Avanir Pharmaceuticals, Inc. (NASDAQ:AVNR) Bank of America Merrill Lynch Health Care Conference May 17, 2012 1:00 PM ET
Keith Katkin - CEO
Greg Flesher - CBO
(inaudible) one of the biotech analysts here at Bank of America Merrill Lynch. It's my pleasure to introduce Avanir Pharmaceuticals who's got Keith Katkin, CEO to give us the latest presentation.
Thanks Rachel and good morning everyone. Thank you for joining us for the Avanir corporate presentation. I'm joined here today with Dr. Ian Clements, our Head of Investor Relations and Greg Flesher, our Chief Business Officer. I'd like to start with our forward looking statement as I will be making statements that are forward looking in nature. We encourage everyone to look at our publicly available documents either on the Avanir website or on the SEC's website.
Avanir is a specialty biopharmaceutical company focused on CNS therapies and our lead product, NUEDEXTA launched a little over a year ago and has met with very nice market acceptance and growth over the past year as the first and only FDA approved product for the treatment of pseudobulbar affect or PBA. Pseudobulbar affect is a very large market with a high unmet medical need and now that we have a marketed product we start to look to develop NUEDEXTA for other potential indications and if you look at NUEDEXTA from a mechanistic perspective, it is an NMDA receptor antagonist and a sigma-1 agonist and because of that mechanism there is a potential for numerous follow on indications, some of which are listed here on this slide and currently are soon to be under developed by Avanir.
First is Central Neuropathic Pain in Multiple Sclerosis, second Behavioral Disturbances in Alzheimer's disease, specifically agitation, and then also Diabetic Peripheral Neuropathic Pain. From a corporate perspective we've got a growing revenue line, a strong balance and also we've retained global rights to NUEDEXTA and are currently in discussions with the EMA for approval of NUEDEXTA in Europe.
Taking a quick look at our pipeline, you can see NUEDEXTA approved for the treatment of pseudobulbar affect and then NUEDEXTA, when it's in the clinic, we refer to it as AVP923. You can see our Central Neuropathic Pain in Multiple Sclerosis study which is currently enrolling and in Phase II. Behavioral Disturbances in Alzheimer's study, we're getting ready to file that IND and then we'll initiate a Phase II study by the end of the third quarter. So by the end of September we expect to start enrolling patients in that study.
And then finally a Diabetic Peripheral Neuropathic Pain study, this is a successful program which had that positive Phase III data a number of years ago. We put that program on hold pending the outcome of the Central Neuropathic Pain in Multiple Sclerosis study. And then finally, recently we in-licensed deuterated dextromethorphan and deuterated dextromethorphan is at currently a pre-clinical state but we plan on getting that into humans by the end of this calendar year.
So now I'd like to spend a few minutes on NUEDEXTA which is an innovative combination of dextromethorphan and quinidine and as I mentioned at the onset NUEDEXTA is a known NMDA receptor antagonist and sigma-1 agonist. So this is a fairly well known and understood mechanism and there also are some approved products out there. You may be familiar with pours (ph) product, Namenda or Memantine just doing over $1 billion a year in sales. Mementine's mechanism of action is similar. So it's just a NMDA receptor antagonist. So here we have the receptor, you can see NMDA on the bottom, put synaptically there. What NUEDEXTA does that's different is it works on both sigma-1 and NMDA and sigma-1 working both pre and post synaptically. So given this mechanism we think that there are a number of potential indications for NUEDEXTA.
Some of those indications are listed here on this page and as I mentioned at the onset many of them we're currently investigating with the approval of PBA. We're currently enrolling the Neuropathic Pain study. Soon we'll enroll the Behavioral Disturbances in Alzheimer's study but when you look at NMDA and sigma-1, there is potential in Korea, (inaudible) depression, autism and also sigma-1 is believed to play an important role in memory and cognition. So a number of areas that we can explore the therapeutic utility of NUEDEXTA or deuterated dextromethorphan over time.
So as I mentioned, NUEDEXTA is a combination of dextromethorphan and quinidine and dextromethorphan when taken by itself is rapidly metabolized by the human body and you can see that in the chart here down below, that’s 45 milligrams of dextromethorphan and you get very little dextromethorphan in the plasma at steady state. So the addition of just 10 milligrams of quinidine, what we do is we dramatically increase the bioavailability of dextromethorphan and significantly raise the levels of dextromethorphan in the plasma and that’s demonstrated in the line at the top there and you can see a many folds higher amount of dextromethorphan available in the plasma. This allows dextromethorphan to pass the blood brain barrier and confer therapeutic benefits in PBA and as I mentioned we think many other potential indications as well.
So PBA is something that not many people are familiar with unless you have family or friends that have suffered from some type of neurologic disease or injury. So if PBA must occur secondary to neurologic disease or injury. This includes Alzheimer's disease, ALS or Lou Gehrig's disease, multiple sclerosis, Parkinson's disease, stroke or traumatic brain injury and the hallmarks of PBA are uncontrolled episodes of laughing and/or crying.
So you could imagine, you've been diagnosed with a significant neurologic condition and now in addition to the burden of dealing with multiple sclerosis you're having these uncontrolled emotional outbursts on them on a daily basis. To give you a sense, in our Phase III clinical studies the average patient was having between 40 and 50 episodes per week, 40 to 50 episodes per week, five to seven episodes per day. So you can imagine the significant incremental impartment that PBA causes above and beyond the neurologic disease or injuries that these patients have suffered and we can see that here on this slide, which talks about the burden of PBA and what is this looking at the SS-36 Mental Health Summary Scales and what we did in this market research is we gave the SS-36 approximately 1,000 patients, half of which had PBA and half of which did not have PBA.
So these patients who have some type of neurologic disease or injury. The only difference between the two groups is the absence or presence of PBA and what we can see here is that across all four subscales of the SS-36 mental health scale, that there is a statistically significantly worse quality of life for these patients that have PBA and what's quite remarkable is that roughly three points is considered to be clinically meaningful, you can see differences there up to 10, 15 points. So clearly the incremental burden of PBA is causing for these patients as illustrated here in this research study.
Now turning to NUEDEXTA and some of the Phase III data that support of the approval of NUEDEXTA, first, here we have the impact of NUEDEXTA on episode counts and the primary end point in our Phase III study was looking at the number of episodes. As I mentioned before the average patient was having 40 to 50 episodes per week and here you can see the percent reduction in the number of episodes. You have NUEDEXTA and the dark blue line down below and what you can notice here is a very rapid and sustained response of NUEDEXTA, which is somewhat atypical for products that work in the CNS. You can see that by week two there is a 60% reduction on average in the number of episodes that these patients were experiencing and that increased to an 80% reduction by week five and then was maintained all the way through week 12. So very significant reduction in episodes for these patients suffering from PBA.
However for some patients, one episode is too much. If you are a stroke survivor and you're trying to hold down a job as a real estate agent let's say, you can't have an uncontrolled emotional episode while you're showing a house. So one of the pre-specified end points that we looked at was patients that had remission and we defined remission as no episodes during the last two weeks of the study and here you can see the NUEDEXTA treated patients, 51% of them, more than half of the patients had no episodes during the last two weeks of the study. So again going from 50 episodes per week to no episodes during the last two weeks of the study, it's going to be very powerful message that our field sales force that uses with physicians out there right now.
Now I'd like to spend a few minutes talking about NUEDEXTA commercialization and the main focus for everyone tends to be prescription data. So I thought I'd start with prescription data and here you can see our IMS prescription data by month going back to our product launch which occurred in February of last year and you can see we continue to see very nice month over month growth. Looking at February growth over January, approximately 16% month over month growth in February over January and looking at March, of which numbers were just reported yesterday, approximately 11% growth.
So we continue to see very nice growth and starting there in February 2, you can see somewhat of a change in the top of the line as we believe that more and more physicians continue to use NUEDEXTA and continue to see the benefits of NUEDEXTA. Down below we've broken out the two different segments of our business separately, the first being the institutional business and the second being the retail business or office space business. And what you can see is we see nice growth in both segments of the business however you can see institutional business really growing at a much more rapid pace than the retail business and that's just the highly concentrated area that we can focus our resources which patients are there within these institutional facilities, PBA is widely recognized by the caregivers and NUEDEXTA offers a great solution for these patients.
If you a sense the growth of NUEDEXTA during the last quarter ending March in the institutional business it's approximately 57% versus the previous quarter and retail is up by 17% versus the previous quarter. So again nice growth in both the books of business, but particularly in the institutional side, which is where we continue to optimize and focus our efforts.
Turning now to NUEDEXTA commercialization strategies, we have four main strategies that have been driving NUEDEXTA's launch over the past year. First is expanding physician adoption of NUEDEXTA. Second is increasing the diagnosis and treatment of PBA. There hasn’t been a need for a differential diagnosis of PBA because it hasn’t been in the product approved for PBA previously. So now we're spending time with the patients, making sure they understand that differential diagnosis versus high polar versus depression and other potential diagnosis which could be confused with PBA.
Third we motivate patients to request NUEDEXTA. We've got a broad consumer campaign, a direct to patient campaign, a direct to patient campaign which has been rolled out a number of months back and then finally maximizing patient access to NUEDEXTA. Anytime a prescription is written we want to make sure the patient is successful in having that prescription filled and that his or her payer, pays for NUEDEXTA.
I'll dive into commanding physician adoption for a few minutes as it is one of our more important commercial objectives. As I mentioned we have two specialty field sales forces, one focused on retail or office space. We have approximately 71 sales representatives within that segment of the business. We have the sales force as our institutional sales force and we have 42 sales representatives that are focused on the institutional side of the business.
Our sales forces are targeting primarily neurologists, physiatrists and geriatricians and on the institutional side, there is also responsible for many of the medical directors that are responsible for these institutions. So what you'll find quite often is the medical director is responsible for a number of institutions, anywhere from 2 to 10 or more institutions. So by getting the medical director to buy in we can have effective broad utilization of NUEDEXTA in a number of different facilities.
As you saw earlier with the Phase III clinical data, NUEDEXTA works quite fast and lends itself very well therefore to sampling. So we've got a 10 day sample starter pack which is an important part of our business. It allows the patients to see and experience the benefit of NUEDEXTA before going to the pharmacy and having their first prescription sale. And then finally we have very active speakers for the program. NUEDEXTA lends itself very well to peer to peer selling. There is nothing more effective than a doctor who's had a very positive experience with NUEDEXTA and his or her patients talking to other doctors, sharing that experience and the benefits of NUEDEXTA. We believe that through all of these different efforts, that has been able to drive the sustained growth of NUEDEXTA over the past year and will also continue to drive NUEDEXTA growth going forward.
So now I'd like to change gears a little bit and talk about NUEDEXTA AVP-923 and the potential follow on indications. As I mentioned the first study is in pain, secondary to multiple sclerosis and once I have a little bit of data from our Phase III study in PBA and in that study we enrolled ALS and MS patients and we did look at pain as a secondary end point in the multiple sclerosis patients, and what you can see here in this chart is that for those patients that have moderate to severe pain, at baseline, NUEDEXTA has a very profound treatment effect over the 12 week study ending up with approximately 1 point differential versus placebo and despite the small number of patients in this subset analysis, about 25 patients per arm, the NUEDEXTA 30 pan dose formulation demonstrated a statistically significant benefit versus placebo.
So it's this data that really is a basis for the Central Neuropathic Pain in Multiple Sclerosis Phase II study and what we did is we essentially took the criteria that we used for this Phase III study and PBA, looking at pain and then rolled that over into our MS pain study and here you can see the study design. It will be a 12 week double blind study comparing three different doses of AVP 923 versus placebo, approximately 400 patients. So 100 patients per arm and we'll be dose escalating the dextromethorphan dose in each of the three arms as our previous data suggest that there is a definite dose response within the pain arena. So we want to get the dextromethorphan dose as high as possible in order to see the maximum pain reduction that we can with NUEDEXTA.
Primary end point will be the 11-point Likert Pain Rating Scale and then we'll also be looking at a number of secondary endpoints that are very important to the multiple sclerosis community. This includes fatigue, which is a well-known documented problem in multiple sclerosis patients, quality of life through the MS impact scale, sleep through the Pittsburgh Sleep Quality Index and cognition through the Neurophysiological Screen Questionnaire and finally specificity and depression and for all of these we've seen some level of proof of concept of AVP-923 either in previous clinical studies through its mechanism as an NMDA receptor antagonist and sigma-1 agonist where investigator studies that have been published. So we're hopeful that not only can we demonstrate a benefit on pain but also one of more of these secondary end points as well.
The second development program that's currently underway for AVP 923 now is in, Behavioral Disturbances in Alzheimer's and this is a program that we in this company are particularly excited about as there are no approved products right now for the treatment of agitation in Alzheimer's disease and as you can see here from this slide, agitation occurs very frequently in the patient population, shortly after their initial diagnosis of Alzheimer's and it's believed that upwards of 70% or more of Alzheimer's patients that have moderate to Alzheimer's suffer from agitation. So a very large market opportunity with over 5 million Alzheimer's sufferers here in the U.S.
And one thing that we did in order to really test the proof of concept for this study is we went back again to our Phase III study for the treatment of PBA and in that study we did have an agitation scale because we believe that NUEDEXTA would be effective not only on PBA and episodes of uncontrolled laughing or crying but we believe that these agitated outbursts were very similar from a mechanistic perspective as uncontrolled episodes of laughing occurring.
So we went back and we looked at the Neuropsych Inventory, the NPI an one of the sub skills of the NPI is agitation and what you can see here is a reduction in the number of patients that had minor to severe agitation at baseline.
So at the start of the study, they brought 13 patients per arm that had moderate to severe agitation split evenly amongst the two active arms and the placebo arm. What we did is we looked at the end of the study to see the number of patients that moderate to severe agitation and the results we think are quite remarkable, a very significant increase, a decrease in the number of AVP-923 treated patients that had moderate to severe agitation, roughly a 60% reduction in both treatment arms as compared to an increase in the number of patients that had moderate to severe agitation in the placebo arm.
So we believe very strong proof of concept to move into our Phase II study of AVP-923 in agitation, other disturbances in Alzheimer's disease. This study will be approximately a 10 week study, two arms. It will be the AVP-923 dose, the redactor dose of about 20 milligrams of dextromethorphan combined with 10 milligrams of quinidine and then we'll dose escalate to the 3010 dose formulation to look for incremental efficacy and that will be compared to placebo, approximately 200 patients in this study and then as I mentioned, the main efficacy endpoint will be agitation but we'll also be looking at the full NPI, the mini mental, MM, importantly the A-COG (ph) and the A-COG (ph) is a very well accepted cognitive scale in Alzheimer's and other NMDA receptor antagonists have been to demonstrate a benefit on in A-COG (ph) in studies as short as 10 to 12 weeks. So while we're not designing the study for an impact on A-COG (ph) it certainly would be a great finding if we impacted A-COG (ph) as well.
We plan on filing INB for this study by the end of this calendar quarter and then we expect to enroll the first patient by the end of the next calendar quarter. So first patient to be enrolled by the end of September and again we're excited about the potential of this study and the potential of NUEDEXTA to help patients with high unmet medical need, both in Central Neuropathic Pain in Multiple Sclerosis and also agitation in Alzheimer's.
I'm going to spend the last few minutes talking about deuterated dextromethorphan and our financial position. So deuterated dextromethorphan is a pre-clinical asset that we in-licensed just about two months ago and essentially the way deuterated dextromethorphan is, is we replace the hydrogen in the dextromethorphan compound with heavy hydrogen thereby we believe either reducing or eliminating the need for quinidine in the deuterated formulation.
Essentially what heavy hydrogen does, it performs we believe the same task as quinidine and block's the body's ability to metabolize or quickly metabolize dextromethorphan and what we've seen from NV (ph) data too is that deuterated dextromethorphan retains the same NMDA and sigma-1 activity as NUEDEXTA.
Now let's take a look at some of the data supporting those points. Here you can see in-vitro data on the top. You can see that as we had prophesized the deuterated compound in red should not be as rapidly metabolized as dextromethorphan and therefore we should be able to get higher amounts of dextromethorphan in the plasma with deuterated dextromethorphan and down below, taking out the receptor binding again a very similar receptor binding to dextromethorphan.
So we're very excited about the potential for this program and the many different directions that we can take it as a company. I believe it expands our sigma-1 and NMDA franchise, I've mentioned it's got a very similar mechanism of action but with either the potential for reduced quinidine or the ability to eliminate quinidine entirely from the combination, it is a new chemical entity, which means it has a composition of matter pattern issued that goes through 2030 and then would qualify for patent term extensions as well as its depending on how long it takes to bring the product to market and our goal for this program is to get PK data in early next day.
So we're going to put it in humans in the fourth quarter of this year, generating that PK data and then depending on the outcome of that PK data you could envision a scenario where we can seamlessly integrate deuterated dextromethorphan into our MS pain program, into our agitation and Alzheimer's program and as we continue to advance those clinical development programs, due to the deuterated dextromethorphan in place of NUEDEXTA in the remaining Phase III studies for those programs. So again very excited to have this compound in house and I'm looking forward to continuing to advance it.
And then wrapping up on our financial summary and our goals and objectives for the year, we have a very strong balance sheet. We ended last quarter, quarter ending March 31 with approximately $69 million in cash. At the same time we announced that we secured a term loan at very low cost of capital for $30 million. So on pro-forma basis its approximately $100 million on the balance sheet in total.
Our burn during the quarter was approximately $13 million. So while burn continues to come down on a quarter-over-quarter basis as we continue to grow NUEDEXTA revenues, reporting NUEDEXTA net revenues of $10 million in the quarter and total net NUEDEXTA revenues of $9.1 million. From an operating expense perspective, we plan on spending between $90 million and $92 million in expenses this year.
And then finally as we look at the remainder of 2012, like our goals and objectives for the company are quite clear. First and foremost we continue to build the PBA market and grow NUEDEXTA revenues. We've got a number of different areas that we're focused on making that happen and particularly within the institutional setting where we continue to see very nice growth. Continue to enroll our MS pain study and also get our Alzheimer Phase II study up and running and ensure that we get that first patient enrolled before the end of September.
I didn’t spend much time talking about our EMA application or application. This continues to progress well. We received 120 day questions from the EMA in March as expected. I characterize the questions as quite similar to the FDA's question during the FDA review process so the team is working on a responses right now. We expect that we could have a CHMP opinion issues early as the first quarter of next year.
And then finally I will continue to move deuterated dextromethorphan through preclinical stage scale up manufacturing and get the PK study underway before the end of this year. So with rapidly growing sales both for development programs we think that we have set Avanir upgrade nicely for a strong remainder of 2012 and then we will take a lot of momentum into 2013 with these clinical development programs.
So, thank you very much for your time and attention and I will turn it back over.
(Inaudible) questions I will definitely just read if you have any questions, I guess it sounds like you haven’t give sales guidance yet for NUEDEXTA and what you mean to see, you are seeing some nice growth there, at what point are you going to feel comfortable and yes give us a sense of that?
Yes it's a good question, a question we get quite frequently. We continue to evaluate the best time to give revenue guidance as we look at our business there are still a number of moving parts that are luckily moving quite well one of which is the institutional side of the business and when you think about the institutional side we are really only about six months into launch because we put the institutional sales force in place in the fourth quarter of last year, so given we are still in what we call that launch phase in the institutional side. We think it early to it's too early to issue any type of guidance but we will continue to access the right time to issue guidance.
And when you think about the business it sounds like you are doing a lot of investment for these other expanded indications, so how should we look to, do you have a profitability target or goal. Sounds like you are kind of showing up this law and order to continue to invest so how do we think about that?
Absolutely and the purpose of the loan that we just announced at the end of last quarter was really to insure that we not need to go back to the capital markets for any significantly diluted financings. So we believe that with the money from that loan and our current revenue growth rate and our focus on managing expenses that will not have to go back to the equity markets for any significant financings.
But presumably I don’t know if you should break out your R&D expenses but with the number of trials that you are kind of gearing up we should think about 2013 is a higher R&D level or is there a way to balance it out with expenses that you are doing.
Yes and we are certainly looking to balance it out. We haven’t given 2013 guidance, I think it's fair with in your comments to think that R&D will go up a little but not hugely, we built an in-house capability to help us run the studies, so the Alzheimer study for example we will be able to run much more comp effectively using our internal resources and really be able to keep that R&D budget in-line.
I believe you changed the way you recognize revenues. Can you talk about the rationale behind that and the other question I have is how do you go to market in Europe?
Two great questions, so revenue recognition, not the most exciting topic but a very confusing topic and so for if you look at gap revenue recognition requirements specifically for single product companies, you have to be able to prove if the sale has taken place and if there is no risk of return. So for many companies our size when they launch new products what companies have to do is they have to book their revenues using IMS sales or IMS prescription numbers, why is that because IMS shows the patient going to the pharmacy getting the prescription and therefore the right of return is no longer a possibility.
So for the first roughly a year of our launch we needed to use IMS prescriptions that are basis for recognizing revenue, essentially what that did is it build up a big deferred revenue line on the balance sheet and you can think about the deferred revenue is all of the NUEDEXTA that’s in the channel. Stock to the wholesalers or the stock at the pharmacies. Well what we found after years that we had very small amount of returns less than 1% worth of return and that we could very predict essentially what that return would like going forward based on our current growth and based upon the amount of product that’s in the channel. So based on that we felt comfortable switching to recognize the revenue as most pharmaceutical companies do which is ex-factory shipments of the amount of product that are shipped from our warehouse to wholesalers and that is how we will be recognizing revenue going forward.
The revenue recognition change this quarter did add approximately 1.7 million in deferred revenues in the NUEDEXTA revenue numbers. So the actual ex-factory shipments of NUEDEXTA net ex-factory shipments of NUEDEXTA were approximately 7.2 million when you add the 1.7 million of the deferred revenue then that takes it up to 9.1 million for the NUEDEXTA number. And then turning to Europe, for Europe we are really considering all possibilities for commercialization there. Everything from partnership to potentially doing it ourselves, on the partnership front we continue to have good dialogue with the number of companies with appealing about the partnership route is that because they have the expertise to launch within Europe but ideally could also contribute to the development programs that we talked about here and allow us to ideally start development programs in other potential areas that we think NUEDEXTA can benefit.
The other option too is doing regional partnerships where our partners companies that have presence in certain countries and do some type distribution agreement with them and then two, just in term of prudent planning always need to be prepared to move forward on yourself. So, we are doing the appropriate research and what we need to do to be prepared if that’s the option that we design.
And briefly the new indications you talked about how much advise you have gotten from regulators, there is something just that you are pulling out of your initial data and then you would give a regulator software.
Well certainly with the MSPAIN (ph) program we filed in IND which had the protocol with the FDA, we did get some comments from the FDA so we know that they read the IND. They suggested some changes and that was submitted the anesthesia division or the pain division as one would expect. We are taking that same approach with the Alzheimer’s IND, we are filing it with the psychiatric division and we know that agitation Alzheimer’s I am afraid important to them, so we are hopeful they will take the same amount of time as the anesthesia division review and provide comments to the Indian when filed,
Great we are out of time. Thanks so much.
Thank you everybody for joining us.
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