiscal year 2009, AVNR announced earnings per share of $-0.06, representing 24% of the total annual estimate. For fiscal year 2010, analysts estimate that AVNR’s earnings per share will grow by 8% to $-0.23.

Source: Scottrade.com, Reuters.com, http://www.avanir.com/

Technical Analysis

Moving Average Price Compare

AVNR is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

Bollinger Bands

AVNR is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

MACD

The MACD for AVNR currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

Comparative Analysis

Source: Reuter.com, www.scottrade.com

Insider Trading Activity

Net Share Purchase Activity

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