Avanir Pharmaceuticals CEO Discusses F4Q10 Results - Earnings Call Transcript

| About: Avanir Pharmaceuticals, (AVNR)

Avanir Pharmaceuticals (NASDAQ:AVNR)

Q3 2010 Earnings Call

November 30, 2010 11:00 a.m. ET


Brenna Mullen - Investor Relations

Keith Katkin - President and CEO

Christine Ocampo - VP of Finance

Randall Kaye - Chief Medical Officer


Ritu Baral - Cannacord Genuity

Andrew Glasheen - First Capital Alliance

Greg Wade - [Wedbush Securities]

Good morning. At this time, I would like to welcome everyone to the Avanir Pharmaceuticals fiscal 2010 fourth quarter and fiscal year end conference call. [Operator Instructions.] Thank you Ms. Mullen, you may begin your conference.

Brenna Mullen

Thank you and good morning everyone. Joining me on today's conference call is Keith Katkin, president and chief executive officer, Christine Ocampo, vice president of finance and Dr. Randall Kaye, chief medical officer.

I will begin the call by addressing our forward-looking statements. Following this, I'll turn the call over to Keith Katkin.

As a reminder, the statements made on this call represent our judgment as of today, November 30, 2010. Our remarks and responses to questions during this conference call may constitute forward-looking statements, including plans, expectations, and financial projections, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from the expected results expressed in our forward-looking statements.

These forward-looking statements include, but are not limited to, the anticipated timing and success of the commercial launch of Nuedexta, Avanir's ability to market and sell Nuedexta in the United States, the safety and efficacy of Nuedexta, the long-term commercial potential for Nuedexta, the initiation of new clinical studies for Nuedexta, advancing the European regulatory status of Nuedexta, as well as statements regarding our financial ability to support the initial launch of Nuedexta and other activities, anticipated expenditure levels, and future reimbursement coverage for Nuedexta.

We encourage you to take the time to review our recent filings with the Securities and Exchange Commission, which present these matters in more detail as well as related risk factors. Avanir disclaims any intent to update any forward-looking statements made during this call.

Now I will turn over the call to Keith Katkin.

Keith Katkin

Thank you Brenna, and good morning everyone. Thank you for joining us on our fiscal 2010 fourth quarter and year-end earnings call. I'll start today's call by providing a brief overview of our business before turning it over to Christine Ocampo, who will review our financial results, followed by Dr. Randal Kaye, who will discuss the recent approval of our first-in-class drug, Nuedexta.

Fiscal 2010 has been a year of great success and accomplishment for Avanir. This year marked a significant transition for Avanir, as we broadened our focus from clinical and regulatory success to market development and commercial readiness.

Now, with the FDA approval of Nuedexta as the first and only treatment for pseudobulbar affect, or PBA, we are fully accelerating those activities in order to ensure a successful commercial launch in February of 2011. Everyone at Avanir is thrilled to have the opportunity to provide Nuedexta to patients that are suffering from the debilitating emotional outbursts of PBA, and who, until now, had no approved treatment options.

The past year was highlighted by key accomplishments such as presenting Nuedexta data at several prestigious medical conferences, announcing favorable safety and efficacy results from the open label extension of the STAR trial, submission to the FDA of our complete response to the October 2006 approvable letter, and finally, and most importantly, the FDA approval of Nuedexta for the treatment of PBA in late October. This approval occurred on the FDA-established action date with a broad indication that allows access to Nuedexta for all patients suffering from PBA.

We also accomplished several achievements to set the stage for a successful commercial launch and long commercial life cycle for Nuedexta. First, in February, we announced that the United States Patent and Trademark Office issued a new patent that extends the period of intellectual property protection for Nuedexta into 2025. Subsequently, we identified new case law that allowed us to extend the patent protection into late 2026.

This accomplishment strengthened our Nuedexta intellectual property portfolio and should provide approximately 15 years of revenue generation in the United States. In addition to this new patent, we continued to strengthen our intellectual property portfolio by filing two new U.S. patent applications for Nuedexta.

Second, subsequent to the end of the fiscal year, we strengthened our balance sheet by raising gross proceeds of $88 million in a public offering of common stock. We believe the size, favorable financial terms, and strong investor syndicate, including several large long-only institutional investors, demonstrates the high level of interest and excitement about Avanir in the financial community.

I am pleased to announce that now, with approximately $125 million in cash on hand, we expect to be able to fully fund the commercialization of Nuedexta, the additional clinical development of Nuedexta for follow-on indications, and further development of our European regulatory strategy.

In addition to obtaining adequate financial resources, during the past year we have diligently taken steps to prepare for the approval and launch of Nuedexta by initiating PBA disease-awareness campaigns for both our target physicians and patient audiences, as well as building up our commercial team by filling key leadership positions and recruiting an experienced sales force.

Unlike many companies our size, we believe that commercialization is a core competency of the Avanir leadership team. Avanir has the benefit of being a somewhat reverse-engineered biotech company. Whereas most companies start with a focus on research and development and need to expand into commercialization, the Avanir leadership team all have significant commercial experience and a demonstrated track record of success.

We plan on using our collective experience to help ensure the successful launch and long-term success of Nuedexta. Using these commercial capabilities in the short interval since we received FDA approval for Nuedexta, we have made considerable progress in our launch plans.

I am happy to announce that as of today we have filled all 75 planned sales territories and all seven sales management positions. I'm even more pleased at the caliber of individuals we are able to attract to our sales team. The average Avanir sales representative has over six years of pharmaceutical sales tenure, with approximately 75% of our sales force having prior experience selling CNS therapies to neurologists and psychiatrists in their new Avanir territories.

We have also built out our managed markets team with nine account managers and a director of trade relations now on board calling on key Medicare Part D plans, commercial plans, PBMs, and drug wholesalers. Furthermore, we've staffed our medical affairs organization with five talented medical science liaisons that have been building relationships and advocacy among national and regional opinion leaders.

Looking forward, our goal is to provide annual revenue guidance after we generate several quarters of revenues and are better able to estimate future revenues. Since we are developing a new market and therapeutic category, we expect to educate a large number of physicians, patients, and caregivers in order to change established behaviors.

As building awareness and changing behaviors requires significant time and resources, it is important to note that we expect to build our launch over time, with multiple ways of adoption of Nuedexta. Our sales force will call on physicians treating the variety of underlying conditions associated with PBA. However, we expect that the early uptake will occur amongst physicians treating patients with PBA secondary to ALS and MS, as they are most familiar with PBA and Nuedexta. We will access these populations primarily through the neurology practices where we have established relationships via our clinical development programs.

We expect the second wave of adoption will occur primarily among stroke and traumatic brain injury populations, and the slowest adopting populations will likely be among patients with Parkinson's disease and other underlying neurologic conditions due to lower PBA disease awareness and familiarity with Nuedexta. We believe the staged approach to market building will lead to long-term growth and sustainable commercial success for Nuedexta.

With the commercial organization hired and currently in training, we are now focusing on important aspects of the launch, such as pricing and managed care coverage. We have done extensive work with payers, including qualitative research, quantitative research, and a payer advisory board in order to determine the optimal price that will balance top line revenues with patient access to Nuedexta.

Today, we announced that the average wholesale price for Nuedexta will be $489 per month of therapy. At this price point, we expect that Nuedexta will be covered on a majority of health plans, with either a tier 3 copay and no restrictions or a tier 2 copay with initial prior authorization required to confirm diagnosis of an underlying neurologic condition.

The feedback we have received from payers indicates that they understand the incremental burden that PBA places on patients with serious neurologic conditions and they view the Nuedexta value proposition favorably. We expect it will take approximately 9-12 months for formulary reviews to take place and reimbursement policies to be fully enacted.

In order to make reimbursement as seamless as possible for patients and healthcare providers, we plan to offer support services such as a reimbursement counseling hotline to assist with coverage determination and any required paperwork. We also plan to offer a copay assistance program for qualified patients to ensure that out of pocket expenses will not be cost-prohibitive for patients. Finally, we plan on establishing a patient assistance program for qualified patients within the first year of launch, with details to be announced sometime after our commercial launch.

In summary, 2010 has been a transformational year for Avanir. After years of hard work we now have the opportunity to deliver on our promise to help the many neurologic patients in the U.S. suffering from PBA. We are confident that we have the right strategy, adequate resources, and the commercial expertise to successfully launch Nuedexta in February of 2011.

I would like to thank all of the investigators, patients, investors, and employees that have believed in, and supported, this company over the past several years. We have always had a firm conviction in our strategy for bringing Nuedexta to market, and this past year has been crucial in laying the foundation for what we expect to be a bright future.

With that, I'll now turn the call over to Christine Ocampo, who will review our financial results. Christine?

Christine Ocampo

Thanks Keith, and good morning everyone. My comments today will cover our financial results for the fourth quarter and 12 months of fiscal 2010 as well as our expected operating expenses for fiscal 2011. In addition to the results summarized in the press release issued earlier this morning, you can find additional information in our upcoming 2010 annual report on form 10-K. All figures discussed today are approximate.

I will begin with a discussion of our results for the fourth quarter of fiscal 2010. Net revenues consisting primarily of the recognition of deferred revenues totaled $726,000 and $1 million for the fourth quarter of fiscal 2010 and 2009 respectively. Fourth quarter fiscal 2010 revenues of $726,000 consisted of the recognition of deferred revenue of $697,000 and royalty revenue of $29,000.

Cash used in operations for the fourth quarter was $7.2 million. Total operating expenses for the fourth quarter of fiscal 2010 were $9.5 million compared to $7.7 million in the same period of the prior year. Fourth quarter fiscal 2010 operating expenses consisted of research and development expenses of $3.3 million compared to $4.2 million in the same quarter in the prior year, and selling, general, and administrative expenses of $6.2 million compared to $3.5 million in the same quarter in the prior year.

The decrease in research and development expenses is primarily attributed to a reduction in clinical expenses resulting from the completion of the STAR trial in fiscal 2009, offset by costs incurred in 2010 in support of regulatory activities. The increase in selling, general, and administrative expenses is primarily attributed to expenses incurred in preparation for the commercial launch of Nuedexta, which is expected to occur in the first calendar quarter of 2011.

The net loss from operations for the fourth quarter of fiscal 2010 was $9.7 million, or $0.10 per share, compared to a net loss of $7 million, or $0.09 per share for the same period a year ago. The increase in net loss is primarily attributed to expenses incurred in preparation for the commercial launch of Nuedexta.

Now moving on to our results for the full fiscal year 2010. Net revenues were $3.7 million for fiscal 2010, compared to $4.2 million for fiscal 2009. The decrease in revenue is primarily attributed to a decrease in licensing revenue of $284,000 related to a foreign docosanol licensing agreement that was terminated in fiscal 2009 as well as $250,000 in milestone payments received in fiscal 2009 related to the 2008 sale of our anthrax antibody portfolio to Emergent Biosolutions.

Fiscal 2010 revenues of $2.9 million primarily consisted of the recognition of deferred revenue of $1.4 million from our license agreement with GlaxoSmithKline for sales of abreva and royalty revenue in the amount of $943,000 related to the same agreement. In addition, we earned royalty revenue from our license agreement with AzurPharma in the amount of $516,000.

Total operating expenses for fiscal 2010 were $29.8 million compared to $26 million in the prior fiscal year. Operating expenses consisted of research and development expenses of $13.3 million compared to $15.9 million in the same period in the prior year and selling, general, and administrative expenses of [$16.5] million compared to $10.2 million in the same period in the prior year.

The decrease in research and development expenses is primarily attributed to a reduction in clinical expenses resulting from the completion of the STAR trial in fiscal 2009 offset by costs incurred in 2010 in support of the complete response to the approvable letter and other regulatory activities. The complete response was submitted to the FDA in the third fiscal quarter of 2010. The increase in selling, general, and administrative expenses is primarily attributed to expenses incurred in preparation for the commercial launch of Nuedexta.

The net loss from operations for fiscal 2010 was $26.7 million, or $0.30 per share, compared to a net loss of $22 million, or $0.28 per share for the same period a year ago. The increase in net loss is primarily attributed to costs related to the company's commercial readiness activities for the launch of Nuedexta.

In the fourth fiscal quarter of 2010 we recorded a cumulative adjustment to correct an immaterial error related to previously recorded deferred revenue. The total non-cash cumulative adjustment recorded in the fourth quarter was a decrease to deferred revenue of $797,000, which resulted in total net revenues of negative $71,000 in the fourth fiscal quarter of 2010 and $2.9 million for fiscal 2010.

We have kept our cash burn at a moderate level in fiscal 2010 as a result of our close management of expenses and negotiating favorable payment terms with our vendors. We ended the fourth quarter with total cash of $39.4 million and cash used in operations of $23.8 million in fiscal 2010 versus $20.3 million in fiscal 2009.

In November 2010 we raised net proceeds of $83.2 million through a common stock offering. Our total cash balance as of November 29, 2010 was approximately $125 million.

Looking forward to fiscal 2011, we currently anticipate that our operating expenses, excluding share-based compensation expenses, will be between $75 million and $85 million, with the majority of expenses related to the commercial launch of Nuedexta. As Keith mentioned earlier, we will not be providing guidance on revenues until we generate several quarters of revenues and are better able to estimate future revenues.

Now I'll turn the call over to Dr. Kaye, who will provide an update on the progress of our Nuedexta research and development program as well as an update on our medical affairs organization.

Randall Kaye

Thanks Christine, and good morning everyone. This is a very exciting time here for everyone at Avanir. The approval of Nuedexta was a significant achievement for the Avanir clinical team, which could not have been accomplished without the commitment of the patients and investigators who participated in our clinical trials. We are excited to have the opportunity to make Nuedexta a first-in-class treatment available to the many patients living with the debilitating episodes of PBA.

My comments today will summarize our accomplishments during the fiscal year, the approval of Nuedexta, and the next steps for the clinical and medical affairs teams.

Fiscal year 2010 was one full of achievement for the clinical and regulatory teams here at Avanir. Our key accomplishments included presenting the Nuedexta data at several prestigious medical meetings, filing our complete response with the FDA, the initial build-out of the medical affairs organization, and the publication of the Phase III STAR trial results in the Annals of Neurology.

All of these milestones paved the way for our most significant accomplishment. On October 29, we were very pleased to announce the approval of Nuedexta as the first and only FDA-approved treatment for pseudobulbar affect, or PBA. As a reminder, PBA occurs secondary to a variety of otherwise unrelated neurologic conditions. It's characterized by involuntary, sudden, and frequent episodes of laughing and/or crying.

The indication that we received in our final labeling allows any patient with PBA to be a candidate for Nuedexta therapy, regardless of their underlying neurologic disease or injury. In our final discussions, FDA did not require a REMS program, a boxed warning, or unexpected contraindications warnings or precautionary statements. So we now have a product label which allows any patient with PBA to be a candidate for Nuedexta therapy, regardless of their underlying neurologic disease or injury.

In addition, the prescribing information helps physicians understand important safety information that needs to be considered prior to initiation of therapy. I would encourage everyone to visit the Nuedexta.com website to see the full prescribing information.

With approval in hand, we continue to look for opportunities to further develop Nuedexta for other clinical uses. We believe Nuedexta for PBA is just the beginning. MS-related pain, diabetic peripheral neuropathic pain, and behavioral disorders associated with dementia are some of the development areas that are under consideration. In addition, we have several post-marketing non-clinical commitments and a comprehensive pediatric development plan to initiate.

Finally, an important objective for fiscal 2011 will be the development of a filing plan for Europe. Preliminarily, we have a meeting scheduled with key European clinical and regulatory consultants early next month. As we enter further into fiscal 2011 we'll look forward to updating you on our full development plans in moving forward.

In addition, we are strengthening our medical affairs organization in order to meet the educational and informational needs of our healthcare professionals, our future prescribers, and key opinion leaders. This includes further expansion of the geographically dispersed medical science liaison team, a medical information call center, and a full publication development plan. Together, this ensures that information will become readily available to the prescribers when they need it most - immediately.

For now, there are many patients in the U.S. currently untreated and suffering from sudden and disruptive episodes of PBA. We are thrilled to be in a position to provide these patients with the treatment option for their debilitating episodes of PBA in the first calendar quarter of 2011. We are dedicated to improving the lives of these patients and their caregivers and will continue to build our organizational capabilities to ensure that prescribing physicians have access to important information about Nuedexta.

Thanks for your time and attention. I'd like to turn the call back to Keith now.

Keith Katkin

Thanks Randall. In closing, with a strong balance sheet, a high-performing commercial team, and a clinical development team with a track record of proven success, our priorities for fiscal year 2011 are clear. First, the successful launch of Nuedexta in PBA. Second, initiation of a new clinical study for Nuedexta in another indication outside of PBA. And finally, advancing the European foiling of Nuedexta in PBA. We believe that delivering on these imperatives in 2011 will create substantial value for our shareholders.

Operator, I would now like to open the call for questions.

Question-and-Answer Session


[Operator Instructions.] Your first question comes from the line of Ritu Baral.

Ritu Baral - Cannacord Genuity

I wanted to ask you guys about the follow-on indications actually that Randall mentioned. One of the things that hadn't been mentioned recently at least was DPN or diabetic peripheral neuropathy pain. Is that something that you are now willing to maybe go back after? And how do you see that opportunity in relationship to MS pain and the dementias that you mentioned? What might you be thinking of as far as modeling Phase 2 studies or Phase 3 studies in these indications?

Keith Katkin

It's a good question. We're still in the process of evaluating exactly which is the next best indication or indications to pursue for Nuedexta. In thinking about diabetic peripheral neuropathic pain, which obviously we had what we considered a very strong Phase 3 data with the original dose formulation of AVP-923 or Nuedexta, we certainly believe that we could identify a formulation that works in diabetic peripheral neuropathic pain.

On the flip side, though, as we saw within the STAR trial in MS pain, we did see demonstrated proof of concept with the higher dose formulation of Nuedexta or AVP-923, the 30-10 combination, which obviously isn't part of the Nuedexta approval, but we've got a great safety database. So as we're thinking about which pain indication to develop next, we're taking into account the clinical data that we've generated in the past.

Right now our commercial focus is on neurologists that are treating these patients with PBA, and also looking at the probability of regulatory success, keeping in mind that there are approved therapies for diabetic peripheral neuropathic pain and it's possible that the agency would want to see active comparator trials, whereas there are no approved therapies for pain secondary to multiple sclerosis. So there wouldn't be the possibility to do active control arms.

So those are some of the factors that we're taking into consideration in deciding exactly which program we're going to support next. In addition, thinking about emotional lability or the broader range of emotionality that patients for example that have Alzheimer's or other forms of dementia suffer from, like anger, irritability, frustration, that is obviously something that we'd like to continue to explore Nuedexta in as well.

Right now we're planning on being able to fund one additional program this year and our goal though is over time to be able to fund all of the programs.

Ritu Baral - Cannacord Genuity

Great, and if I could just ask one follow up. For your European strategy, do you think that you will need an additional trial, just based on populations. And also, as far as getting the pediatric indication, what's going to be needed trial size-wise and treatment-wise.

Randall Kaye

They're good questions but hard to answer directly. The step-wise fashion as it relates to the EU and EMA approval requires some initial meetings with some outside consultants, and then a final sit-down meeting with EMA to get full alignment.

With regard to additional data, our go-in strategy is that we have a sufficient database currently available for patients with PBA that we could file with that. But again, that would be a conversation we would need to have.

On the pediatric side, as you know the pediatric requirements in Europe are at least as stringent as the U.S. and sometimes even more so. The development plan that we had submitted and agreed upon with FDA is very comprehensive and as it currently stands I think it actually would be in pretty good alignment with EMA requirements. But again, that's a discussion we would need to have with them directly.


Your next question comes from the line of Brian Cho.

Andrew Glasheen - First Capital Alliance

Hi, this is actually Andrew Glasheen at First Capital Alliance. Congratulations. As a shareholder who's seen my stock appreciate considerably, I can only be gratified at the work everybody's done there. You seem to have done everything well. Maybe it took a little time, but I guess what I'm saying is while doing everything well it seems like there might be sort of a misunderstanding of the potential for this drug going forward.

Number one, your cost number, I'm sure that was derived somewhere between what you think physicians would be willing to accept, what reimbursement people would be willing to pay, and what sort of margins you've got on that. And if you take that and you look at the number of potential sufferers from PBA, you do any sort of discount or percentage of that multiplied by your reimbursement and assume any kind of a decent margin, you're looking at revenues that are way higher than potentially anybody's talking about. Can you comment on that?

Keith Katkin

First, thank you for the congratulations. Second, we certainly agree with you that there's a significant opportunity for Nuedexta given the large number of patients that suffer from PBA in the United States. It's our sense that in terms of realizing the true value of the stock, if you will, the one thing that's hampering it is the recent success, or lack thereof, of many smaller biotech companies that are going through launches.

We've done an assessment of many of the previous launches of small biotech companies and the landscape is not extremely favorable. A number of companies have not been successful with their commercial launches, which is why in my prepared comments I really wanted to focus everyone on the commercial expertise of the team here at Avanir.

And as I mentioned, many biotech companies start as research and development companies and it's a difficult transition into the commercial state where they just don't have that expertise in launching products, whereas we here at Avanir, the entire management team has grown up, essentially, on the commercial side of the business.

We've been able to bring in some highly talented people like Michael McFadden, who's running our sales and managed care operations. He's hired a fantastic team and he's used many of his previous colleagues in the industry and we're really preparing for what we believe to be a best-in-class launch of Nuedexta.

So for the people who don't really appreciate the revenue potential, we think that's something that's going to be realized over time and that's also why in my prepared remarks I really talked about what we expect from an adoption perspective with ALS and MS patients really being the early adopters and then moving on to stroke and traumatic brain injury, and then finally Parkinson's disease and other conditions like dementia.

So I appreciate the comments. We're absolutely focused on the commercial success, and do believe that there is a significant opportunity for Nuedexta.


[Operator Instructions.] Your next question comes from the line of Ritu Baral.

Ritu Baral - Cannacord Genuity

The waves of marketing roll out that you've talked about between the ALS, MS docs, stroke docs, can you give us sort of a breakout of the number of doctors that you'll be targeting in these waves and approximate timing as you go from one focus group to another?

Keith Katkin

Yeah, I can speak in general terms as it relates to our rollout plan, and I should probably also give some background on how we targeted the physicians. So as a reminder, we're going to start out by giving our 75 sales representatives about 200 physicians each, so a total of about 15,000 physicians throughout the U.S. In developing those 15,000 initial targets, what we did is look at the underlying prescription data for the neurologic conditions associated with PBA.

Obviously, as there are no approved therapies for PBA, we can't just pull market data for PBA treatments. So what we did, for example, is to identify the doctors that are treating ALS patients, we pulled Rilutek data. To identify the doctors that are treating stroke patients, we pulled Plavix data, and so on and so forth. And then for all of the underlying conditions that are associated with PBA, we developed deciles.

So we believe that we've identified the doctors that are seeing the majority of the patients that have the underlying neurologic conditions for which PBA is associated, and based on those 15,000 targets, we think we're calling on the doctors that are seeing a majority of the patients with all of the underlying neurologic conditions.

Now that said, the 15,000 doctors break out into about 6,000-7,000 that are neurologists, about 2,000-3,000 that are psychiatrists, and about 1,000 that are physical medicine and rehabilitation specialists. Those are the doctors that focus on typically post-stroke and post-traumatic brain injury. And then the remaining doctors are more of your geriatricians or long-term care medical directors.

What we're going to be doing in our rollout is we're absolutely going to be targeting all of those doctors and reaching out to them, but early on we're really going to focus in on the neurologists and the psychiatrists because those are going to be the opinion leaders. Those are going to be the doctors that the rest of the community looks to. And as I mentioned, what we think is that the waves of adoption will be different over time.

So our targets likely will not change over time, but in terms of waves of adoption, our efficacy data was in ALS and MS. We want doctors to have a great first experience with Nuedexta, so we're going to focus them on those patients so that they can get that positive feedback from the doctors.

Second, we've got safety data in a number of other populations. In stroke and TBI the diagnosis of PBA we believe is very clear and straightforward and well-documented in the literature. We think that will be the second wave of adoption by physicians.

And then finally, in conditions like Parkinson's, or other forms of dementia, the differential diagnosis of PBA relative to other forms of emotional lability is not as straightforward. So we want to make sure that when doctors are using Nuedexta in these other populations, that they’ve got the differential diagnosis of PBA.

That's why the FDA included some of the specific language that they did in our indications statement about separating PBA from other forms of emotional lability, because we just want to make sure that that differential diagnosis for classic PBA is correct in all patient populations, but particularly what we think will be those late adopters like Parkinson's and other forms of dementia.

We think it really puts us in a great position, because as we look at each of these different populations and each of the doctors that are treating these populations, it really allows us to have a nice long-term adoption curve for Nuedexta.

And I should add that in hiring our sales force, as I mentioned about 75% of them had previous CNS experience and were already calling on the doctors that were in their territories. As you can imagine, before making the decision to leave their companies and move to a company that's got a first-in-class product, many of them talked to the top doctors in their territory and obviously they got favorable feedback from their doctors. Otherwise, they wouldn't have joined us here at Avanir.

So we're excited for the launch in February and we're excited to be able to offer the first and only therapy for patients suffering from PBA.

Ritu Baral - Cannacord Genuity

Great. And as far as your sales and marketing team right now, do you think that you have all the spots filled? Are you still hiring? And last question is, you mentioned the reimbursement tiers that your managed care team is seeing, the tier threes and the tier twos. What's the approximate breakout of where Nuedexta falls in the various plans? Is it 50-50?

Keith Katkin

So on the question in terms of hiring first, the sales and managed market teams are completely full. We actually have our first wave of sales team, about 45 people that are out here at our home offices for training right now and we'll have a next wave in just a few weeks. So all those spots are filled. We have a few internal support positions which are still available, but for us what's most important is the customer-facing positions of which all of those customer-facing positions have been filled.

And then in terms of managed care, what I was alluding to in my prepared remarks is our expectation around tier placement. Certainly we just announced price today and our managed care team is going to be going out and calling on all of the major payers throughout the U.S., really in perpetuity, but announcing the launch pricing and getting a sense of where payers are between now and launch.

But it's important to keep in mind that many payers, especially Medicare Part D payers, which are an important payer for Nuedexta, don't make their formulary decisions for at least six months from the commercial launch date. So we won't be able to provide any kind of guidance on tier placement and exactly where Nuedexta is, likely until we're somewhere between six and nine months post-launch. So we certainly plan on gathering that data and then sharing it as appropriate.

Our believe that we'll fall in tier three unrestricted or tier two with minimal prior authorization is based on our market research as well as our advisory board meetings that we've had with payers. But certainly until it goes to formulary review, and until they've made their definitive decision, we can't give any specific guidance on exactly how Nuedexta is fairing on formulary placement.


Your next question comes from the line of Greg Wade.

Greg Wade - [Wedbush Securities]

When considering what other medications the different patient populations will be on, and Medicare Part D donut hole, could you just tell us whether you believe that Nuedexta is going to cause them to hit the donut hole or they would have already been hitting it in the various groups that you'll be treating? And then also, with respect to formulary placement, is it not true that CNS drugs all have to be put on formulary so it's a matter of in which placement it's going to be versus whether they're actually going to get on there?

Keith Katkin

Sure, I'll take the last part first in terms of CNS drugs and guaranteed placement. I believe you might be referring to atypical antipsychotics. There had been a requirement under Medicare Part D that all atypical antipsychotics have to be available. I'm not aware of any requirement for CNS therapies, that they have to be available on formulary.

That said, because we are a first and only in-class product, we expect that we will get formulary placement at all major plans as I don't believe that payers would want to deny any of these patients that are already suffering significant distress from their underlying neurologic conditions. I don't think payers would want to deny them from an important symptomatic benefit, keeping in mind that for many of these patients there are no therapies available for them for their underlying diseases and certainly no symptomatic therapies for the treatment of PBA.

In regards to your question about the donut hole, that's really a population by population question, so when you think about patients, for example, that have ALS and MS, the medications that they're already on are quite expensive. The average MS therapy these days is upwards of $40,000 a year. So those patients move through the donut hole very quickly and quite similarly the patients with ALS.

Stroke and TBI patients do tend to be on a number of combinant medications that will put many of them through the donut hole, but certainly with Nuedexta it's possible that those that are on very few medicines this could push them into the donut hole. But there are a number of mechanisms of relief these days for patients moving into the donut hole and certainly we're going to do our part to try and help make sure that Nuedexta is affordable for all patients through reimbursement assistance and counselors, as well as a copay assistance program whereas we minimize the actual burden on the patient in terms of what they need to pay at the pharmacy to ensure that we can get broad access for Nuedexta to all the patients that are suffering from PBA.

Greg Wade - [Wedbush Securities]

Thanks, and if I could just have one follow up. When considering follow-on indications, should we be thinking more broadly in terms of mood stabilization? Or do you believe there's something specific to the mechanism of action of Nuedexta with respect to pseudobulbar affect that would actually limit the potential broad utility of the drug across the broad spectrum of mood disorders?

Keith Katkin

You ask an interesting question, and one which we think that a number of physicians out there might be interested in exploring certainly from an investigator initiated study perspective. One important focus of our medical affairs team will be to help advance the scientific understanding of Nuedexta through investigator initiated studies, and we've got a fair amount of dollars that we've budgeted for this upcoming year to help investigators that are interested in exploring a number of different therapeutic opportunities for Nuedexta, and I think mood stabilization is one that we've heard from doctors that they're interested in exploring.

From our vantage point, we want to focus our clinical development dollars on those areas where we've gotten a strong proof of concept, so that's pain secondary to multiple sclerosis, diabetic peripheral neuropathic pain, and these other forms of emotional lability secondary to Alzheimer's like anger, irritability, and frustration. So I think mechanistically, it's conceivable that there could be a mood stabilization aspect, but we're going to focus our dollars on those areas that we think have the greatest incremental return, and also the strongest proof of concept right now.


At this time there are no further questions. Presenters, if you have any closing remarks?

Keith Katkin

I'd just like to thank everyone for joining us on our fiscal 2010 fourth quarter and year end call and we look forward to keeping you updated on our progress. Thank you.

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