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We propose a minimum of "somewhat of a burden" as a minimum prerequisite for Nuedexta treatment and thus we translate the patient market data from Part I of this series for further evaluation as to actual usage. Prediction of usage demands consideration of a number of other factors. First, for a prescription to be written the patient will need to be diagnosed with PBA, the physician will need to be aware of Nuedexta as a treatment option, and the physician will need to choose Nuedexta over any alternate therapies. If prescribed, continued use of Nuedexta will depend upon successful reduction of PBA episodes without intolerable side effects at an acceptable cost to the patient. We examine each of these effects individually and try to assess the degree of effect they will have on peak usage.

Efficacy

In the STAR trial Nuedexta treatment resulted in a mean 80% decrease in PBA episode rates with 51% achieving complete remission. Based on STAR data we expect an 80-90% rate of clinically meaningful Nuedexta efficacy in ALS/MS patients who have severe disease. We also model lower efficacy with lesser severity of disease as a clinically significant difference will be more difficult to discern for milder disease. At the same time, it should be noted that the STAR trial achieved its efficacy numbers with approximately equal numbers of mild and moderate-severe PBA patients. Finally, we allow for incorrect PBA diagnoses to further reduce observed efficacy as pre-selection of patients for the STAR trial is likely to be more rigorous than that seen clinically. Incorrect diagnosis is modeled as greater for diagnoses other than ALS/MS due to less PBA expertise among their physicians and a less homogenous patient population.

PBA Diagnosis

A diagnosis of PBA is necessary for approved use of Nuedexta. We expect both the severity of PBA and the physician specialty to have a significant effect on clinical recognition of PBA. After some years of awareness campaign have been achieved, we still expect PBA to be easiest to recognize in the focused physician specialty areas of ALS/MS and model essentially all of severely affected ALS/MS patients to have it recognized by their physicians. Less severe disease and less focused specialties are modeled with progressively lesser diagnosis rates. For example, given the high prevalence of PBA in TBI and stroke we still expect reasonably good diagnosis rates though somewhat lower than ALS/MS due to the less focused nature of the associated physician specialties. Despite a focused group of specialty physicians, Parkinson’s patients are considered intermediate due to the confounding aspects of the disease. Finally, we expect diagnosis in dementia patients to be most difficult due to the many confounding aspects of the underlying disease and the wider range of physician specialties caring for these patients.

Need for Treatment

We see the burden of PBA and the need to treat as very closely related. We expect essentially all of those designating PBA as extremely or very burdensome as having a need for treatment. The need in those designating PBA as only somewhat burdensome is less clear and some of these patients or their physicians may simply say that the degree of burden simply does not merit the hassles of taking another medication (risks and cost are considered independently). We see the need for treatment boosted by the fact that the benefits of treatment can be assessed within the 10-day sample period due to the rapid onset of Nuedexta efficacy. Given that efficacy can be assessed in such a short time, more expansive use of Nuedexta is possible given the no-cost and low risk associated with expansive assessment of need. Finally, one area worth noting is in patients whose mentation is impaired (esp. if unaware or do not recall episodes). These patients would only be considered "burdened" if their caretakers or other patients around them are affected. The presence of survey data and fairly high caretaker survey participation for stroke and TBI patients largely controls for this factor in that a burden is identified. Burden in dementia patients is more difficult to estimate as they are most prone to being unaware of their PBA. This effect was already accounted for in Part I of this series when the burden in dementia relative to a moderate-severe CNS-LS score was discounted to 1/3-1/2 the rate of that in stroke and TBI. However, if Nuedexta successfully treats other types of emotional outbursts as has been postulated (Richter, poster presentation) then the market for Nuedexta may be dramatically expanded and dementia patients may be among the most treated.

Table I: Factors Affecting Adoption Rates at the Time of Peak Uptake:

Table 3
(Click to enlarge) Example: A value of 85% for efficacy in ALS patients with extreme burden represents 15% of patients not being treated due to lack of efficacy

Physician Familiarity with Nuedexta

Given an awareness campaign that will inevitably link PBA diagnosis and Nuedexta familiarity, we expect most of those diagnosing PBA will also be aware of the Nuedexta option by the time of peak uptake. Despite this we have modeled this as independent from diagnosis with more focused specialties more likely to be aware of the treatment option. In addition, underlying diagnoses in which patient talk among themselves in chat rooms etc. are more likely to drive them to request a medication trial.

Alternate Therapies

When a decision to treat PBA is made, we must assess what is the likelihood that Nuedexta will be used over other medications. Some physicians may use Nuedexta only if other therapies fail however, Avanir’s data suggests only 1% would never use Nuedexta and only 15% of physicians will reserve it as second-line therapy (Avanir Jan. Corporate Presentation). Even when used as second line it stands to reason that some proportion of patients would proceed on to Nuedexta, especially in higher-burden patients. In addition, alternate therapies have been available for years with low usage rates (MSAA, NSA, BIAA survey data), of those treated with alternate therapies satisfaction rates are only 25-50% among patients (MSAA, NSA, BIAA survey data), and physician satisfaction with alternate medications is middling at best (Avanir Jan. Corp. Presentation). As an add-on therapy, subgroup analysis of Nuedexta trials showed that the treatment effect of Nuedexta is maintained even for those who entered the study on SSRI’s (Wynn et al, abstract).

Adverse Effects

For the STAR trial, dizziness was most common adverse event occurring more frequently in the Nuedexta 20/10 limb (10.8%) vs. placebo (5.7%). Dizziness may be more of a factor in stroke, TBI, Parkinson’s disease, and dementia as compared to ALS/MS though the difference should not be profound as all these groups are somewhat at risk. In the STAR trial medication refusal due to adverse events was only 1.9%. A substantially higher adverse event rate than this was used for diagnoses other than ALS/MS in the modeling though this difference may not be justified and it is modeled this way due to uncertainty and in order to obtain conservative estimates

Cardiac Safety and Contraindications

Nuedexta is contraindicated in only rare clinical situations what will not significantly impact use with the possible exception of MAO-I use in Parkinson’s disease. Increased ECG screening will be required in patients with left ventricular hypertrophy/dysfunction, with drugs increasing QT intervals, and with drugs that inhibit the CYP3A4 enzyme.

Cost

Approximately 84% of Americans have health insurance and the most of these will have prescription co-payments for Nuedexta in the $20-100/month range. PBA severity is modeled as having a significant effect on patient willingness to overcome cost barriers. As a new drug, Nuedexta is subject to a standard 6-9 month formulary review period with insurers and managed care companies and specific cost identification will be unclear until these negotiations are complete. However, Nuedexta benefits from being both first in class and the only available FDA approved treatment for PBA for the foreseeable future. We expect the drug will eventually fall mainly under tier 2 restricted and tier 3 unrestricted, which will make Nuedexta a more attractive treatment option for those with PBA.

Patients Treated and Revenues

We project revenue from Nuedexta to be approximately $4,365/patient after stocking fees and discounts are subtracted from Nuedexta’s stated annual wholesale cost of $5,868. Thus, the projection of >166,000 patients on Nuedexta translates to annual revenues of over $725 million.

We are aware that this estimate is higher than current analyst estimates and this awareness has led us to reassess every factor to ensure use of conservative estimates at each turn. In addition, we again return to analysis of the MSAA, NSA, and BIAA surveys to assess this estimate in another way. For this purpose we assess patients who are treated for their uncontrollable laughing or crying episodes but are not satisfied with their treatment. If we apply the same correction factors used in our evaluation of the Nuedexta market (Part I) to the proportions of survey respondents stating they are unsatisfied with their treatment we find a total of 243,000 such patients (MS: 12,000, Stroke: 89,000, an TBI: 142,000). This number represents a snapshot of a large pool of patients prior to introduction of Nuedexta where the "need to treat" is clearly present but whose options for treatment are unsatisfactory. It is likely that a large portion of this patient pool will migrate to Nuedexta use. In addition, this only represents a subgroup of those likely to be treated with Nuedexta because that number does not include:

A. Those with other PBA-related diagnoses.

B. Those who are not treated at all due to poor efficacy of alternative therapies.

C. Those who are not treated due to absence of a diagnosis of PBA.

D. Those that are not treated due to lack of awareness of pre-Nuedexta treatment options.

The majority of patients in the surveys reported that their emotional outbursts are not treated and that they have never heard of PBA suggesting that groups B, C, and D have substantial numbers. For groups C and D, Avanir’s current education campaign for PBA and marketing campaign for Nuedexta will be needed but we expect this to be well-developed at the time of peak uptake. In all, these numbers may suggest that the original estimate above is overly-conservative.

Analysis of Introduced Error

Quantitative data from trials and surveys is utilized where available and an attempt was made to utilize conservative estimates when needed. Despite this, significant guesswork is required in assigning the reduction factors noted above. In addition, all findings depend on reasonable "unbiasing" of the original survey data. Finally, error due to estimation of burden in diagnoses without survey data is also likely to add error. However, the effect on overall estimates is likely to be low as >80% of all predicted patients come from the MS, stroke, and TBI groups. Thus, while we expect these to be reasonable estimates there is potential for substantial introduced error. Lastly, not all diagnoses that may cause PBA are listed above and minor additional usage may occur in patients with other types of dementia, neurodegenerative diseases, tumors, and others.

Other Considerations

1. Timing of peak uptake: We expect peak uptake to occur in the 3-5 year interval though that is not the focus of this article. We do see substantial efforts being put forth and expect eventual success.

2. Negative developments: The above considerations do not include the major negative developments such as successful patent challenges, significant rates drug compounding rates, or unforeseen adverse effects. Unsuccessful navigation of ongoing formulary reviews could depress projected rates in the "cost" column. Finally, the projections also assume a successful awareness/education campaign for both physicians and patients.

3. Non-U.S. revenues: Europe and the rest of the world are expected to contribute substantially to PBA-related revenues for Nuedexta. We expect Europe sales to commence in 2013.

4. Value related to pain indications: Promising phase III data is available for both MS-related pain and diabetic peripheral neuropathy pain with Avanir recently announcing plans to pursue the MS-related pain indication first in their ongoing R&D program. Avanir had considered pursuing DPN as the first follow on indication for Nuedexta, but the DPN pain market is crowded, there would likely be a need for dose adjustments, and there is a possibility that the FDA would request a head-to-head comparison with an already approved drug. Avanir, instead, decided to pursue MS related pain, an area of high unmet medical need which may prompt "fast track" status from the FDA, and likely require no need for additional funding, dilution, or partnering in their effort to seek approval. They have positive data from two previous trials for MS related pain and while it is unclear as to whether there will be a need for dose adjustments or if more than one trial will be required, Avanir seem s to have decided this to be the most pragmatic and cost effective approach to getting its foot in the door for a pain indication.

5. Off label use for pain: Nuedexta revenues could be augmented if significant off-label use for pain is realized. In addition, MS patients with mild PBA but also pain might be tipped into a treated category in cases where the treating physician is aware of the pain data. Either further positive data for pain or significant off-label use for pain could dramatically increase Avanir’s value.

6. "Other emotional outbursts" indication and off label use: Pursuit of Nuedexta for use in other types of emotional outbursts has not been substantively discussed by Avanir but it is clearly on their radar. Given the same underlying primary diseases as for PBA it may be difficult for insurers to limit off-label use for this purpose should significant efficacy be identified. As discussed above, this could prove to be a major contributor to dementia patient use as well as in TBI.

7. Xenerex: Avanir has a (currently shelved) research program in development of monoclonal antibodies. Funding resources from Nuedexta revenues and demonstrated success in an out-licensed anthrax antibody (currently in Phase I trials) might reawaken this program.

Part II Conclusion:

We see AVNR as undervalued for its remarkable long term prospects.

Source: Avanir Pharmaceuticals: Uncovering Nuedexta's Potential Part II