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Avanir Pharmaceuticals, Inc. (NASDAQ:AVNR)

UBS Global Life Sciences Conference Call

September 20, 2012, 11:30 am ET

Executives

Randall Kaye - SVP, Medical Affairs & CMO

Analysts

Unidentified Analyst

And thank you for coming to the 2012 UBS Global Life Sciences Conference. My name is [Natalia Medina] and I am happy to be your host for this session. Our next presenter will be Randall Kaye, Chief Medical Officer from Avanir Pharmaceuticals. A breakout session in [Julliard], which is one floor below, will follow immediately after the presentation. Thank you.

Randall Kaye

Thank you and good morning everyone. Before I get started, I would like to call your attention to our forward-looking statement and encourage you to look at our publicly available documents. I am Chief Medical Officer at Avanir; I joined the company in early 2006 and enjoying to build a special type of organization. Over the last six or seven years, we have dramatically changed as a company by focusing and becoming a specialty biopharmaceutical company focusing on CNS therapeutics.

Our first and only in class therapeutic NUEDEXTA for pseudobulbar affect was approved about a year and a half ago. This provides a very large market opportunity with high unmet medical need, so I’ll spend some time talking about that over the course of the discussion today and what sets this compound apart is its dual mechanism of action working through NMDA, as well as sigma-1. This sets up some very interesting follow on potential indications ranging from central neuropathic pain and multiple sclerosis, agitation in Alzheimer’s disease and diabetic peripheral neuropathic pain. Overall, as an organization, we were growing revenue line of a strong balance sheet and importantly global rights to NUEDEXTA. So I will spend some time also talking about European opportunities to NUEDEXTA with a recent response to EMA for a 120-day filing.

Let me begin with an overview of NUEDEXTA as a first and only FDA approved therapy for pseudobulbar affect. NUEDEXTA is an interesting and innovative combination of two well known compounds dextromethorphan as well as quinidine. What makes it novel is the approach is relatively simplistic in its design of utilizing quinidine, a known metabolic inhibitor to dramatically change the bioavailability of dextromethorphan.

When you look at the pharmacokinetics of dextromethorphan on the right hand part of the screen with no quinidine on-board patients readily metabolize dextromethorphan with no appreciable amounts on better bioavailable with a small amount of quinidine added in this case 10 milligrams; it’s about 1% to 3% of the typical antiarrhythmic dose dramatic increases in bioavailability. What that does with this simple technique is unlocks the potential capabilities of dextromethorphan in terms of its interactions with some of the key receptors.

And while we don’t have a complete understanding yet of the exact mechanism by which NUEDEXTA exerts its therapeutic effects, what we do know is that it has the ability to modulate glutamate in a variety of different ways. NUEDEXTA acts on a sigma-1 receptor pre-synoptically by inhibiting glutamate at least impacts sigma-1 post-synoptically at a receptor level by modulating the response of the NMDA receptor.

And then thirdly, NUEDEXTA interacts with the NMDA receptor by blocking the receptor from having any interaction. So these three hits at modulating glutamate have the ability of opening up a variety of different therapeutic options that can be studied for NUEDEXTA.

On this slide you see a list of the potential utility in a lot of different areas of potential research ranging from pseudobulbar affects, agitation, neuropathic pain as you go around the horn and looking at some other areas of movement disorders and chorea depression, autism memory and cognition; all of these being areas in which modulation of glutamate or an impact on sigma-1 or NMDA have an impetus potential therapeutic modalities.

These open up some significant market opportunities with some slight but important differences and pseudobulbar affect first indication for NUEDEXTA large potential market place with nearly 2 million patients in the United States alone; some potential of in excess of $1 billion in revenue and stage development obviously approved. This is a new market; this is a therapeutic area while PBA has been described in a literature for literally 100 years, there has been no potential treatment option. So I can tell you as a prescribing physician, this open up an interesting opportunity because most prescribing physicians were not in the habit of treating PBA, patients of PBA would present and by and large it would be managed pharmacologically. So I’ll spend some time giving you a little more of an overview of what’s occurring in that area as well.

The other two areas agitation in Alzheimer’s disease central neuropathic pain in MS, these are established markets and as established path forward potentially in how these compounds are developed and there is current utilization in these broad areas. In agitation in Alzheimer’s disease there is common use of off label for the typical antipsychotics, a lot of that is starting to change with the impact in the long-term care environment by CNS and hundreds of Medicaid in terms of reducing the utilization of antipsychotics in that areas. So this opens up within the established market place an opportunity to meet the high unmet medical need in central neuropathic pain conditions such as in patients with amasses that are in established market place probably still having a significant unmet medical need with no medications currently approved in that area.

So we’ll spend some time talking through pseudobulbar affects and give you little of an overview. Clinically, these patients present in a very unusual manner and which these patients have involuntary emotional outburst is a hallmarked by crying and laughing episodes; what’s unusual about these episodes is that they are incongruent or exaggerated, two patients in a mood. And having had the ability of talking, but the number of patients that are living with pseudobulbar affect and they hallmark a very interesting disconnect, when they complete having a crying episode and you ask them how are you feeling inside, they talk about being frustrated or angry or embarrassed, they don’t say that their mood was consistent with what they were expressing, they find that incredibly frustrating.

These episodes usually occur several times per day; in our clinical trials on average five to seven episodes a day, 30 to 40 per week, which makes them most challenging is the involuntary nature. I can’t predict when it’s going to happen by and large and they come on suddenly, so it can be a real challenge either in the workplace for patients or alternatively in just different social interactions such as going to the mall or going to church.

These episodes last seconds to minutes, but they are not brief, it’s not a second or two. The typical episodes will continue for nearly 45 seconds and some will go on for several minutes. So you can imagine in almost any venue someone is in a movie theatre a quick laugh would not be too distracting and disturbing, but these patients have these episodes that continue for the course of around a minute. They are severe because significant impairment in patients and one of the significant challenges of these patients is that they are superimposed upon another underlying neurologic condition. So in addition to suffering from an inability to control their emotional outburst, underlying they also have either Alzheimer’s disease or ALS or MS or traumatic brain injuries, stroke or Parkinson’s disease and we estimate there are approximately 1.8 million patients with moderate to severe PBA in the Unites States alone.

When I talked a little bit about what the challenges might be for these patients; in very recent journal advances in therapy, a recent article that was just published about a week ago really touches upon the challenges that these patients have and this is done through a series of (inaudible) where there was a survey to look at the impact of PBA superimposed upon these patients underlying their logic conditions.

So even, so correcting for their underlying conditions, correcting for the variability of the severity of patients underlying neurologic conditions, patients with PBA had significant impact in the general health status, their quality of life, their quality of relationships, their social and occupational function. This is very, very important information for the prescribing physician, because it gives them a context to consider as patients are coming in with these underlying neurologic conditions given the significant burden, their index of suspicion to ask questions specifically about PBA should rise.

Let’s spend a little time on an overview in terms of what we've seen with NUEDEXTA. This reflects the pivotal data that we learned with NUEDEXTA and what's dramatic about this information is typically when you study products in CNS and in neurology space, it's hard to know whether there is really an impact. You think about studies in depression as an example or even in cognition and patients with dementia, it's hard to know what point patients are having a significant positive or favorable impact.

In NUEDEXTA, this has been a very fine and interesting compound to study, because efficacy is incredibly clear and you can see on the lower portion of this graph, efficacy is fast onset of action and statistically significant within the first week. That improvement continues over the course of four or five weeks and there is great stability, so no decrement in improvement of symptoms over an entire 12 week course. What we’ve seen clinically as this medication has been on the market is physicians report back this exact type of experience; Patients are telling me within a very short period of time that they’re feeling better that they are having less episodes.

The ultimate promise of NUEDEXTA at a patient level was they are focusing on is even one episode per day is going to have a significant impact on me and what I am trying to do. So as a grandparent, if I have an episode in front of my grandchild at any point in time, even one episode is bad. So if we look closely at data in terms of omission; no episodes during the last two weeks of the study; 50% of patients had complete remission, no episodes by the end of the study versus less than a third on placebo. This is the type of information that physicians find compelling to communicate to their physicians because they provides a meaningful benefit and one that can be clearly communicated.

In an overview of our commercial strategies, a predominant focus since launch has been increasing PBA diagnosis and treatment. And as I mentioned earlier, even though PBA has been described for quite some time, the index of suspicion for PBA for most physicians is relatively low and it’s not until you actually have a medication that’s available to treat it, that would really make you want to talk about it with your patients in the first place.

So it worked towards expanding physician adoption of NEUDEXTA, maximizing patient access, making it available and also more recently motivating patients to request NEUDEXTA of their physicians to talk to their physicians about PBA and about treatment options.

We have a targeted specialty field force that focuses on neurology, psychiatry and the institutional area, I will talk through that a little bit more with 126 sales representatives and our commercial initiatives are broad in terms of a PBA awareness campaign, a NEUDEXTA branded campaign.

We of course provide product samples at a physician office level; physician speaker bureaus with key opinion leaders in these areas go out and speak with physicians to educate them on identifying patients with pseudobulbar affect, diagnosing these patients and then ultimately treating them.

We have a strong presence at the key medical conferences at these targeted physicians attend and also patient access initiatives to ensure that once a physician has made that decision to treat a patient that they can get access to NUEDEXTA.

We spend a little bit of time talking about our successful launch today. Our launch began in our second fiscal quarter of 2011. So we are now sitting at five full quarters on post launch, there is a strong quarter-over-quarter growth. If you compare quarter three over quarter two or quarter two over quarter one ranging from the growth rates of 35% to 37%. If you look on the right hand portion of the stream the top line, looks at total prescriptions.

We’ve reached a very exciting milestone as a company in August with over 10,000 total prescriptions dispensed. And what that translates to is an overall run rate of growth sales of approximately $65 million.

On the bottom portion of the graph, you’ve seen the sales in the institutional area in long-term care. We believe that the addition of our focus in institutions in long-term care which started in the first quarter of fiscal year 2012 opens up to tremendous opportunity for between 100,000 and 300,000 potential patients who are living with PBA.

We are recently worked towards expanding this group of sale representatives to 55. Many of them are in the midst of training now right as we've speak; expect them to be fully deployed in the last calendar quarter of this year and then to start to have an impact towards the later part of this year.

I can see that the institutional prescription volume now appears to account for over 50% of sales. So what’s [started] to us a little over a year ago as a pilot, as an experiment because we observed that there are more or lot of patients in this area and we were seeing some pockets of prescribing has turned into a significant initiative as a company.

And then finally, it’s important to ensure that as physicians are prescribing NUEDEXTA, the patients actually get access to it. So we have the strong managed markets groups that has ensured unrestricted Tier 2 and Tier 3 access and approximately 70% of covered lives in the US. Let’s spend just a few minutes talking about our commercial capabilities in the institutional setting. We built a long-term care field force that rivals other companies in terms of our presence and our size and our overall capabilities, on the right just benchmarking institutional field force size; we are a little bit higher than the medium size of long-term care field forces.

We deployed this group in all of the major metropolitan areas. Our current coverage and is in over 50% of institutional beds and this provides an overall sales effort on 70 full time equivalents. So we have our institutional field force who is focusing of the 100% of their time in long-term care plus, 20% of our retail field force spends time within institutions.

There are a variety of different (inaudible) points not to ensure that we understand the right amount of time with all the different influences within long-term care. So I would like to spend a few moments talking about development of AVP-923, we have talked about the utility across a variety of different areas and spent significant amount of time with our current focus on PBA agitation as well as neuropathic pain.

Just to give you some highlights of where we stand from a clinical development standpoint. We use previous data exploratory analysis, observations to help us decide where to go next with our compound.

We have a significant rationale for moving into agitation in patients with Alzheimer’s disease because we observed in previous studies that fewer PBA patients in our treatment groups had moderate to severe agitation at the end of the study.

This data looks at patients in both our 3010 and 2010 group that had a significant difference from those patients who were treated with placebo. So we’ve recently announced a phase II trial looking at the symptoms of agitations in patients with Alzheimer’s disease.

We just recently enrolled our first patient by about eight sites that are actively recruiting and are ready to engage patients in the study and as a phase II trial, we are looking at a variety of different end points the hallmarks being the neuropsyc inventory that focuses on agitation and irritability and disinhibition but also looks at exploratory end points that can provide us additional information of where to explore further for AVP-923.

The second major area is in central neuropathic pain in patients with MS. Again a strong rationale for starting this program based on our own internal capabilities being strategically aligned with our organization. You know that 30% of patients with MS suffer from central neuropathic pain, currently approved therapies and again on the left hand part of the screen, the rationale based on previous studies that patients who have been in our trials and exploratory analysis seem to have an improvement in pain who have moderate to severe pain at base line.

So we have designed a clinical trial to look at three points are 20/10, 30/10 and 45/10 formulations primary end point being a very standard scale that’s utilized in neuropathic pain studies which is a pain rating scale and again being [LTU] secondary end points to explore some other findings in these areas. The study is actively enrolling both clinical trials we are expecting to see data towards the second half of next year.

Quickly, I will just mention unique approach that we've taken to expanding the sigma-1 and NMDA receptor franchise and that’s looking closely at dextromethorphan and modifications that could be made. The approach that we’ve taken so far is to add quinidine to maintain high levels of dextromethorphan, an alternative approach which we have just licensed in the compound is deuterating dextromethorphan and two of the physicians.

So what that could potentially do, is the same thing quinidine is doing is potentially changing the profile of dextromethorphan, making it very difficult to metabolize. So our pre-work that’s being done, looking at on this compound on the left part of the screen, this shows that, in terms of some pre-clinical work on human super (inaudible) that there is significant inhibition of metabolism of the compound relative to dextromethorphan alone but then what's important is you made a modification in the compound. Does it still work? It’s still bind with sigma-1 and NMDA.

We found that it's binding virtually identically to dextromethorphan. So our next step is to move forward and initiate a PK study by the end of this year and we're anticipating by early next year in the first quarter, calendar quarter of 2013 to start to look at data and see how this compound can be layered into our full clinical development program.

On intellectual property and financial front, we have a series of patents that provide the right level of protection for AVP-923. The first patent with patent expiration date of 2016 has a variety of additional layers that have been placed upon, very excited that last month we announced an additional patent listing that extends the life of NEUDEXTA to 2023 and some additional works in some previous studies our patent 282 that also provides protection through 2026.

Also in Europe as we start to move forward in securing approval in Europe patent protection through 2023. And in addition to that, I had just mentioned that deuterated dextromethorphan component this provides an additional development strategy to protect the sigma-1 and NMDA receptor franchise to get other drugs into development that have longer pattern opportunities for us.

In terms of financial summary, our cash position is strong with $84.1 million in cash and cash equivalents. Our last announced net revenues for last quarter of NEUDEXTA were $10.1 million and I will remind you that at the current run rate based on 10,000 prescriptions last month, gross run rate of approximately $65 million.

We are being conservative in our spent on both the SG&A and R&D front but we also want to be opportunistic and grow our franchise. So we are making sure that we are investing appropriately with our SG&A dollars predominantly focused on in expansion of our field force and that we are being wise with how we are spending in our R&D dollars so that this also can drive us forward in terms of new potential uses and believe that PBA is an important indication for NUEDEXTA, that is the tip of the iceberg and there are lot more opportunities for this compound.

So in summary, here our upcoming deliverables and catalysts for the remainder of this year and moving into the next calendar year predominately focused on building PBA market and continuing into grow NUEDEXTA sales.

We will focus on the institutional opportunity here and direct the patient to advertising to bring patients in to talk to their healthcare professionals about PBA and treatment options, make sure that there is increased reimbursement coverages across the country.

Our clinical trials enrolled our first patient, our agitation study and we look towards enrolling our first patient in the deuterated DMPK study. And then getting our last patient into our prime study and overall from a corporate standpoint I mentioned earlier, more looking towards a CHMP European opinion in the early part of 2013 calendar year.

We've completed our 120 day questions and look forward to continue dialogue with EMA and along those lines we will continue to look at European partnering and collaborations.

So with that, end of discussions. Thanks for you attention today.

Question-and-Answer Session

[No Q&A session for this event]

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