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Avanir Pharmaceuticals, Inc. (NASDAQ:AVNR)

F1Q13 Earnings Call

February 7, 2013 4:30 PM ET

Executives

Ian Clements – Head, IR

Keith Katkin – President and CEO

Christine Ocampo – VP, Finance

Rohan Palekar – SVP and Chief Commercial Officer

Joao Siffert – SVP, R&D and Chief Scientific Officer

Analysts

Charles Duncan – Piper Jaffray

Thomas Wei – Jefferies

Jason Butler – JMP Securities

Ritu Baral – Canaccord

Carol Werther – Summer Street Research

Gregory Wade – Wedbush Pac Grow Life Sciences

Operator

Good day ladies and gentlemen and welcome to the Avanir Fiscal 2013 Pharmaceuticals Earnings Conference Call. My name is Dianna. I’ll be the operator for today. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to your host, Dr. Ian Clements, Head of Investor Relations. Please go ahead.

Ian Clements

Thanks, Dianna and good afternoon everybody. I’d like to welcome you to our conference call to discuss our financial and operation results for the fiscal 2013 first quarter.

Today is the second anniversary of the commercial launch of NUEDEXTA hence it is an opportune time to discuss the success we have achieved during the last two years and the strong momentum heading into 2013. We’ve recently undertaken several initiatives to help drive further ways of PBA and NUEDEXTA and to accelerate revenue growth.

To discuss our results and these initiatives, I’m joined today by several members of our leadership team. Our President and CEO, Keith Katkin will lead the call today by providing a brief strategic overview of our business. After Keith, our Vice President of Finance, Christine Ocampo will review our quarterly results and provide guidance for our new fiscal year. Our Chief Commercial Officer, Rohan Palekar will highlight NUEDEXTA performance followed by Dr. Joao Siffert, Chief Scientific Officer who will provide the pipeline update. For the Q&A portion of today’s call we’ll also be joined by Dr. Randall Kaye Chief Medical Officer; and Greg Flesher, our Chief Business Officer.

During the course of this conference call we will be making certain forward-looking statements. These statements are subject to numerous risks and uncertainties and reflect our current expectations and judgments. Examples of these forward-looking statements include statements relating to our expectations for NUEDEXTA sales and growth including market opportunity, future expense levels, the timing and success of future of development of AVP for other indications, the potential approval of NUEDEXTA in new markets and the timing and success of the development of AVP-786.

Actual results could vary materially from the results anticipated by these statements. Investors should read the risk factors set forth in Avanir’s Form 10-K for the year ended September 30, 2012 and periodic reports filed with the Securities and Exchange Commission.

Before I turn the call over to Keith, I wanted to let everyone know that we’ll be referencing a new slide in our corporate presentation during this discussion. And the updated quarter presentation can be found on the Avanir website in the Investor Relations section.

And with that said, I’ll turn the floor over to Keith Katkin. Keith?

Keith Katkin

Thanks Ian, and my thanks to each of you for joining us today. We’re building a leading mid-cap biopharmaceutical business designed to provide innovative new therapies to patients with high unmet needs. Our strategy to realize this goal is underpinned by three key strengths. First, our platform, NUEDEXTA. Today marks the second anniversary of the launch of NUEDEXTA. During these past two years NUEDEXTA has helped treat tens of thousands of PBA patients and has become a commercially meaningful product.

The number of PBA patients benefiting from NUEDEXTA has steadily grown each month. I am very pleased that during the month of January we reached an important milestone where we exceeded 3,000 prescriptions per week demonstrating continued growth in our business. Based on the data generated so far and results expected from ongoing studies, NUEDEXTA provides an important platform for us to build a leading mid-cap specialty biopharmaceutical company.

Second, our people. During fiscal 2012, we created the infrastructure to promote NUEDEXTA to healthcare providers practicing in skilled nursing facilities. With our recent institutional sales force expansion implemented during the first fiscal quarter of 2013, we now have approximately 80 full-time equivalent sales representatives focused on the institutional setting. We are very encouraged by the adoption of NUEDEXTA in the institutional setting so early in the launch phase.

Prescriptions from this segment now account for over half of our business and we believe the significant opportunity remains with between 100,000 and 300,000 residents in the skilled nursing facilities suffering from PBA. We are excited about our recent expansion in the institutional setting and firmly believe that we are uniquely positioned with one of the largest and most capable institutional sales forces in the United States. We expect to realize the full impact of this expanded sales force in the coming months.

Third, our pipeline. From a clinical perspective I am delighted with the continued progress we are making in our Phase II trials exploring therapeutic use in Alzheimer’s disease, Central Neuropathic Pain and Parkinson’s disease. Additionally as reported in today’s press release, we announced extremely encouraging interim results from the Phase I study examining the pharmacokinetics of AVP-786, our next generation asset which as a reminder has a composition of methorphan through at least 2030.

I am excited that we now have two promising assets in clinical developments each of which has broad potential in a number of CNS indications. Overall I am very pleased with the excellent progress we have made over the past quarter and the achievements our organization continues to make.

I’ll now turn the call over to Christine to address our financial results. Christine?

Christine Ocampo

Thanks Keith, and good afternoon everyone. In addition to the financial results summarized in the press release issued earlier this afternoon, you can find additional information, including full-year information in our upcoming Form 10-Q which will be filed by Friday.

This was a strong start to the fiscal year for us. We reported total net revenue for the first fiscal quarter of 2013 of $16.5 million, as compared to $7.2 million for the comparable period in fiscal 2012, a year-over-year growth of approximately 130%.

For the first fiscal quarter of 2013, we recorded a record gross product sales of NUEDEXTA of $18.4 million and record net sales of NUEDEXTA of $14.9 million. During the quarter ended December 31, 2012, our gross to net discount was 19%, compared to 19.7% in the prior quarter. In addition on January 8, 2013, we took a price increase of 3.3%, making our wholesale acquisition cost per bottle $598 per month.

First quarter wholesale inventories as of December 31, 2012 were estimated to be 3 to 3.5 weeks. Gross margin on the sales of NUEDEXTA for the first quarter of 2013 was 94%. Research and development expenses were $6.6 million for the quarter ended December 31, 2012 compared with $3.7 million for the same period in the prior year.

In the first fiscal quarter of 2013, R&D spend was primarily attributed to cost associated with our multiple ongoing clinical studies, medical affairs and EMA regulatory expenses.

Selling, general and administrative expenses of $20.1 million for the first fiscal quarter of 2013 increased from $19.1 million for the corresponding period of the prior year. Included in the SG&A is sales and marketing expenses for the first quarter were $13.5 million.

Total operating expenses excluding cost of goods sold for the quarter were $26.7 million compared with $22.8 million for the comparable quarter in fiscal 2012. For the three months ended December 31, 2012 and 2011, the company recorded $1.4 million and $1.2 million respectively of stock-based compensation expense. Cash used in operations for the quarter ended December 31, 2012 was $12.7 million.

Our net loss for the first quarter of fiscal 2013 was $12.1 million or $0.09 per share, compared with a net loss of $15.9 million or $0.12 per share for the same quarter in fiscal 2012. As of December 31, 2012, Avanir had total cash, cash equivalents and restricted investments in marketable securities of $59.3 million.

And with that summary as our financial results I’d like to turn the call over to Rohan. Rohan?

Rohan Palekar

Thanks Christine. The NUEDEXTA franchise continues to perform well maintaining a solid growth trajectory. In the seven full quarters post launch, we have delivered consecutive double-digit prescription growth, a testament to the significant market opportunity in PBA.

Importantly, both segments of our business, the Institutional and Retail, have grown each quarter versus the previous quarter. I am pleased to report that during the first fiscal quarter of 2013, for the second consecutive quarter, the NUEDEXTA commercial franchise delivered a positive contribution margin to the organization.

In other words, the revenue generated by NUEDEXTA in the first fiscal quarter of 2013 exceeded the direct sales and marketing expenses and cost of goods sold, thus making NUEDEXTA a profitable commercial franchise. Before I discuss our performance within the segments of our business, I’d like to spend a minute, discussing NUEDEXTA prescriptions as reported by IMS.

On Jan 1 of this year, a provision of the Affordable Care Act went into effect that requires all (inaudible) solid growth brand name drug to be dispensed in 14 days or less quantity to Medicare Part D beneficiaries residing in nursing home. NUEDEXTA IMS prescription data has begun to reflect this change as long-term care pharmacies are now dispensing two weeks instead of four weeks prescription for NUEDEXTA.

As nursing homes represent a large part of our business, this has impacted the overall prescription number. Since this change has taken place quite recently, it is difficult at this point to estimate the new baseline for NUEDEXTA prescription for long-term care and to draw accurate comparisons to historical data. However, I should note that regardless of the IMS reporting change, we continue to drive solid top line growth.

The past two weeks of record Rx numbers represented true business growth as the total number of capsules dispensed increased by 4% and 7% versus the previous week. The Institutional segment continues to be the engine of growth for the company with a majority of prescriptions being generated through this channel. We believe there is still significant growth opportunity in this segment as we have just scratched the surface of its full potential.

Our current NUEDEXTA penetration among patients with PBA nursing homes is only approximately 7%. To remind you, we believe the PBA opportunity in the Institutional setting is very large at over $600 million leaving significant upside to NUEDEXTA. Keith referenced our recently completed expansion of the sales force. This recent expansion will allow us to increase coverage of skilled nursing homes to between 60% and 70% by the end of the calendar year, while also allowing us to penetrate deeper within the homes we already cover.

Based on this, we expect to see a positive impact on prescription trends in the coming months. I’d like to now discuss our efforts in the retail segment. This segment in the long run represents a significant market opportunity and we are looking at various ways in which we can accelerate the solid growth we have seen in this segment. We recently launched two pilot programs that could inform new approaches to significantly change the trajectory of our Retail business.

On Jan 1, we launched a national TV campaign to educate patients and caregivers about PBA and to encourage them to sign up for information and talk to their doctor. We are extremely pleased with the response we have seen in the first month of the campaign. We have had over 110,000 additional unique visitors to our websites PBAfacts.com and over 37,000 callers to our toll free hotline.

These early results reinforce our belief that the prevalence of PBA is significant and it is under recognized and second, there were lots of patients and caregivers are hungry for information that can help their best [ph] and provide most of the relief of their symptoms. Second, we recently launched a pilot examining the impact of focusing additional sales resources to what primary care physicians who care for large number of patients with stroke and dementia.

These are two of the neurological conditions that predispose the patient to have PBA. The pilot is being conducted in 10 markets and we expect to run the pilot to roughly six months. Since a large majority of patients with dementia and stroke are seen in the primary care setting, we think there is an opportunity to increase PBA patient identification by educating these physicians.

I remain optimistic about the short-term opportunity with NUEDEXTA and PBA, as well as the longer term potential with our compounds.

With that I will turn it over to Joao to discuss some of those opportunities. Joao?

Joao Siffert

Thanks Rohan. So the clinical team has done an outstanding job in moving multiple clinical and regulatory programs forward in the last quarter. As Keith just mentioned, we now have two promising assets in clinical development, each of which has broad potential in a number of CNS indication.

First, regarding the status of our marketing authorization application for NUEDEXTA in Europe. As previously reported, we received CHMP Day 180 list of outstanding issues in November of 2012 and submitted our responses to the CHMP in mid-January. We’re now planning a meeting with the CHMP later this month to present our case for a broad label for NUEDEXTA in Europe which remains one of the final issues. We expect to have CHMP’s opinion sometime in March and the European Commission decision would follow approximately three months later.

Even though the CHMP could decide to delays in NUEDEXTA reviewed to a later meeting, we remain hopeful that NUEDEXTA will soon become available to PBA patients in Europe. Second, in with respect our pipeline. Earlier today, we announced very good news regarding the development of AVP-786 which is our new compound containing the deuterium-modified dextromethorphan. Based on this exciting interim data, we believe we have identified a formulation of AVP-786 with a comparable pharmacokinetic safety and tolerability profile of AVP-923 which is used as control in this study.

Combining AVP-786 with a substantially lower dose of quinidine, we were able to successfully replicate the steady-state plasma levels of AVP-923 with comparable safety in this study. We believe there is a reduction in quinidine in significant amount that it could potential result in meaningful changes pertaining to quinidine related language in the package insert for AVP-786.

Indeed if you look at the slide depicting the pharmacokinetic profile of the AVP-786 which was slide 22 in the corporate presentation posted on the Avanir website, you can see the remarkable similarity of plasma concentration curves between AVP-786 and AVP-923. What’s excited to note too is that the amount of deuterium-DM and the amount of DM that yielded this curve are exactly the same.

The only difference being that the two formulation of the AVP-786 has a substantially lower dose of quinidine. Giving these results, we plan on testing AVP-786 in one or more of our ongoing clinical programs. In addition, the knowledge we have accumulated during the development of NUEDEXTA provides us with a unique insight that positions Avanir to efficiently advance the AVP-786 development.

We are currently running the second stage of this Phase I study to explore whether we can further reduce the amount of quinidine necessary for achieving the high plasma levels. With this data in hand, we plan on meeting the FDA to determine the full development program of AVP-786.

Given these very encouraging results with 786, we have made the decision to accelerate the completion of the PRIME study which is the studies of both candidates AVP-923 and neuropathic pain related to Multiple Sclerosis because we believe that 786 would be a preferable investigational compound for the development in neuropathic pain. Changing the enrollment targets for the PRIME study to 200 patients will allow us to generate those response data earlier and provide useful guidance for the development of AVP-786. We now anticipate that we’ll have top line data from the PRIME study in the fourth quarter of calendar 2013.

Turning onto the study of AVP-923 for the treatment of vaccination in patients with Alzheimer’s disease, the study is now is well underway with study sites actively enrolling patients. Investigators, potential participants and their families remain highly interested in this study further underscoring the tremendous unmet needs of this condition.

Third Phase II studies which is planned for a few months from now to assess the AVP-923 in treating Levodopa Induced Dyskinesia in patients with Parkinson’s disease which is another substantially disabling condition, will begin enrollment in the second quarter of calendar 2013. We are currently working with study investigators in the U.S. and Canada to complete the necessary regulatory and ethics reviews of the study protocols and related documents.

I’ll now turn the call back over to Keith for some closing comments, Keith?

Keith Katkin

Thanks Joao. I am excited about what the next 12 to 18 months hold in store for Avanir. I believe we have the right team, resources and the strategy to continue to build upon the great start we have achieved in the first fiscal quarter of 2013. I am particularly excited about the meaningful upcoming milestones and catalysts for the company. While prescription growth has been a focus for the investment community, and will still be an important metric for our organization, it is our hope that there will be an increased depreciation for the other milestones that could drive shareholder value.

In the next couple of months, we’ll have continued growth in our NUEDEXTA business. We’ll have full Phase I results from our study of AVP-786 and we will have met with the FDA regarding a path forward for our next generation assets. Over the summer, we will complete enrollment in our Phase II trials in AVP-923 for Central Neuropathic Pain and to Multiple Sclerosis patients. And as we enter the fall of 2013, we’ll bring conclusions to our end of litigation and have top line data from the PRIME Phase II studies.

And finally as we enter calendar 2014, we’ll be getting ready to share top line data from our two Phase II studies for AVP-923. First agitation in Alzheimer’s disease and second the Levodopa Induced Dyskinesia in Parkinson’s study. All of this underpinned by a growing revenue base from our conversely meaningful and profitable NUEDEXTA franchise.

In closing, I firmly believe that Avanir is well on its way to become the leading mid-cap specialty biopharmaceutical company. We have a rare combination of an FDA approved product that provides significant benefits for patients with PBA that is generating meaningful cash flows, significant number of additional development opportunities and a commercial R&D infrastructure that allows us to capitalize on all of these opportunities.

With those comments, I’d like to open the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Charles Duncan, Piper Jaffray.

Charles Duncan – Piper Jaffray

Hi guys, congratulations on a decent quarter and thanks for taking my questions. My first question is related to the change in Medicare prescription policy that Rohan alluded to, I don’t want to sound Pollyanna here but given that NUEDEXTA works pretty quickly and perhaps more prescriptions per month might reinforce positive writing behavior could that actually be a net positive for NUEDEXTA?

Rohan Palekar

Charles, it’s Rohan. I do think it could work in our favor. I think what’s important to note is the order is being written by the physician. Actually it can go much longer. This is the long-term care pharmacy who dispenses it at 14 days. The beauty is they will see – if they see the benefits, they will continue to make sure that the long-term care policy continues to dispense as required.

Charles Duncan – Piper Jaffray

Okay, that’s helpful. So the order can go longer with time, okay. And then going to the slide 22 where I am looking at 923 versus 786 PK curves, I am intrigued those - they almost looked too good to be true. Could you help us understand what a substantial decrease in quinidine is, could it be 50% or what – can you order of magnitude it for us?

Joao Siffert

Yes, so the substantial has to do with the potential clinical benefits of a reduced dose of quinidine and we obviously we are deliberately not quantifying because the study is still underway, and we’re still running the second stage of this study with potentially even lower dose of quinidine. We believe what the clinical – potential clinical advantage of a reduced quinidine are too fold, right, if you fast forward now with approval of 786 one could envision potentially even better cardiac safety profile than we already have with NUEDEXTA. And second it could mean a reduction on several considerations regarding drug interactions given a lower dose of quinidine. So combined both of these are relatively logical potential advantages of formulation with much lower dose of quinidine.

Then the second aspect which you didn’t ask but I might as well add to your question is regarding IP. As you know this is a new chemical entity and has full composition of matter IP at least through 2030 which is obviously another advantage of having an NCE in development.

Charles Duncan – Piper Jaffray

Thanks for throwing that in, I was going to ask exact, you know Keith you threw something in towards the end with regards to the ANDA litigation. Could this data have some – play some role in terms of those discussions with potential generic competitors?

Keith Katkin

Yes, obviously as anything relates to the ongoing ANDA litigation we can’t comment on but to somewhat answer your question I would say that we did see this as a completely separate development program so we don’t see it playing, having any impact within our ANDA discussions.

Charles Duncan – Piper Jaffray

Okay. And my last question is regarding the team protocol, you reduced the size of it, around 400 to 200, that obviously reduces power but do you still believe that you might be able to see a signal of activity with that fewer number of patients?

Joao Siffert

Yes, we – obviously there is reduction in power as expected by reduction in the overall sample size. We do anticipate we will be able to glean some signal information especially with regard to dose response relationships since we have three doses of AVP-923 being tested. So that should give us a good sense and importantly give us a sense that will help guide further development of the new compound AVP-786.

Charles Duncan – Piper Jaffray

Thanks for taking my questions.

Keith Katkin

Thanks Charles.

Operator

Your next question comes from the line of Thomas Wei, Jefferies.

Thomas Wei – Jefferies

Thanks, just a follow-up on the last question. Can you say what your actually now powered to show it in PRIME with that change in size of the study?

Joao Siffert

We won’t disclose the specific power calculations; what we know is that will be lower than the original power which was meant to seek true statistical significance for each of the arms individually, that’s no longer the objective of this study. So it’s a lower power. Obviously if you have a very high treatment effect as we had hints of that in the STAR trials, these data on the corporate deck, one could potentially see some signal that is more robust than we are expecting, but we are not planning on statistical significance by treatment arm.

Thomas Wei – Jefferies

And I am sorry just I think I missed a little bit right there, are you saying that you had – should we think of the original powering of PRIME as being based off of the signal that we’ve seen in STAR?

Joao Siffert

No, this was based on the variety of factors including what’s known about the neuropathic pain treatment affect in other trials and so forth.

Keith Katkin

Just to add to Joao’s comments, you’re likely referring to the – what we saw in the STAR trial of the 3010 results where we had approximately 25 patients per arm that demonstrated a statistically significant benefits. So you could draw the conclusion that because we’ll have 50 patients per arm in the study now, that we’ll see a statically significant outcome. That maybe the case but obviously power calculation and the high variability within pain studies and the – the unknown placebo affects, you have to assume that you’ll see a much larger or smaller magnitude of effect and therefore the pain studies are typically much larger so that you can overcome that placebo effect.

Thomas Wei – Jefferies

And where are you with [COG] [ph] studies with 786 – and can you just go over given the deuterated nature of the compounds, we should have seen that it requires an entire new preclinical and clinical package for approval?

Joao Siffert

Right, so that’s a good question, Joao here again. There are similarities of this. The beauty of deuterated forms of this compound is that the intrinsic pharmacology of dextromethorphan and deuterated-dextromethorphan are expected to be quite similar, which means that we could use a lot of the information we have from the NUEDEXTA development to feed into to the development of AVP-786 so you wouldn’t necessarily have to be starting from scratch like a completely untested new chemical entity which this one is just there are differences primarily in pharmacokinetics and less so in pharmacology.

So obviously the scope and the magnitude and the timelines for the development plans will be largely predicated in discussions with the FDA but our intent and hope is to apply a much faster and efficient development program to this compound both because we’ve learned a lot from the NUEDEXTA, so we’re going with a lot of information and also because we can’t potentially reference a lot of the [TOX] [ph] studies as you mentioned and the exposures in human and of course you can see in slide 22 that we can replicate these exposures in human, as it means to accelerate and expedite the developments program. So it is an NCE with multiple advantages, so if you look at this way.

Thomas Wei – Jefferies

Does it allow you to skip over the things like to your [CARP] [ph] studies?

Joao Siffert

These are all questions we’ll pose to the FDA and hopefully we will, but not, not being the FDA, I can’t confirm so.

Thomas Wei – Jefferies

And then just lastly you showed these in the PK curve that you have in the slide deck, I just wanted to confirm that there is no (inaudible) labeled and so the DM exposure here is within the therapeutic range of where you kept it before you have activity or it’s like what NUEDEXTA is right now.

Joao Siffert

Yes, we’re...

Thomas Wei – Jefferies

Sorry, go ahead.

Joao Siffert

So this is within the broadly speaking yes, so well within the therapeutic range here.

Thomas Wei – Jefferies

And in fact is there any difference to see move doses up, this doesn’t look like it follows the same general pattern?

Joao Siffert

Yes, the expectations will follow the general pattern and in fact we expect we could match any DM concentration we’re thinking on. So we don’t know how to much.

Thomas Wei – Jefferies

The variability is the last question, I know errors bars around either one of these curves, is there enhanced or reduced PK barriers over (inaudible).

Joao Siffert

So with AVP-923 the variability is relatively low to start with, so that’s a good thing and if we look at the general literature in deuterium-modified compounds that’s one of the advantages that the deuteration does indeed that reduced variability and metabolism so we would expect that although we cannot push forward, make these comparisons in this initial study, but based on the data we have so far well within the variability it seems for 923 so, so far so good.

Keith Katkin

And I’d just add to that comments, that we actually did have the error bars on the first one that we created but the line is just surprisingly matched up so well and the error bar has matched up equivalent with the line. So we think we just make slide that much cleaner and easier to read.

Joao Siffert

Yes, so this is not fluky, these are from poses – are true supreme position of the point estimates of the positive concentrations so this is not just done marking because we have widened error bars.

Thomas Wei – Jefferies

Thanks, that’s very helpful.

Keith Katkin

Thanks Thomas.

Operator

Your next question comes from the line of Jason Butler, JMP Securities.

Jason Butler – JMP Securities

Hi, thanks for taking the question. Just a question on Europe, are you saying that (inaudible) that you plan to participate in all arguments at the CHMP meeting in February and if so would you expect CHMP to vote at the February meeting or do you expect to trend vote and then a formal vote in the March meeting. If you can just give a more details around this, that’d be great.

Joao Siffert

So yes, we participate in the overall explanation in the next CHMP meeting, that’s the plan as of now. Regarding the trend vote this is the ultimately the CHMP decision, they won’t disclose ahead of time whether they will take a trend vote or not.

Jason Butler – JMP Securities

Okay. So you still don’t have clarity on whether you’ll get a formal approval though from CHMP at the February or the March meeting or even later than that?

Joao Siffert

Again the intent of going to the CHMP meeting is that they would – they will assess the final application where the signal to last few stages of the application. The rapid tours, then ultimately the CHMP – they have not formally disclosed whether they will indeed issue a trend vote at that meeting. This data is of next sort of the following meeting we’ll have some kind of clarity on this for sure.

Keith Katkin

Yes, our best guess right now Jason is that the actual vote would occur in the March meeting, but as Joao said that’s subject to rapid tours and with the CHMP decides.

Jason Butler – JMP Securities

Okay, great. And then just second one on the Retail DTC campaign, can you – so you gave some details there about visitors to your website and callers, have you – in your opinion have you seen any impacts on prescriptions yet or physician feedback or is it still early in that process?

Rohan Palekar

Jason, this is Rohan. It’s still early in the process. We are encouraged by the numbers that have come in and the numbers who have signed up for our database and we’ve sending that additional information so we are encouraged. We are hearing anecdotally from physicians who have either seeing the ad or have patients walk in, doctor I saw something on TV, what’s this about? But it’s a little early to be honest.

Jason Butler – JMP Securities

Okay, great. Thanks for taking my questions.

Operator

Your next question comes from the line of Ritu Baral, Canaccord. And if you are on mute, please unmute your line.

Ritu Baral – Canaccord

Sorry about that. Hi guys, thanks for taking the question. I’ll start with the market penetration rates you guys threw out, especially in long-term care about 7%. Is that more of a comment on sort of the breadth of centers using the drug or essentially the number that’s covered, and just as a follow onto that, where do you see the opportunity going forward, is it really just sort of increasing use of the centers that already have say medical directors who are receptive or hitting the medical directors who may not be receptive?

Rohan Palekar

Ritu, this is Rohan. So to answer your first this question, the 7% is actually a penetration of the patients who could potentially have PBA. As Keith referenced in the long-term care setting, we think there are between 100,000 to 300,000 patients or residents who might have PBA and we currently have about 7,000 to 8,000 of those patients. So that’s where we see a still significant opportunity to grow within that setting.

To answer your second question, I think it’s a dual strategy. We will continue to expand into new homes and that’s the reason we went towards the recent expansion. The goal again to try to get to two-thirds of the homes, and then within the homes where we have got the medical director and other stakeholders converted which is obviously an easier proposition is to go deeper with those homes. And to make sure that they’ve identified the patients in their home who could be potential candidates for NUEDEXTA because of their PBA.

Ritu Baral – Canaccord

How would you describe sort of the time split for the long-term care reps between homes that are already prescribing and homes that are not?

Rohan Palekar

So today we honestly are spending more time on the homes which are prescribing, basically if you can take an average home of 100, 110 beds and we have three or four patients theoretically that’s only about 18 to 20 in that home who could get the drug. And because we’ve got the stakeholders on board, it’s more productive to spend time and let’s get at all the 15 to 18 in that home before you try and harvest another new home. Now I think over the time as they comfortable using NUEDEXTA, they see the benefits, it will become a much easier process. At that point then you are not – you don’t need to visit in the home every week but today our focus is what kind of expense in existing homes making sure we get all the patients.

Ritu Baral – Canaccord

And I am sorry, did you say the fraction of homes that are prescribing it over all the number of homes?

Rohan Palekar

So we have the number of homes who we are marketing and covering, which is about 35% to 40% of homes or resident beds we are covering. And we are trying to get that number up to the 65% and 70% and that’s kind of where our focus is going to be.

Ritu Baral – Canaccord

Got it. Have you guys commented on the retail abandonment rate for scripts, and have you seen any trends in that over the past few quarters as you have expanded you know retail outreach and have the DTC campaigns?

Keith Katkin

Yes, we continue them to evaluate and try and get our arms around exactly what compliance and persistence looks like. As we’ve discussed before what we believe in honestly is very strong within the Institutional setting because they’ve got so much time and attention from the healthcare providers there. Within Retail, they only – when we benchmark ourselves versus other CNS products, as we benchmark ourselves in terms of other CNS products, we seem to be a couple of points better than the other products but we’re working on gathering longitudinal data which will help us be more precise in answering that question.

Ritu Baral – Canaccord

Got it. And last question in your campaign to targets for stroke and dementia high volume triggers, how is the messaging different and are there parts of a data that you are leveraging differently with those docs versus sort of the broader population?

Rohan Palekar

So the fundamental messaging is not different – as you can imagine, say a primary care call is very different than a specialist call. And so there you literally have like two minutes in front of the physician and the patients is there for two or three minutes. When we simplify that to really ask them to engage and the question I’d ask – asking them to ask the patients, are they have a emotions outburst of laughing and crying and use that as a feature [ph] actually getting into whether they might be diagnosed with PBA.

So the primary care call, the primary physician call is, it’s not as much of the scientific calls, it’s more about semasiology [ph], patient identification and NUEDEXTA might be the right therapy for them.

Ritu Baral – Canaccord

Great, thanks for taking the questions. I’ll hop back in the queue.

Keith Katkin

Thanks, Ritu.

Operator

Your next question will come from the line of Carol Werther, Summer Street.

Carol Werther – Summer Street Research

Thanks for taking my questions. Do you mind telling us how much you are spending on the DTC campaign?

Rohan Palekar

Carol, this is Rohan. So since this is currently still a pilot which we are running for two months, just to give you the exact meaning, our total marketing spend out of the SG&A spend is about $60 million, the marketing is only about $10 million to $12 million and this is a fraction of that. So it’s in the low single-digit millions is what we are spending on this campaign as a pilot.

Carol Werther – Summer Street Research

Okay and would you mind just updating us about what your thoughts are on the European partnership and you know if you’re going to wait to less than a label should we expect it then within six months of the recommendation?

Keith Katkin

Yes, Carol it’s Keith. I don’t think we want to put any time band in terms of setting expectations around partnership for Europe, but as we’ve said before there certainly is a lot of interest out there from other companies, most of that interest quite frankly is predicated on obtainment of a broad label for NUEDEXTA which is understandable because that would allow us to access a larger patient population that we have here within the U.S. So right now our focus is on the upcoming meeting with the EMA, ensuring that we do everything possible to obtain that broad label and we think that if we can demonstrate success there, then we’ll be able to continue on with the bring meaningful partnership discussions.

Carol Werther – Summer Street Research

And with 786, do you think you can adapt it to a separate continuous study?

Keith Katkin

That’s one of the questions that we will address with the FDA. I think that we have well internally characterized, 30 milligrams of quinidine and a 10 milligrams of quinidine and obviously the agency was comfortable with 10 milligrams quinidine. So we are uncertain to see whether or not they want to see further characterize, have a substantially lower dose quantity of quinidine in 10 milligrams.

Carol Werther – Summer Street Research

Okay, thank you.

Keith Katkin

Thanks Carol.

Operator

Your next question comes from the line of Greg Wade, Wedbush.

Gregory Wade – Wedbush Pac Grow Life Sciences

Hi, good afternoon, thanks for taking my question. Keith, with respect to deeper penetration into the existing facilities that are using NUEDEXTA, why is it that doctors who already recognized that there is disease presentations aren’t proactively identifying patients with PBA? Have you distributed or worked with them with tools to help them do this? What seems to be the barrier there?

Keith Katkin

Sure, I’ll answer that and then I’ll turn it over Rohan to add his additional comments. I think you have to recognize that these physicians are very busy. In many instances they are controller or medical directors for a multiple homes and they typically are engaging other members of the home particularly the nursing staff in order to be able to do this. And if you can imagine nursing staff is extremely busy dealing with of the day to day aspects of managing a nursing home with all the patients and the comorbidities that are within the home.

So it’s clearly very important for our people to be there to help with patient identification and then also to help make sure align which communication are open between the healthcare and staff there and the prescribing physicians to ensure that those patients get on to the appropriate therapy. And that’s why as Rohan said earlier, much of a focus right now is into existing homes because we believe there is still the opportunity to get much more penetration within those existing homes, but I’ll turn it over to Rohan to add additional color.

Rohan Palekar

So the only think I would add and I think keep to write on, the additional point is in different homes there are different stakeholders who influence the prescribing behavior and who you got to get on board. So in some cases, it might be the medical director but in other home even though the medical director agrees, you got to get the consulting site on board.

In some other instances the attending physicians with admitted residents needs to be on board. So while we get the medical director on board and they can say, this is what we want to do, it just takes a lot more time. So it’s not an automatic process where they can go and say everyone automatically starts getting NUEDEXTA, its one patient at a time.

Gregory Wade – Wedbush Pac Grow Life Sciences

Okay, great. Let’s have a follow-up, what’s the power of the Alzheimer’s disease study to identify the change in cognitive function? Thanks.

Joao Siffert

So cognitive function is obviously not a primary endpoint of that study, so it was not power to test that. The 200 patient study totaled relatively short duration, so it is magnificent affect. We may see a clear signal, but it’s unlikely they will have power to sufficient test cognition. Yes, so however informative as we are conducting these assessments prospectively and by well trained clinicians.

Keith Katkin

And I just to add to that Greg, so obviously there the main focus is agitation which is why the study length of 10 weeks was to determine which is a very short amount of time to detect any major improvements from cognition, really we’ll just be looking to see if there is any type trend, obviously given the success of some other item, the receptor antagonist out on the market and their ability to demonstrate an impact on cognition and disease progression. We certainly think that NUEDEXTA or now AVP-786 could play a role on that front as well, but we don’t think this is a study to definitely identify that but hopefully we will see some trends.

Gregory Wade – Wedbush Pac Grow Life Sciences

We’re hoping to. Thanks Keith.

Keith Katkin

Thanks Greg.

Operator

And we have a follow-up question from line of Ritu Baral.

Ritu Baral – Canaccord

Hi guys, thanks for taking the follow-up, just one left quick question about when you guys go in front of CHMP, will your presentation be allowed to include data beyond the STAR trial? Will you be able to bring PRISM registry and clinical data from NUEDEXTA in other – not other indications but PBA secondary to other conditions other than MS, LS? Will you be able to bring that to the table?

Joao Siffert

Yes, as you know this is an iterative process as opposed to the NDA, right, so we’ve gone back and forth of multiple questions and answers over the past year. And they have seen pretty much all of the data that we know of any including post marketing data in the U.S. from a clinicians prescribing from case [ph] series, from other surveys of commission, the PRISM registry and so forth. And we will remind them of these data. In addition to that, we have contacted and have very important and experienced experts in PBA from Europe in addition to those in the U.S. who are joining us with the meeting. All of them are enthusiastic and then from the European standpoint would love to have a drug like NUEDEXTA to use in their patient safety PBA as it is right now, so they are very keen on seeing NUEDEXTA moving forward.

Ritu Baral – Canaccord

Great, thanks.

Operator

And ladies and gentlemen, that concludes the question and answer portion for today. I would now like to turn the call back to Ian Clements for closing remarks.

Ian Clements

Thanks very much. In closing I’d like to thank you all for joining us today and for your continued interest and support in Avanir. And we look forward to providing updates to you on the progress that we are making at upcoming conferences and indeed on future calls. If you have got any further questions or would like to discuss any portion of today’s results, you can call me at Investor Relations Department on (949) 389-6700. Thank you very much.

Operator

Thank you ladies and gentlemen for your participation. This concludes today’s conference call. You may now disconnect and have a great day.

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