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Avanir Pharmaceuticals, Inc. (NASDAQ:AVNR)

Canaccord Genuity 32nd Annual Growth Conference Call

August 14, 2012 9:30 AM ET

Executives

Keith Katkin – President and CEO

Analysts

Ritu Baral – Canaccord Genuity

Ritu Baral

Good morning, everyone. Thanks for joining us. I'm Canaccord Genuity Senior Biotech Analyst, Ritu Baral, and thank you for joining us for the Avanir presentation. With us this morning to present is CEO, Keith Katkin.

As many of you know, Avanir has launched and is rolling out NUEDEXTA for pseudobulbar affect, a condition that affects many patients with neurodegenerative diseases such as stroke, traumatic brain injury and Alzheimer’s

Before we begin, I would just point you to the disclosures in your conference materials for the relationship between Canaccord on the banking front but without further ado, here's Keith.

Keith Katkin

Thanks, Ritu, and good morning, everyone. Thank you for joining us for the Avanir Incorporate presentation. I'd like to start with the forward-looking statement as I will be making statements that are forward-looking in nature. I would encourage everyone to look at our quarterly and annual filings available on either the SEC website or the Avanir website.

Avanir is a uniquely positioned specialty biopharmaceutical company focused on CNS therapies and I say uniquely positioned because we have accomplished arguably one of the more difficult aspects of a pharmaceutical company which is obtaining FDA approval of our lead product candidate, NUEDEXTA.

We obtained FDA approval late in 2010 as the first and only FDA-approved therapy for the treatment of pseudobulbar affect and subsequently launched NUEDEXTA in February, 2011.

We're approximately six quarters in the launch right now and the launch is going very well. Our last quarter for the quarter ending June 30th, we posted over $12 million in gross revenues for NUEDEXTA demonstrating that it is a large market opportunity with a high unmet medical need.

In addition, if you look at NUEDEXTA from a mechanistic perspective, NUEDEXTA is an NMDA receptor antagonist and sigma-1 agonist and what that means is it opens up NUEDEXTA for a number of potential follow-on indications.

You can see some of those indications listed here on the slide including central neuropathic pain in multiple sclerosis, agitation and other behavioral disturbances in Alzheimer’s Disease, and also with diabetic peripheral neuropathic pain.

Turning now to an overview of NUEDEXTA, NUEDEXTA is an innovative combination of dextromethorphan and quinidine, and dextromethorphan has been studied for decades for potential uses in a number of CNS-related disorders. The problem with dextromethorphan is its rapidly metabolized by the human body and you can see that here in this chart on the bottom dark blue line. That's 45 milligrams of dextromethorphan given by itself.

You can see the plasma of concentrations are very low and does not allow dextromethorphan to pass the blood-brain barrier. What we discovered is if you can block the body's ability to metabolize dextromethorphan with a very small amount of quinidine, a potent enzyme inhibitor, you can dramatically increase the amount of dextromethorphan in the plasma.

Here you can see just 20 milligrams of dextromethorphan combined with 10 milligrams of quinidine gives you a very large increase in the bio-availability of dextromethorphan, and that's the top line in light blue. That allows dextromethorphan to pass the blood-brain barrier and confer benefits that we've seen in PBA and also be potential benefits in a number of other indications that we're going to be studying.

So taking a look at mechanistically how NUEDEXTA works, you can see NUEDEXTA inhibits both sigma-1 and NMDA, inhibiting NMDA post-synoptically and inhibiting sigma-1 pre- and post-synoptically.

So if you look at the medical literature or if you look at some of the data that we've generated since NUEDEXTA has been approved, you can see that there's a number of potential indications for a sigma-1 agonist and an NMDA receptor antagonist. PBA, as I mentioned, we're FDA-approved for right now.

Talked about agitation and neuropathic pain but you can see a whole host of other potential indications including chorea, movement disorders, depression, autism, memory and for many of these programs, we actually have either investigator-initiated studies underway or we're working with advocacy groups to get funding to study NUEDEXTA in these areas.

As a company, we decided to focus on three of these areas initially; that's PBA, agitation in Alzheimer’s and neuropathic pain, and the reason that we focused on these areas is there's a tremendous market opportunity and it raised significant unmet medical need in these areas.

You can see on this slide, pseudobulbar affect we believe affects over 1.8 million Americans with a very significant market opportunity and has been approved by the FDA but we know that we have to develop that market and that's what we're doing right now with our commercial organization, developing the PBA market.

But turning to agitation in Alzheimer’s, many people don't recognize how large of an opportunity this is with over 5 million patients suffering from Alzheimer’s and a very high percentage of them suffering from agitation at some point during their disease, a very, very significant market opportunity.

Then finally when central neuropathic pain in multiple sclerosis – affects about 30% of the patients with multiple sclerosis, another very significant market opportunity with no approved therapies.

And to give you a sense for agitation in Alzheimer’s, I know that number looks like a very large number but I draw your attention to other NMDA receptor antagonists like Namenda which are approved for Alzheimer’s Disease which they're doing approximately $1.5 billion a year in annual revenue.

Turning now to an overview of pseudobulbar affect, many of you may not be familiar with pseudobulbar affect. It's a neurologic disorder that causes uncontrolled emotional outbursts that must occur secondary to underlying neurologic disease or injury as they develop a lesion in the brain.

That lesion causes a disconnect between the front and the back of the brain and what happens is these patients are no longer able to control their emotional expression. PBA manifests itself as uncontrolled episodes of laughing or crying. So you can imagine you've been diagnosed with ALS or you've just recently had a stroke.

You're trying to deal with the diagnosis or with the recovery and now you have this very significant added burden of these uncontrolled emotional outbursts, takes a very large toll on patients. It also takes a large toll on the family and caregivers, as well, and sometimes interferes with the rehabilitation.

To give you a sense of the number of episodes in our Phase 3 pivotal clinical study, patients were having between 40 and 50 episodes per week. So between six and seven episodes per day and you can imagine the incremental burden of those episodes on these patients.

As I mentioned before, there's approximately 1.8 million Americans that have PBA and if you consider there's roughly 20 million Americans that have some type of underlying neurologic disease or injury, that translates to approximately 10% of those patients that suffer from moderate to severe PBA.

Talking now about the burden of PBA, you can imagine that the addition of the uncontrolled emotional outbursts certainly have an impact on quality of life but here, we've been able to numerically capture it using the FF-36 and these show four different sub-domains of the FF-36 and compare patients that have an underlying neurologic disease or injury with those that have the same underlying neurologic disease but also have PBA.

So the only difference between the two groups is the absence or presence of PBA. Here you can see that across all four of the aspect of the FF-36. Patients that have PBA have a significantly worse quality of life.

Now I'd like to talk a little bit about the data supporting the FDA approval of NUEDEXTA for PBA. As I mentioned earlier in our Phase 3 study, patients were having between 40 and 50 episodes per week prior to starting on NUEDEXTA therapy and here you can see the reduction in those episodes over the 12-week study period in our Phase 3 clinical studies.

You can see NUEDEXTA down below with a very rapid and sustained response. By week two, episodes were reduced by approximately 60% increasing to an approximately 80% reduction in episodes by week five and then maintaining at that 80% reduction throughout the remainder of the clinical study, so quite a dramatic and robust benefit provided by NUEDEXTA.

In addition, one of the pre-specified endpoints that we had was remission and we defined remission as no episodes during the final two weeks of the clinical study. Here you can see that over half of the NUEDEXTA patients, 51% of patients had no episodes during the last two weeks.

So it's quite a strong message that our field sales team can walk into doctors' offices with and say, doctor, for those patients of yours that are having PBA episodes, after 12 weeks of NUEDEXTA therapy, over half of them were episode-free during the last two weeks. This is somewhat atypical for CNS therapies and one of the major selling points for NUEDEXTA in PBA.

So turning now to our launch and commercialization strategies, we have four main strategies that we've been executing since launching NUEDEXTA. First is increase the diagnosis and treatment of PBA. Second is expanding physician adoption of NUEDEXTA. Third is maximizing patient access and fourth is motivating patients to request NUEDEXTA.

In order to accomplish this, we have a targeted specialty sales force, approximately 126 sales representatives going into the fourth quarter of this year calling on neurologists, psychiatrists, and institutional physicians, primarily geriatricians that act as medical directors for many of these institutional patients.

You can see a whole host of additional activities including our NUEDEXTA branded campaign, which is pictured here on the slide; physicians, speakers, bureau and medical conference presentations and in addition, given the efficacy that you saw in the previous slides, this product really lends itself well to sampling. So doctors can give patients a 10-day sample supply and patients will be able to see if they have a benefit or not during that 10-day sample treatment.

Now since we're right now in our sixth quarter post-launch, we finished the quarter. June 30th was our fifth full quarter and here on this slide, you can see our prescription growth both total prescriptions in dark blue and also our institutional prescriptions in light blue. You can see that we've experienced very strong growth since launching back in February 2011.

For the last quarter ending June 30th, we had approximately 37% growth over the previous quarter and for the quarter before that, approximately 35% growth over the previous quarter. Looking at this quarter, so through August 3rd, the first five weeks of the third quarter, we continue to see very strong growth for NUEDEXTA.

Pill count is up approximately 20% this quarter despite the slowdown that many CNS products typically see during the summer months. So we think this bodes very well for the long-term success of NUEDEXTA.

In addition in the last calendar quarter, November of last year, we added an institutional sales team focused primarily on long-term care facilities. The reason we did that is this presents a very large opportunity for NUEDEXTA and also a very concentrated opportunity for NUEDEXTA.

When you consider there's approximately 1 million patients in the US that have some type of neurologic disease or injury that are institutionalized, you can imagine many of these suffer from PBA. They're also surrounded by healthcare practitioners all day long; nurses as well as doctors. So patients are very easily identified of having these uncontrolled emotional outbursts.

We believe that with approximately 100,000 patients suffering from moderate to severe PBA within the institutional setting, that represents a potential $600 million opportunity alone for NUEDEXTA and you can see on the slide that since we've instituted our institutional sales force, we've seen very nice growth in the institutional setting.

We started our institutional sales force with approximately 32 sales representatives and we recently announced that we're going to be increasing that to 55 sales representatives by the end of this calendar year and that's in addition to our 71-person sales team that are following on retail physicians. Reimbursement continues to go well with approximately 70% of covered lives having unrestricted Tier 2 or Tier 3 access in the US.

Now diving into the institutional setting in a little greater detail, we really think the institutional sales force that we have gives us a competitive advantage in the marketplace. Institutional sales forces are less and less common, so we have less competition for physician time and for staff time within these institutional settings. Plus, we offer a value proposition that no other product can offer in the institutional setting.

To give you a sense of the size, as I mentioned, we have 55 full-time sales representatives calling on institutions. In addition, our retail sales force spent about 20% of their time calling on institutions, as well.

So approximately 70 full-time equivalents calling on institutions and you can see how that stacks up to current institutional sales forces with a median size of about 30 sales representatives with a very large range of anywhere from about nine sales representatives calling on institutions up to about 120.

So we believe that with this sales force that we can call on about 60% of the patients that are in the institutional setting giving us a strong opportunity to differentiate NUEDEXTA and generate that significant sales of NUEDEXTA, as well.

So I'd like to switch gears and talk about the continued development of NEUDEXTA or as we call it when it's in clinical development, AVP 923. So at the onset, I talked about all of the potential indications that a sigma-1 antagonist and an MNDR receptor antagonist could potentially benefit and I also talked about the fact that we've really focused in on three areas

PBA, which we're approved for, agitation, and neuropathic pain.

So first starting off with agitation, we recently submitted our IND for agitation indication with the FDA and received approval to go ahead and move right into a Phase 2 clinical study. Now the IND was supported by the data that you see here in this slide, which was data that was generated in our Phase 3 studies for pseudobulbar affect.

And what we had in our Phase 3 studies for PBA was it's called the NPI, or the neuropsych inventory and this is a measure of behavioral disturbances and the impact of behavioral disturbances and patients with ALS and MS also do tend to have behavioral disturbances and this looks just at agitation.

And what you can see here on this slide is that at baseline, about 13 patients per treatment arm had agitation (audio gap) at the end of the study and you can see in both of the AVP 923 treatment arms we had a very dramatic reduction in the number of patients having moderate to severe agitation, approximately a 60% reduction and an increase in the number of patients suffering from these agitated episodes.

So this gives us very strong proof of concept moving into our Phase 2 study in agitation in Alzheimer’s patients. So that study, we plan on enrolling the first patient by the end of this calendar quarter, so by the end of September. It'll be a two arm study and it'll be AVP 923 starting at a dose of 20/10.

That's 20 milligrams of dextromethorphan combined with 10 milligrams of quinidine, our current FDA-approved dose, and the patients' dose will be escalated to 30 milligrams of dextromethorphan and 10 milligrams of quinidine. Approximately 200 patients, roughly 100 patients per arm and you can see a number of efficacy endpoints there, the primary endpoint being the agitation sub-scale of the MPI.

But also would draw your attention to some cognitive endpoints and given the clinical literature that's out there for MNDR receptor antagonists and the success of products like memotine, we're very interested to see the outcome of NUEDEXTA not only on agitation but also potential cognitive benefits in this population, as well.

Now switching to our study on central neuropathic pain in multiple sclerosis, as I mentioned, it affects approximately 30% of patients that have multiple sclerosis so with roughly 400,000 people in the US that suffer from MS, about 120,000 patients. Currently no FDA-approved therapies and it's very well-aligned with our current organization.

The slide here looks at, again, our Phase 3 data in PBA where we enrolled patients with multiple sclerosis and we had a pre-specified endpoint looking at patients with moderate to severe pain at baseline and the benefits of NUEDEXTA in those patients.

You can see around 25 patients per arm had moderate to severe pain at baseline and you can see the very nice reduction in pain scores given by the NUEDEXTA 30/10 dose separating from placebo as early as day 29 and then maintaining that statistical significance all the way through the end of the study at day 84 and then with approximately a one point difference between placebo, which is generally considered to be clinically meaningful in the pain space.

So that led us to our large Phase 2 program looking at AVP 923 for the treatment of central neuropathic pain in multiple sclerosis. This will be a 400-patient study, four arms, so 100 patients per arm testing three different doses of NUEDEXTA, the 20/10 dose, a 30/10 dose, and the 45/10 dose versus placebo.

We’re testing three doses so that we can evaluate potential dose response in this patient population. As our data suggests, the more dextromethorphan you can deliver in the plasma, the greater the reduction in pain that you will see.

Here we'll be looking at the 11-point (inaudible) pain rating scale as a primary endpoint and a number of secondary endpoints which are also very important to patients with multiple sclerosis.

This includes fatigue, the MS impact scale, which is a quality of life scale, sleep, the neuropsychological screening questionnaire which is a cognitive assessment, and then also depression and spasticity. If we were to show a benefit in any of those areas in addition to pain, it would be very meaningful for the MS population.

Then the final component of our development pipeline is (inaudible) dextromethorphan which we refer to as AVP 786. This is essentially a second-generation dextromethorphan and what (inaudible) dextromethorphan does – it's very similar to NUEDEXTA except we believe that we can essentially accomplish the same plasma levels with dextromethorphan with either reduced amounts of quinidine or no quinidine.

So how to make this happen? Well, if you take a look at dextromethorphan on the left and (inaudible) dextromethorphan on the right, essentially what we're doing is we're replacing the hydrogen with heavy hydrogen for deuterium.

And we're replacing the hydrogen with heavy hydrogen at the aspects where essentially the body breaks down dextromethorphan and by substituting deuterium for hydrogen, we believe that we will change the body's ability to metabolize dextromethorphan thereby essentially accomplishing the same thing that quinidine does with either less quinidine or no quinidine whatsoever.

So taking a look at AVP 786 in a little greater detail, we did license it from Concert Pharmaceuticals here in Boston. We've got very strong intellectual property covering AVP 786 with a composition of matters (ph) that expire in 2030 and importantly what you can see on the bottom are two main points.

One that in in vitro studies, (inaudible) dextromethorphan does do what we expect, which is it is slower to metabolize the (inaudible) dextromethorphan in the in vitro studies and then also the two smaller graphics demonstrate the receptor binding activity seems to be very similar to NUEDEXTA. So we believe that we're binding them the same way but we are stopping the body's ability to break down dextromethorphan with the (inaudible) compound.

Finally we'll wrap up with something about our intellectual property, financial summary, and then our goals and objectives. We do have a very strong patent portfolio protecting both NUEDEXTA and (inaudible) dextromethorphan. We have a number of patents that are listed in the FDA orange book for NUEDEXTA as well as a number of patents that are pending.

Additionally we've got strong patent protection in Europe and also believe it will qualify for a minimum of eight years data exclusivity in Europe and then (inaudible) dextromethorphan, as I mentioned, is covered by Composition of Matter Patents through 2030 and we'll certainly look to continue to expand the (inaudible) dextromethorphan patent folio in the upcoming years.

Taking a quick look at our financials ending the quarter June 30th with approximately $84 million in cash, as I mentioned, we had gross NUEDEXTA revenues in excess of $12 million, net NUEDEXTA revenues in excess of $10 million and operating expenses this year between $94 million and $96 million.

Finally as we look forward onto the remainder of 2012 going into 2013, I think our corporate objectives become very clear. The first is to continue to build the PBA market and grow NUEDEXTA sales as we have been doing since launching. This will involve an increased focus on our institutional opportunity.

Also continuing and enhancing our direct patient advertising campaigns and also looking to improve the remaining reimbursement coverage in areas that we don't have coverage that we would like and then moving onto our clinical study, obviously enrolling the first patient in our agitation study by the end of this quarter.

Conducting a (inaudible) dextromethorphan PK study which will start by the end of this year and we'll have data available early next year and then also looking to 2013, getting the last patient enrolled into our prime study, our MS pain study.

Finally from a corporate perspective, we haven't spent a lot of time talking about our European filing of NUEDEXTA but we did file NUEDEXTA in Europe. We are currently working on responses to our 120-day questions. I believe that will lead to a CMHP recommendation very early next year with EMA approval following about three months after the CMHP recommendation.

With that, thank you for joining us here today. I look forward to seeing you in the New York breakout room. Thanks very much.

Question-and-Answer Session

[No Q&A session for this event]

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Source: Avanir Pharmaceuticals' CEO Presents at Canaccord Genuity 32nd Annual Growth Conference (Transcript)
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